Some very exciting news is being made public. Adam Levine, editor-in-chief of Let’s Talk Bitcoin (LTB), interviewed Adam Back and Austin Hill for a new endeavor dubbed “blockchain 2.0” — I recommend everyone to listen to this interview.
Below is my write-up I did for LTB (note the copy on LTB is missing the footnotes which I have included below).
Blockchain 2.0 – Let a Thousand Chains Blossom
Adding on-chain utility and extensibility in a scalable way sums up the core ideas of the “2.0” next-generation cryptoledger space. This is a segment that has grown rapidly to include eight announced and funded projects, each vying to create new use-cases utilizing a trustless blockchain or in Ripple’s case, a consensus ledger.
And now we can add one more to the list, an unnamed entrant financed by Austin Hill and articulated by Adam Back. Hill is a well-established tech investor and in addition to other projects, spent almost $4 million in the ‘90s trying to develop and commercial electronic cash and anonymity systems through a company called Zero Knowledge Systems. Back, likewise, is a domain expert, creator of the Hashcash proof-of-work mechanism used with Bitcoin and all other SHA256d-based alt derivatives.
This past week, Adam Levine interviewed the two gentlemen and learned that Hill and Back have created a company that includes several Bitcoin core developers working on a project momentarily dubbed “Blockchain 2.0” (the actual name and website will be released soon).
Some backstory: at one point Back worked for about 4 years with Hill at Zero Knowledge Systems and while Hill was familiar with Bitcoin, it was not until Back approached Hill (who was in retirement) and explained the extensibility merits and use-cases that Hill began to take it seriously. Thereupon, they spent a week in a boardroom, mapping out the business plan and adopted the motto: “can’t be evil.” In, Hill’s words based on his previous experience with Zero Knowledge Systems, “We believe trust is not earned because we’re good guys but trust was based on the protocols, the whitepaper and cryptography – where we were not asking for trust.”
They then rented a home in California for a couple months earlier this year with several other core developers and looked at ways to add new extensions to the existing blockchain – build a company around it – all the while providing backward and forward compatibility with the Bitcoin blockchain. Again, this is not the “typical” alt because instead of creating another series of independent networks it will in will utilize merged mining and atomic transactions to extend the feature set via interoperable sidechains (more on that later).1
Why is this important? Because as Back noted, the pace of current development on the core protocol is purposefully slow to prevent bugs and vulnerabilities. And according to him these sidechains will allow experimental development to take place without impacting the main codebase, allowing the ecosystem to experience a faster pace of invention, scalability, faster transaction throughput, multi-asset issuance and even extensions to smart contract scripting.
How is this done? According to Back, last December he spoke on Let’s Talk Bitcoin with Andreas Antonopolous and mentioned a one-way peg system, however it turned out to have undesirable limitations.2 Greg Maxwell then proposed a two-way pegging method that enables Bitcoin to connect with a sidechain which is a mathematically-controlled peg between Bitcoin main and the other chain network.3 Thus, according to Hill there can be continuous deployment and interaction with sidechains optimized for multiple purposes – that multiple sidechains can compete on features such as having larger block sizes (up from 1MB), which while leads to increased centralization, provides higher transactions per second. And if users feel uncomfortable with the level of centralization, users can unilaterally move tokens from one chain back to Bitcoin main.
So in essence, while there are multiple chains no new bitcoins are created – that protecting the digital scarcity of the finite amount of tokens (ultimately 21 million) is a core point to this project. And that by linking chains they have set Bitcoin up as a “transactional currency for all the innovation and all new assets so you can potentially issue shares in a sidechain, that specializes in smart contracts shares, derivatives, user assets, ultimately backed by bitcoin, pegged to bitcoin,” explained Back.
Why not create start from the beginning, from a fresh slate like several other projects? According to Back, in his view artificial scarcity is “fairer if we use the existing scarcity rates.” And that he is not convinced that some other alts have a strong technical ground to build from as they “start a new scarcity race that creates an interoperability silo […] in order to get into to it you have to swap coins.” Thus, Back sees the extensibility as adding “direct support for issued assets, extended smart contracts, all while using Bitcoin itself as the transactional currency. We feel that is a neutral choice. It is not starting a new currency owned by one company, a project, small group of developers or early speculators.”
In addition, the company identifies itself as a “blockchain” technology company what this means in Hill’s view is:
We are a “blockchain 2.0” company, although I personally care for the success of Bitcoin, it is important to distinguish between bitcoin the asset and the blockchain as a programmable distributed trust infrastructure. And we are interested in blockchain 2.0 and blockchain 2.0 using bitcoin as a neutral transactional currency we believe is a great, offers great promise but I want to build a blockchain that could support a nation-state putting its national currency and phasing out paper dollars.
There are at least 84 uses of a cryptoledger and counting. And Hill’s team sees that bigger picture.
Go where the capital is
Over the past five years between $200 million to $1 billion worth of capital investments in computing hardware in the form of “mining” (or really, “hashing”) has been made, nearly all of which is largely underutilized.4 That is to say, the actual utility created over the past five years has been at the edges of the network in off-chain, trusted silos (or as Hill calls it “trust-me” silos). Yet as developmental economics describes – and Bitcoin is in some respects a developing economy – productively utilizing and efficiently reorganizing capital is a necessary condition for growth and continued development.5 The Bitcoin network has enormous amounts of capital, but with low usage rates. How to tap into that?
They contacted many of the large mining pools and will attempt to merge mine these new sidechains and thereupon utilize atomic-transactions (which is a proven process used in databases for decades) to move tokens between the chains.
While not necessarily endorsing their project, this is certainly one of the most productive uses of the hashrate deadweight. That is to say, irrespective of how hashrate is being centralized, it is being underutilized as it merely tracks one ledger entry representing one data point (which was intentional day 1). And while it is uncertain as to how the pool operators will react to these changes, if Namecoin is any indication, it is possible to provide new use-cases via sidechains, using the same hardware and thereby mitigating some of the bootstrapping risks of securing a proof-of-work-based network.6
Key takeaways based on the interview:
- Working with mining pools to discuss further utilization and expansion of merged mining
- Merged mining will create sidechains “firewalled” off from Bitcoin main
- Two-way pegging via atomic transactions will enable movement between sidechains
- Sidechains might not have blocks, will include transaction fees to incentivize miners
- Sidechains will be used for experimenting with expanding extensibility features including user-issued assets, smart contracts, HFT, and a plethora of financial instruments
- Team made up of several Bitcoin core developers in addition to other cryptographers and programmers
- Looking for practical use-cases of blockchain technology such as internal uses at enterprises and institutions, not solely related to bitcoin the cryptocurrency
- Launching website soon and some production code within the next 60-90 days
Also, while this type of project will likely be controversial in some corners due to the capital and time invested in alternative platforms, this project provides yet another competitive wrinkle in the ever growing “2.0” space. Thus, it will be interesting to see how they use these methods within a production environment to bring utility back to Bitcoin main.7
To learn more about the project, following Hill and Back on Twitter at @austinhill and @adam3us respectively.
- How does merged mining work? from StackExchange [↩]
- E77 – The Adam Back Interview from Let’s Talk Bitcoin [↩]
- The entire discussion dev thread [Bitcoin-development] is there a way to do bitcoin-staging? is a very interesting conversation and at the end Greg Maxwell discusses the potential behind two-way pegging. [↩]
- The lower limit is an estimate from Gil Luria at Wedbush Securities, see Following the Money: Trends in Bitcoin Venture Capital Investment by Garrick Hileman. [↩]
- See Total factor productivity [↩]
- What are Namecoins and .bit domains? from CoinDesk [↩]
- Coincidentally, last week I published a paper (PDF) outlining some of the limitations of Bitcoin from a “public goods” perspective; it was by happenstance that Hill and Back’s team independently have answers and solutions to many of these known challenges and hurdles detailed within. [↩]