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Why i’m bullish on Zilliqa (long read)

Edit: TL;DR added in the comments
 
Hey all, I've been researching coins since 2017 and have gone through 100s of them in the last 3 years. I got introduced to blockchain via Bitcoin of course, analyzed Ethereum thereafter and from that moment I have a keen interest in smart contact platforms. I’m passionate about Ethereum but I find Zilliqa to have a better risk-reward ratio. Especially because Zilliqa has found an elegant balance between being secure, decentralized and scalable in my opinion.
 
Below I post my analysis of why from all the coins I went through I’m most bullish on Zilliqa (yes I went through Tezos, EOS, NEO, VeChain, Harmony, Algorand, Cardano etc.). Note that this is not investment advice and although it's a thorough analysis there is obviously some bias involved. Looking forward to what you all think!
 
Fun fact: the name Zilliqa is a play on ‘silica’ silicon dioxide which means “Silicon for the high-throughput consensus computer.”
 
This post is divided into (i) Technology, (ii) Business & Partnerships, and (iii) Marketing & Community. I’ve tried to make the technology part readable for a broad audience. If you’ve ever tried understanding the inner workings of Bitcoin and Ethereum you should be able to grasp most parts. Otherwise, just skim through and once you are zoning out head to the next part.
 
Technology and some more:
 
Introduction
 
The technology is one of the main reasons why I’m so bullish on Zilliqa. First thing you see on their website is: “Zilliqa is a high-performance, high-security blockchain platform for enterprises and next-generation applications.” These are some bold statements.
 
Before we deep dive into the technology let’s take a step back in time first as they have quite the history. The initial research paper from which Zilliqa originated dates back to August 2016: Elastico: A Secure Sharding Protocol For Open Blockchains where Loi Luu (Kyber Network) is one of the co-authors. Other ideas that led to the development of what Zilliqa has become today are: Bitcoin-NG, collective signing CoSi, ByzCoin and Omniledger.
 
The technical white paper was made public in August 2017 and since then they have achieved everything stated in the white paper and also created their own open source intermediate level smart contract language called Scilla (functional programming language similar to OCaml) too.
 
Mainnet is live since the end of January 2019 with daily transaction rates growing continuously. About a week ago mainnet reached 5 million transactions, 500.000+ addresses in total along with 2400 nodes keeping the network decentralized and secure. Circulating supply is nearing 11 billion and currently only mining rewards are left. The maximum supply is 21 billion with annual inflation being 7.13% currently and will only decrease with time.
 
Zilliqa realized early on that the usage of public cryptocurrencies and smart contracts were increasing but decentralized, secure, and scalable alternatives were lacking in the crypto space. They proposed to apply sharding onto a public smart contract blockchain where the transaction rate increases almost linear with the increase in the amount of nodes. More nodes = higher transaction throughput and increased decentralization. Sharding comes in many forms and Zilliqa uses network-, transaction- and computational sharding. Network sharding opens up the possibility of using transaction- and computational sharding on top. Zilliqa does not use state sharding for now. We’ll come back to this later.
 
Before we continue dissecting how Zilliqa achieves such from a technological standpoint it’s good to keep in mind that a blockchain being decentralised and secure and scalable is still one of the main hurdles in allowing widespread usage of decentralised networks. In my opinion this needs to be solved first before blockchains can get to the point where they can create and add large scale value. So I invite you to read the next section to grasp the underlying fundamentals. Because after all these premises need to be true otherwise there isn’t a fundamental case to be bullish on Zilliqa, right?
 
Down the rabbit hole
 
How have they achieved this? Let’s define the basics first: key players on Zilliqa are the users and the miners. A user is anybody who uses the blockchain to transfer funds or run smart contracts. Miners are the (shard) nodes in the network who run the consensus protocol and get rewarded for their service in Zillings (ZIL). The mining network is divided into several smaller networks called shards, which is also referred to as ‘network sharding’. Miners subsequently are randomly assigned to a shard by another set of miners called DS (Directory Service) nodes. The regular shards process transactions and the outputs of these shards are eventually combined by the DS shard as they reach consensus on the final state. More on how these DS shards reach consensus (via pBFT) will be explained later on.
 
The Zilliqa network produces two types of blocks: DS blocks and Tx blocks. One DS Block consists of 100 Tx Blocks. And as previously mentioned there are two types of nodes concerned with reaching consensus: shard nodes and DS nodes. Becoming a shard node or DS node is being defined by the result of a PoW cycle (Ethash) at the beginning of the DS Block. All candidate mining nodes compete with each other and run the PoW (Proof-of-Work) cycle for 60 seconds and the submissions achieving the highest difficulty will be allowed on the network. And to put it in perspective: the average difficulty for one DS node is ~ 2 Th/s equaling 2.000.000 Mh/s or 55 thousand+ GeForce GTX 1070 / 8 GB GPUs at 35.4 Mh/s. Each DS Block 10 new DS nodes are allowed. And a shard node needs to provide around 8.53 GH/s currently (around 240 GTX 1070s). Dual mining ETH/ETC and ZIL is possible and can be done via mining software such as Phoenix and Claymore. There are pools and if you have large amounts of hashing power (Ethash) available you could mine solo.
 
The PoW cycle of 60 seconds is a peak performance and acts as an entry ticket to the network. The entry ticket is called a sybil resistance mechanism and makes it incredibly hard for adversaries to spawn lots of identities and manipulate the network with these identities. And after every 100 Tx Blocks which corresponds to roughly 1,5 hour this PoW process repeats. In between these 1,5 hour, no PoW needs to be done meaning Zilliqa’s energy consumption to keep the network secure is low. For more detailed information on how mining works click here.
Okay, hats off to you. You have made it this far. Before we go any deeper down the rabbit hole we first must understand why Zilliqa goes through all of the above technicalities and understand a bit more what a blockchain on a more fundamental level is. Because the core of Zilliqa’s consensus protocol relies on the usage of pBFT (practical Byzantine Fault Tolerance) we need to know more about state machines and their function. Navigate to Viewblock, a Zilliqa block explorer, and just come back to this article. We will use this site to navigate through a few concepts.
 
We have established that Zilliqa is a public and distributed blockchain. Meaning that everyone with an internet connection can send ZILs, trigger smart contracts, etc. and there is no central authority who fully controls the network. Zilliqa and other public and distributed blockchains (like Bitcoin and Ethereum) can also be defined as state machines.
 
Taking the liberty of paraphrasing examples and definitions given by Samuel Brooks’ medium article, he describes the definition of a blockchain (like Zilliqa) as: “A peer-to-peer, append-only datastore that uses consensus to synchronize cryptographically-secure data”.
 
Next, he states that: "blockchains are fundamentally systems for managing valid state transitions”. For some more context, I recommend reading the whole medium article to get a better grasp of the definitions and understanding of state machines. Nevertheless, let’s try to simplify and compile it into a single paragraph. Take traffic lights as an example: all its states (red, amber, and green) are predefined, all possible outcomes are known and it doesn’t matter if you encounter the traffic light today or tomorrow. It will still behave the same. Managing the states of a traffic light can be done by triggering a sensor on the road or pushing a button resulting in one traffic lights’ state going from green to red (via amber) and another light from red to green.
 
With public blockchains like Zilliqa, this isn’t so straightforward and simple. It started with block #1 almost 1,5 years ago and every 45 seconds or so a new block linked to the previous block is being added. Resulting in a chain of blocks with transactions in it that everyone can verify from block #1 to the current #647.000+ block. The state is ever changing and the states it can find itself in are infinite. And while the traffic light might work together in tandem with various other traffic lights, it’s rather insignificant comparing it to a public blockchain. Because Zilliqa consists of 2400 nodes who need to work together to achieve consensus on what the latest valid state is while some of these nodes may have latency or broadcast issues, drop offline or are deliberately trying to attack the network, etc.
 
Now go back to the Viewblock page take a look at the amount of transaction, addresses, block and DS height and then hit refresh. Obviously as expected you see new incremented values on one or all parameters. And how did the Zilliqa blockchain manage to transition from a previous valid state to the latest valid state? By using pBFT to reach consensus on the latest valid state.
 
After having obtained the entry ticket, miners execute pBFT to reach consensus on the ever-changing state of the blockchain. pBFT requires a series of network communication between nodes, and as such there is no GPU involved (but CPU). Resulting in the total energy consumed to keep the blockchain secure, decentralized and scalable being low.
 
pBFT stands for practical Byzantine Fault Tolerance and is an optimization on the Byzantine Fault Tolerant algorithm. To quote Blockonomi: “In the context of distributed systems, Byzantine Fault Tolerance is the ability of a distributed computer network to function as desired and correctly reach a sufficient consensus despite malicious components (nodes) of the system failing or propagating incorrect information to other peers.” Zilliqa is such a distributed computer network and depends on the honesty of the nodes (shard and DS) to reach consensus and to continuously update the state with the latest block. If pBFT is a new term for you I can highly recommend the Blockonomi article.
 
The idea of pBFT was introduced in 1999 - one of the authors even won a Turing award for it - and it is well researched and applied in various blockchains and distributed systems nowadays. If you want more advanced information than the Blockonomi link provides click here. And if you’re in between Blockonomi and the University of Singapore read the Zilliqa Design Story Part 2 dating from October 2017.
Quoting from the Zilliqa tech whitepaper: “pBFT relies upon a correct leader (which is randomly selected) to begin each phase and proceed when the sufficient majority exists. In case the leader is byzantine it can stall the entire consensus protocol. To address this challenge, pBFT offers a view change protocol to replace the byzantine leader with another one.”
 
pBFT can tolerate ⅓ of the nodes being dishonest (offline counts as Byzantine = dishonest) and the consensus protocol will function without stalling or hiccups. Once there are more than ⅓ of dishonest nodes but no more than ⅔ the network will be stalled and a view change will be triggered to elect a new DS leader. Only when more than ⅔ of the nodes are dishonest (66%) double-spend attacks become possible.
 
If the network stalls no transactions can be processed and one has to wait until a new honest leader has been elected. When the mainnet was just launched and in its early phases, view changes happened regularly. As of today the last stalling of the network - and view change being triggered - was at the end of October 2019.
 
Another benefit of using pBFT for consensus besides low energy is the immediate finality it provides. Once your transaction is included in a block and the block is added to the chain it’s done. Lastly, take a look at this article where three types of finality are being defined: probabilistic, absolute and economic finality. Zilliqa falls under the absolute finality (just like Tendermint for example). Although lengthy already we skipped through some of the inner workings from Zilliqa’s consensus: read the Zilliqa Design Story Part 3 and you will be close to having a complete picture on it. Enough about PoW, sybil resistance mechanism, pBFT, etc. Another thing we haven’t looked at yet is the amount of decentralization.
 
Decentralisation
 
Currently, there are four shards, each one of them consisting of 600 nodes. 1 shard with 600 so-called DS nodes (Directory Service - they need to achieve a higher difficulty than shard nodes) and 1800 shard nodes of which 250 are shard guards (centralized nodes controlled by the team). The amount of shard guards has been steadily declining from 1200 in January 2019 to 250 as of May 2020. On the Viewblock statistics, you can see that many of the nodes are being located in the US but those are only the (CPU parts of the) shard nodes who perform pBFT. There is no data from where the PoW sources are coming. And when the Zilliqa blockchain starts reaching its transaction capacity limit, a network upgrade needs to be executed to lift the current cap of maximum 2400 nodes to allow more nodes and formation of more shards which will allow to network to keep on scaling according to demand.
Besides shard nodes there are also seed nodes. The main role of seed nodes is to serve as direct access points (for end-users and clients) to the core Zilliqa network that validates transactions. Seed nodes consolidate transaction requests and forward these to the lookup nodes (another type of nodes) for distribution to the shards in the network. Seed nodes also maintain the entire transaction history and the global state of the blockchain which is needed to provide services such as block explorers. Seed nodes in the Zilliqa network are comparable to Infura on Ethereum.
 
The seed nodes were first only operated by Zilliqa themselves, exchanges and Viewblock. Operators of seed nodes like exchanges had no incentive to open them for the greater public. They were centralised at first. Decentralisation at the seed nodes level has been steadily rolled out since March 2020 ( Zilliqa Improvement Proposal 3 ). Currently the amount of seed nodes is being increased, they are public-facing and at the same time PoS is applied to incentivize seed node operators and make it possible for ZIL holders to stake and earn passive yields. Important distinction: seed nodes are not involved with consensus! That is still PoW as entry ticket and pBFT for the actual consensus.
 
5% of the block rewards are being assigned to seed nodes (from the beginning in 2019) and those are being used to pay out ZIL stakers. The 5% block rewards with an annual yield of 10.03% translate to roughly 610 MM ZILs in total that can be staked. Exchanges use the custodial variant of staking and wallets like Moonlet will use the non-custodial version (starting in Q3 2020). Staking is being done by sending ZILs to a smart contract created by Zilliqa and audited by Quantstamp.
 
With a high amount of DS; shard nodes and seed nodes becoming more decentralized too, Zilliqa qualifies for the label of decentralized in my opinion.
 
Smart contracts
 
Let me start by saying I’m not a developer and my programming skills are quite limited. So I‘m taking the ELI5 route (maybe 12) but if you are familiar with Javascript, Solidity or specifically OCaml please head straight to Scilla - read the docs to get a good initial grasp of how Zilliqa’s smart contract language Scilla works and if you ask yourself “why another programming language?” check this article. And if you want to play around with some sample contracts in an IDE click here. The faucet can be found here. And more information on architecture, dapp development and API can be found on the Developer Portal.
If you are more into listening and watching: check this recent webinar explaining Zilliqa and Scilla. Link is time-stamped so you’ll start right away with a platform introduction, roadmap 2020 and afterwards a proper Scilla introduction.
 
Generalized: programming languages can be divided into being ‘object-oriented’ or ‘functional’. Here is an ELI5 given by software development academy: * “all programs have two basic components, data – what the program knows – and behavior – what the program can do with that data. So object-oriented programming states that combining data and related behaviors in one place, is called “object”, which makes it easier to understand how a particular program works. On the other hand, functional programming argues that data and behavior are different things and should be separated to ensure their clarity.” *
 
Scilla is on the functional side and shares similarities with OCaml: OCaml is a general-purpose programming language with an emphasis on expressiveness and safety. It has an advanced type system that helps catch your mistakes without getting in your way. It's used in environments where a single mistake can cost millions and speed matters, is supported by an active community, and has a rich set of libraries and development tools. For all its power, OCaml is also pretty simple, which is one reason it's often used as a teaching language.
 
Scilla is blockchain agnostic, can be implemented onto other blockchains as well, is recognized by academics and won a so-called Distinguished Artifact Award award at the end of last year.
 
One of the reasons why the Zilliqa team decided to create their own programming language focused on preventing smart contract vulnerabilities is that adding logic on a blockchain, programming, means that you cannot afford to make mistakes. Otherwise, it could cost you. It’s all great and fun blockchains being immutable but updating your code because you found a bug isn’t the same as with a regular web application for example. And with smart contracts, it inherently involves cryptocurrencies in some form thus value.
 
Another difference with programming languages on a blockchain is gas. Every transaction you do on a smart contract platform like Zilliqa or Ethereum costs gas. With gas you basically pay for computational costs. Sending a ZIL from address A to address B costs 0.001 ZIL currently. Smart contracts are more complex, often involve various functions and require more gas (if gas is a new concept click here ).
 
So with Scilla, similar to Solidity, you need to make sure that “every function in your smart contract will run as expected without hitting gas limits. An improper resource analysis may lead to situations where funds may get stuck simply because a part of the smart contract code cannot be executed due to gas limits. Such constraints are not present in traditional software systems”. Scilla design story part 1
 
Some examples of smart contract issues you’d want to avoid are: leaking funds, ‘unexpected changes to critical state variables’ (example: someone other than you setting his or her address as the owner of the smart contract after creation) or simply killing a contract.
 
Scilla also allows for formal verification. Wikipedia to the rescue: In the context of hardware and software systems, formal verification is the act of proving or disproving the correctness of intended algorithms underlying a system with respect to a certain formal specification or property, using formal methods of mathematics.
 
Formal verification can be helpful in proving the correctness of systems such as: cryptographic protocols, combinational circuits, digital circuits with internal memory, and software expressed as source code.
 
Scilla is being developed hand-in-hand with formalization of its semantics and its embedding into the Coq proof assistant — a state-of-the art tool for mechanized proofs about properties of programs.”
 
Simply put, with Scilla and accompanying tooling developers can be mathematically sure and proof that the smart contract they’ve written does what he or she intends it to do.
 
Smart contract on a sharded environment and state sharding
 
There is one more topic I’d like to touch on: smart contract execution in a sharded environment (and what is the effect of state sharding). This is a complex topic. I’m not able to explain it any easier than what is posted here. But I will try to compress the post into something easy to digest.
 
Earlier on we have established that Zilliqa can process transactions in parallel due to network sharding. This is where the linear scalability comes from. We can define simple transactions: a transaction from address A to B (Category 1), a transaction where a user interacts with one smart contract (Category 2) and the most complex ones where triggering a transaction results in multiple smart contracts being involved (Category 3). The shards are able to process transactions on their own without interference of the other shards. With Category 1 transactions that is doable, with Category 2 transactions sometimes if that address is in the same shard as the smart contract but with Category 3 you definitely need communication between the shards. Solving that requires to make a set of communication rules the protocol needs to follow in order to process all transactions in a generalised fashion.
 
And this is where the downsides of state sharding comes in currently. All shards in Zilliqa have access to the complete state. Yes the state size (0.1 GB at the moment) grows and all of the nodes need to store it but it also means that they don’t need to shop around for information available on other shards. Requiring more communication and adding more complexity. Computer science knowledge and/or developer knowledge required links if you want to dig further: Scilla - language grammar Scilla - Foundations for Verifiable Decentralised Computations on a Blockchain Gas Accounting NUS x Zilliqa: Smart contract language workshop
 
Easier to follow links on programming Scilla https://learnscilla.com/home Ivan on Tech
 
Roadmap / Zilliqa 2.0
 
There is no strict defined roadmap but here are topics being worked on. And via the Zilliqa website there is also more information on the projects they are working on.
 
Business & Partnerships
 
It’s not only technology in which Zilliqa seems to be excelling as their ecosystem has been expanding and starting to grow rapidly. The project is on a mission to provide OpenFinance (OpFi) to the world and Singapore is the right place to be due to its progressive regulations and futuristic thinking. Singapore has taken a proactive approach towards cryptocurrencies by introducing the Payment Services Act 2019 (PS Act). Among other things, the PS Act will regulate intermediaries dealing with certain cryptocurrencies, with a particular focus on consumer protection and anti-money laundering. It will also provide a stable regulatory licensing and operating framework for cryptocurrency entities, effectively covering all crypto businesses and exchanges based in Singapore. According to PWC 82% of the surveyed executives in Singapore reported blockchain initiatives underway and 13% of them have already brought the initiatives live to the market. There is also an increasing list of organizations that are starting to provide digital payment services. Moreover, Singaporean blockchain developers Building Cities Beyond has recently created an innovation $15 million grant to encourage development on its ecosystem. This all suggests that Singapore tries to position itself as (one of) the leading blockchain hubs in the world.
 
Zilliqa seems to already take advantage of this and recently helped launch Hg Exchange on their platform, together with financial institutions PhillipCapital, PrimePartners and Fundnel. Hg Exchange, which is now approved by the Monetary Authority of Singapore (MAS), uses smart contracts to represent digital assets. Through Hg Exchange financial institutions worldwide can use Zilliqa's safe-by-design smart contracts to enable the trading of private equities. For example, think of companies such as Grab, Airbnb, SpaceX that are not available for public trading right now. Hg Exchange will allow investors to buy shares of private companies & unicorns and capture their value before an IPO. Anquan, the main company behind Zilliqa, has also recently announced that they became a partner and shareholder in TEN31 Bank, which is a fully regulated bank allowing for tokenization of assets and is aiming to bridge the gap between conventional banking and the blockchain world. If STOs, the tokenization of assets, and equity trading will continue to increase, then Zilliqa’s public blockchain would be the ideal candidate due to its strategic positioning, partnerships, regulatory compliance and the technology that is being built on top of it.
 
What is also very encouraging is their focus on banking the un(der)banked. They are launching a stablecoin basket starting with XSGD. As many of you know, stablecoins are currently mostly used for trading. However, Zilliqa is actively trying to broaden the use case of stablecoins. I recommend everybody to read this text that Amrit Kumar wrote (one of the co-founders). These stablecoins will be integrated in the traditional markets and bridge the gap between the crypto world and the traditional world. This could potentially revolutionize and legitimise the crypto space if retailers and companies will for example start to use stablecoins for payments or remittances, instead of it solely being used for trading.
 
Zilliqa also released their DeFi strategic roadmap (dating November 2019) which seems to be aligning well with their OpFi strategy. A non-custodial DEX is coming to Zilliqa made by Switcheo which allows cross-chain trading (atomic swaps) between ETH, EOS and ZIL based tokens. They also signed a Memorandum of Understanding for a (soon to be announced) USD stablecoin. And as Zilliqa is all about regulations and being compliant, I’m speculating on it to be a regulated USD stablecoin. Furthermore, XSGD is already created and visible on block explorer and XIDR (Indonesian Stablecoin) is also coming soon via StraitsX. Here also an overview of the Tech Stack for Financial Applications from September 2019. Further quoting Amrit Kumar on this:
 
There are two basic building blocks in DeFi/OpFi though: 1) stablecoins as you need a non-volatile currency to get access to this market and 2) a dex to be able to trade all these financial assets. The rest are built on top of these blocks.
 
So far, together with our partners and community, we have worked on developing these building blocks with XSGD as a stablecoin. We are working on bringing a USD-backed stablecoin as well. We will soon have a decentralised exchange developed by Switcheo. And with HGX going live, we are also venturing into the tokenization space. More to come in the future.”
 
Additionally, they also have this ZILHive initiative that injects capital into projects. There have been already 6 waves of various teams working on infrastructure, innovation and research, and they are not from ASEAN or Singapore only but global: see Grantees breakdown by country. Over 60 project teams from over 20 countries have contributed to Zilliqa's ecosystem. This includes individuals and teams developing wallets, explorers, developer toolkits, smart contract testing frameworks, dapps, etc. As some of you may know, Unstoppable Domains (UD) blew up when they launched on Zilliqa. UD aims to replace cryptocurrency addresses with a human-readable name and allows for uncensorable websites. Zilliqa will probably be the only one able to handle all these transactions onchain due to ability to scale and its resulting low fees which is why the UD team launched this on Zilliqa in the first place. Furthermore, Zilliqa also has a strong emphasis on security, compliance, and privacy, which is why they partnered with companies like Elliptic, ChainSecurity (part of PwC Switzerland), and Incognito. Their sister company Aqilliz (Zilliqa spelled backwards) focuses on revolutionizing the digital advertising space and is doing interesting things like using Zilliqa to track outdoor digital ads with companies like Foodpanda.
 
Zilliqa is listed on nearly all major exchanges, having several different fiat-gateways and recently have been added to Binance’s margin trading and futures trading with really good volume. They also have a very impressive team with good credentials and experience. They don't just have “tech people”. They have a mix of tech people, business people, marketeers, scientists, and more. Naturally, it's good to have a mix of people with different skill sets if you work in the crypto space.
 
Marketing & Community
 
Zilliqa has a very strong community. If you just follow their Twitter their engagement is much higher for a coin that has approximately 80k followers. They also have been ‘coin of the day’ by LunarCrush many times. LunarCrush tracks real-time cryptocurrency value and social data. According to their data, it seems Zilliqa has a more fundamental and deeper understanding of marketing and community engagement than almost all other coins. While almost all coins have been a bit frozen in the last months, Zilliqa seems to be on its own bull run. It was somewhere in the 100s a few months ago and is currently ranked #46 on CoinGecko. Their official Telegram also has over 20k people and is very active, and their community channel which is over 7k now is more active and larger than many other official channels. Their local communities also seem to be growing.
 
Moreover, their community started ‘Zillacracy’ together with the Zilliqa core team ( see www.zillacracy.com ). It’s a community-run initiative where people from all over the world are now helping with marketing and development on Zilliqa. Since its launch in February 2020 they have been doing a lot and will also run their own non-custodial seed node for staking. This seed node will also allow them to start generating revenue for them to become a self sustaining entity that could potentially scale up to become a decentralized company working in parallel with the Zilliqa core team. Comparing it to all the other smart contract platforms (e.g. Cardano, EOS, Tezos etc.) they don't seem to have started a similar initiative (correct me if I’m wrong though). This suggests in my opinion that these other smart contract platforms do not fully understand how to utilize the ‘power of the community’. This is something you cannot ‘buy with money’ and gives many projects in the space a disadvantage.
 
Zilliqa also released two social products called SocialPay and Zeeves. SocialPay allows users to earn ZILs while tweeting with a specific hashtag. They have recently used it in partnership with the Singapore Red Cross for a marketing campaign after their initial pilot program. It seems like a very valuable social product with a good use case. I can see a lot of traditional companies entering the space through this product, which they seem to suggest will happen. Tokenizing hashtags with smart contracts to get network effect is a very smart and innovative idea.
 
Regarding Zeeves, this is a tipping bot for Telegram. They already have 1000s of signups and they plan to keep upgrading it for more and more people to use it (e.g. they recently have added a quiz features). They also use it during AMAs to reward people in real-time. It’s a very smart approach to grow their communities and get familiar with ZIL. I can see this becoming very big on Telegram. This tool suggests, again, that the Zilliqa team has a deeper understanding of what the crypto space and community needs and is good at finding the right innovative tools to grow and scale.
 
To be honest, I haven’t covered everything (i’m also reaching the character limited haha). So many updates happening lately that it's hard to keep up, such as the International Monetary Fund mentioning Zilliqa in their report, custodial and non-custodial Staking, Binance Margin, Futures, Widget, entering the Indian market, and more. The Head of Marketing Colin Miles has also released this as an overview of what is coming next. And last but not least, Vitalik Buterin has been mentioning Zilliqa lately acknowledging Zilliqa and mentioning that both projects have a lot of room to grow. There is much more info of course and a good part of it has been served to you on a silver platter. I invite you to continue researching by yourself :-) And if you have any comments or questions please post here!
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Why i’m bullish on Zilliqa (long read)

Hey all, I've been researching coins since 2017 and have gone through 100s of them in the last 3 years. I got introduced to blockchain via Bitcoin of course, analysed Ethereum thereafter and from that moment I have a keen interest in smart contact platforms. I’m passionate about Ethereum but I find Zilliqa to have a better risk reward ratio. Especially because Zilliqa has found an elegant balance between being secure, decentralised and scalable in my opinion.
 
Below I post my analysis why from all the coins I went through I’m most bullish on Zilliqa (yes I went through Tezos, EOS, NEO, VeChain, Harmony, Algorand, Cardano etc.). Note that this is not investment advice and although it's a thorough analysis there is obviously some bias involved. Looking forward to what you all think!
 
Fun fact: the name Zilliqa is a play on ‘silica’ silicon dioxide which means “Silicon for the high-throughput consensus computer.”
 
This post is divided into (i) Technology, (ii) Business & Partnerships, and (iii) Marketing & Community. I’ve tried to make the technology part readable for a broad audience. If you’ve ever tried understanding the inner workings of Bitcoin and Ethereum you should be able to grasp most parts. Otherwise just skim through and once you are zoning out head to the next part.
 
Technology and some more:
 
Introduction The technology is one of the main reasons why I’m so bullish on Zilliqa. First thing you see on their website is: “Zilliqa is a high-performance, high-security blockchain platform for enterprises and next-generation applications.” These are some bold statements.
 
Before we deep dive into the technology let’s take a step back in time first as they have quite the history. The initial research paper from which Zilliqa originated dates back to August 2016: Elastico: A Secure Sharding Protocol For Open Blockchains where Loi Luu (Kyber Network) is one of the co-authors. Other ideas that led to the development of what Zilliqa has become today are: Bitcoin-NG, collective signing CoSi, ByzCoin and Omniledger.
 
The technical white paper was made public in August 2017 and since then they have achieved everything stated in the white paper and also created their own open source intermediate level smart contract language called Scilla (functional programming language similar to OCaml) too.
 
Mainnet is live since end of January 2019 with daily transaction rate growing continuously. About a week ago mainnet reached 5 million transactions, 500.000+ addresses in total along with 2400 nodes keeping the network decentralised and secure. Circulating supply is nearing 11 billion and currently only mining rewards are left. Maximum supply is 21 billion with annual inflation being 7.13% currently and will only decrease with time.
 
Zilliqa realised early on that the usage of public cryptocurrencies and smart contracts were increasing but decentralised, secure and scalable alternatives were lacking in the crypto space. They proposed to apply sharding onto a public smart contract blockchain where the transaction rate increases almost linear with the increase in amount of nodes. More nodes = higher transaction throughput and increased decentralisation. Sharding comes in many forms and Zilliqa uses network-, transaction- and computational sharding. Network sharding opens up the possibility of using transaction- and computational sharding on top. Zilliqa does not use state sharding for now. We’ll come back to this later.
 
Before we continue disecting how Zilliqa achieves such from a technological standpoint it’s good to keep in mind that a blockchain being decentralised and secure and scalable is still one of the main hurdles in allowing widespread usage of decentralised networks. In my opinion this needs to be solved first before blockchains can get to the point where they can create and add large scale value. So I invite you to read the next section to grasp the underlying fundamentals. Because after all these premises need to be true otherwise there isn’t a fundamental case to be bullish on Zilliqa, right?
 
Down the rabbit hole
 
How have they achieved this? Let’s define the basics first: key players on Zilliqa are the users and the miners. A user is anybody who uses the blockchain to transfer funds or run smart contracts. Miners are the (shard) nodes in the network who run the consensus protocol and get rewarded for their service in Zillings (ZIL). The mining network is divided into several smaller networks called shards, which is also referred to as ‘network sharding’. Miners subsequently are randomly assigned to a shard by another set of miners called DS (Directory Service) nodes. The regular shards process transactions and the outputs of these shards are eventually combined by the DS shard as they reach consensus on the final state. More on how these DS shards reach consensus (via pBFT) will be explained later on.
 
The Zilliqa network produces two types of blocks: DS blocks and Tx blocks. One DS Block consists of 100 Tx Blocks. And as previously mentioned there are two types of nodes concerned with reaching consensus: shard nodes and DS nodes. Becoming a shard node or DS node is being defined by the result of a PoW cycle (Ethash) at the beginning of the DS Block. All candidate mining nodes compete with each other and run the PoW (Proof-of-Work) cycle for 60 seconds and the submissions achieving the highest difficulty will be allowed on the network. And to put it in perspective: the average difficulty for one DS node is ~ 2 Th/s equaling 2.000.000 Mh/s or 55 thousand+ GeForce GTX 1070 / 8 GB GPUs at 35.4 Mh/s. Each DS Block 10 new DS nodes are allowed. And a shard node needs to provide around 8.53 GH/s currently (around 240 GTX 1070s). Dual mining ETH/ETC and ZIL is possible and can be done via mining software such as Phoenix and Claymore. There are pools and if you have large amounts of hashing power (Ethash) available you could mine solo.
 
The PoW cycle of 60 seconds is a peak performance and acts as an entry ticket to the network. The entry ticket is called a sybil resistance mechanism and makes it incredibly hard for adversaries to spawn lots of identities and manipulate the network with these identities. And after every 100 Tx Blocks which corresponds to roughly 1,5 hour this PoW process repeats. In between these 1,5 hour no PoW needs to be done meaning Zilliqa’s energy consumption to keep the network secure is low. For more detailed information on how mining works click here.
Okay, hats off to you. You have made it this far. Before we go any deeper down the rabbit hole we first must understand why Zilliqa goes through all of the above technicalities and understand a bit more what a blockchain on a more fundamental level is. Because the core of Zilliqa’s consensus protocol relies on the usage of pBFT (practical Byzantine Fault Tolerance) we need to know more about state machines and their function. Navigate to Viewblock, a Zilliqa block explorer, and just come back to this article. We will use this site to navigate through a few concepts.
 
We have established that Zilliqa is a public and distributed blockchain. Meaning that everyone with an internet connection can send ZILs, trigger smart contracts etc. and there is no central authority who fully controls the network. Zilliqa and other public and distributed blockchains (like Bitcoin and Ethereum) can also be defined as state machines.
 
Taking the liberty of paraphrasing examples and definitions given by Samuel Brooks’ medium article, he describes the definition of a blockchain (like Zilliqa) as:
“A peer-to-peer, append-only datastore that uses consensus to synchronise cryptographically-secure data”.
 
Next he states that: >“blockchains are fundamentally systems for managing valid state transitions”.* For some more context, I recommend reading the whole medium article to get a better grasp of the definitions and understanding of state machines. Nevertheless, let’s try to simplify and compile it into a single paragraph. Take traffic lights as an example: all its states (red, amber and green) are predefined, all possible outcomes are known and it doesn’t matter if you encounter the traffic light today or tomorrow. It will still behave the same. Managing the states of a traffic light can be done by triggering a sensor on the road or pushing a button resulting in one traffic lights’ state going from green to red (via amber) and another light from red to green.
 
With public blockchains like Zilliqa this isn’t so straightforward and simple. It started with block #1 almost 1,5 years ago and every 45 seconds or so a new block linked to the previous block is being added. Resulting in a chain of blocks with transactions in it that everyone can verify from block #1 to the current #647.000+ block. The state is ever changing and the states it can find itself in are infinite. And while the traffic light might work together in tandem with various other traffic lights, it’s rather insignificant comparing it to a public blockchain. Because Zilliqa consists of 2400 nodes who need to work together to achieve consensus on what the latest valid state is while some of these nodes may have latency or broadcast issues, drop offline or are deliberately trying to attack the network etc.
 
Now go back to the Viewblock page take a look at the amount of transaction, addresses, block and DS height and then hit refresh. Obviously as expected you see new incremented values on one or all parameters. And how did the Zilliqa blockchain manage to transition from a previous valid state to the latest valid state? By using pBFT to reach consensus on the latest valid state.
 
After having obtained the entry ticket, miners execute pBFT to reach consensus on the ever changing state of the blockchain. pBFT requires a series of network communication between nodes, and as such there is no GPU involved (but CPU). Resulting in the total energy consumed to keep the blockchain secure, decentralised and scalable being low.
 
pBFT stands for practical Byzantine Fault Tolerance and is an optimisation on the Byzantine Fault Tolerant algorithm. To quote Blockonomi: “In the context of distributed systems, Byzantine Fault Tolerance is the ability of a distributed computer network to function as desired and correctly reach a sufficient consensus despite malicious components (nodes) of the system failing or propagating incorrect information to other peers.” Zilliqa is such a distributed computer network and depends on the honesty of the nodes (shard and DS) to reach consensus and to continuously update the state with the latest block. If pBFT is a new term for you I can highly recommend the Blockonomi article.
 
The idea of pBFT was introduced in 1999 - one of the authors even won a Turing award for it - and it is well researched and applied in various blockchains and distributed systems nowadays. If you want more advanced information than the Blockonomi link provides click here. And if you’re in between Blockonomi and University of Singapore read the Zilliqa Design Story Part 2 dating from October 2017.
Quoting from the Zilliqa tech whitepaper: “pBFT relies upon a correct leader (which is randomly selected) to begin each phase and proceed when the sufficient majority exists. In case the leader is byzantine it can stall the entire consensus protocol. To address this challenge, pBFT offers a view change protocol to replace the byzantine leader with another one.”
 
pBFT can tolerate ⅓ of the nodes being dishonest (offline counts as Byzantine = dishonest) and the consensus protocol will function without stalling or hiccups. Once there are more than ⅓ of dishonest nodes but no more than ⅔ the network will be stalled and a view change will be triggered to elect a new DS leader. Only when more than ⅔ of the nodes are dishonest (>66%) double spend attacks become possible.
 
If the network stalls no transactions can be processed and one has to wait until a new honest leader has been elected. When the mainnet was just launched and in its early phases, view changes happened regularly. As of today the last stalling of the network - and view change being triggered - was at the end of October 2019.
 
Another benefit of using pBFT for consensus besides low energy is the immediate finality it provides. Once your transaction is included in a block and the block is added to the chain it’s done. Lastly, take a look at this article where three types of finality are being defined: probabilistic, absolute and economic finality. Zilliqa falls under the absolute finality (just like Tendermint for example). Although lengthy already we skipped through some of the inner workings from Zilliqa’s consensus: read the Zilliqa Design Story Part 3 and you will be close to having a complete picture on it. Enough about PoW, sybil resistance mechanism, pBFT etc. Another thing we haven’t looked at yet is the amount of decentralisation.
 
Decentralisation
 
Currently there are four shards, each one of them consisting of 600 nodes. 1 shard with 600 so called DS nodes (Directory Service - they need to achieve a higher difficulty than shard nodes) and 1800 shard nodes of which 250 are shard guards (centralised nodes controlled by the team). The amount of shard guards has been steadily declining from 1200 in January 2019 to 250 as of May 2020. On the Viewblock statistics you can see that many of the nodes are being located in the US but those are only the (CPU parts of the) shard nodes who perform pBFT. There is no data from where the PoW sources are coming. And when the Zilliqa blockchain starts reaching their transaction capacity limit, a network upgrade needs to be executed to lift the current cap of maximum 2400 nodes to allow more nodes and formation of more shards which will allow to network to keep on scaling according to demand.
Besides shard nodes there are also seed nodes. The main role of seed nodes is to serve as direct access points (for end users and clients) to the core Zilliqa network that validates transactions. Seed nodes consolidate transaction requests and forward these to the lookup nodes (another type of nodes) for distribution to the shards in the network. Seed nodes also maintain the entire transaction history and the global state of the blockchain which is needed to provide services such as block explorers. Seed nodes in the Zilliqa network are comparable to Infura on Ethereum.
 
The seed nodes were first only operated by Zilliqa themselves, exchanges and Viewblock. Operators of seed nodes like exchanges had no incentive to open them for the greater public.They were centralised at first. Decentralisation at the seed nodes level has been steadily rolled out since March 2020 ( Zilliqa Improvement Proposal 3 ). Currently the amount of seed nodes is being increased, they are public facing and at the same time PoS is applied to incentivize seed node operators and make it possible for ZIL holders to stake and earn passive yields. Important distinction: seed nodes are not involved with consensus! That is still PoW as entry ticket and pBFT for the actual consensus.
 
5% of the block rewards are being assigned to seed nodes (from the beginning in 2019) and those are being used to pay out ZIL stakers.The 5% block rewards with an annual yield of 10.03% translates to roughly 610 MM ZILs in total that can be staked. Exchanges use the custodial variant of staking and wallets like Moonlet will use the non custodial version (starting in Q3 2020). Staking is being done by sending ZILs to a smart contract created by Zilliqa and audited by Quantstamp.
 
With a high amount of DS & shard nodes and seed nodes becoming more decentralised too, Zilliqa qualifies for the label of decentralised in my opinion.
 
Smart contracts
 
Let me start by saying I’m not a developer and my programming skills are quite limited. So I‘m taking the ELI5 route (maybe 12) but if you are familiar with Javascript, Solidity or specifically OCaml please head straight to Scilla - read the docs to get a good initial grasp of how Zilliqa’s smart contract language Scilla works and if you ask yourself “why another programming language?” check this article. And if you want to play around with some sample contracts in an IDE click here. Faucet can be found here. And more information on architecture, dapp development and API can be found on the Developer Portal.
If you are more into listening and watching: check this recent webinar explaining Zilliqa and Scilla. Link is time stamped so you’ll start right away with a platform introduction, R&D roadmap 2020 and afterwards a proper Scilla introduction.
 
Generalised: programming languages can be divided into being ‘object oriented’ or ‘functional’. Here is an ELI5 given by software development academy: > “all programmes have two basic components, data – what the programme knows – and behaviour – what the programme can do with that data. So object-oriented programming states that combining data and related behaviours in one place, is called “object”, which makes it easier to understand how a particular program works. On the other hand, functional programming argues that data and behaviour are different things and should be separated to ensure their clarity.”
 
Scilla is on the functional side and shares similarities with OCaml: > OCaml is a general purpose programming language with an emphasis on expressiveness and safety. It has an advanced type system that helps catch your mistakes without getting in your way. It's used in environments where a single mistake can cost millions and speed matters, is supported by an active community, and has a rich set of libraries and development tools. For all its power, OCaml is also pretty simple, which is one reason it's often used as a teaching language.
 
Scilla is blockchain agnostic, can be implemented onto other blockchains as well, is recognised by academics and won a so called Distinguished Artifact Award award at the end of last year.
 
One of the reasons why the Zilliqa team decided to create their own programming language focused on preventing smart contract vulnerabilities safety is that adding logic on a blockchain, programming, means that you cannot afford to make mistakes. Otherwise it could cost you. It’s all great and fun blockchains being immutable but updating your code because you found a bug isn’t the same as with a regular web application for example. And with smart contracts it inherently involves cryptocurrencies in some form thus value.
 
Another difference with programming languages on a blockchain is gas. Every transaction you do on a smart contract platform like Zilliqa for Ethereum costs gas. With gas you basically pay for computational costs. Sending a ZIL from address A to address B costs 0.001 ZIL currently. Smart contracts are more complex, often involve various functions and require more gas (if gas is a new concept click here ).
 
So with Scilla, similar to Solidity, you need to make sure that “every function in your smart contract will run as expected without hitting gas limits. An improper resource analysis may lead to situations where funds may get stuck simply because a part of the smart contract code cannot be executed due to gas limits. Such constraints are not present in traditional software systems”. Scilla design story part 1
 
Some examples of smart contract issues you’d want to avoid are: leaking funds, ‘unexpected changes to critical state variables’ (example: someone other than you setting his or her address as the owner of the smart contract after creation) or simply killing a contract.
 
Scilla also allows for formal verification. Wikipedia to the rescue:
In the context of hardware and software systems, formal verification is the act of proving or disproving the correctness of intended algorithms underlying a system with respect to a certain formal specification or property, using formal methods of mathematics.
 
Formal verification can be helpful in proving the correctness of systems such as: cryptographic protocols, combinational circuits, digital circuits with internal memory, and software expressed as source code.
 
Scilla is being developed hand-in-hand with formalization of its semantics and its embedding into the Coq proof assistant — a state-of-the art tool for mechanized proofs about properties of programs.”
 
Simply put, with Scilla and accompanying tooling developers can be mathematically sure and proof that the smart contract they’ve written does what he or she intends it to do.
 
Smart contract on a sharded environment and state sharding
 
There is one more topic I’d like to touch on: smart contract execution in a sharded environment (and what is the effect of state sharding). This is a complex topic. I’m not able to explain it any easier than what is posted here. But I will try to compress the post into something easy to digest.
 
Earlier on we have established that Zilliqa can process transactions in parallel due to network sharding. This is where the linear scalability comes from. We can define simple transactions: a transaction from address A to B (Category 1), a transaction where a user interacts with one smart contract (Category 2) and the most complex ones where triggering a transaction results in multiple smart contracts being involved (Category 3). The shards are able to process transactions on their own without interference of the other shards. With Category 1 transactions that is doable, with Category 2 transactions sometimes if that address is in the same shard as the smart contract but with Category 3 you definitely need communication between the shards. Solving that requires to make a set of communication rules the protocol needs to follow in order to process all transactions in a generalised fashion.
 
And this is where the downsides of state sharding comes in currently. All shards in Zilliqa have access to the complete state. Yes the state size (0.1 GB at the moment) grows and all of the nodes need to store it but it also means that they don’t need to shop around for information available on other shards. Requiring more communication and adding more complexity. Computer science knowledge and/or developer knowledge required links if you want to dig further: Scilla - language grammar Scilla - Foundations for Verifiable Decentralised Computations on a Blockchain Gas Accounting NUS x Zilliqa: Smart contract language workshop
 
Easier to follow links on programming Scilla https://learnscilla.com/home Ivan on Tech
 
Roadmap / Zilliqa 2.0
 
There is no strict defined roadmap but here are topics being worked on. And via the Zilliqa website there is also more information on the projects they are working on.
 
Business & Partnerships  
It’s not only technology in which Zilliqa seems to be excelling as their ecosystem has been expanding and starting to grow rapidly. The project is on a mission to provide OpenFinance (OpFi) to the world and Singapore is the right place to be due to its progressive regulations and futuristic thinking. Singapore has taken a proactive approach towards cryptocurrencies by introducing the Payment Services Act 2019 (PS Act). Among other things, the PS Act will regulate intermediaries dealing with certain cryptocurrencies, with a particular focus on consumer protection and anti-money laundering. It will also provide a stable regulatory licensing and operating framework for cryptocurrency entities, effectively covering all crypto businesses and exchanges based in Singapore. According to PWC 82% of the surveyed executives in Singapore reported blockchain initiatives underway and 13% of them have already brought the initiatives live to the market. There is also an increasing list of organisations that are starting to provide digital payment services. Moreover, Singaporean blockchain developers Building Cities Beyond has recently created an innovation $15 million grant to encourage development on its ecosystem. This all suggest that Singapore tries to position itself as (one of) the leading blockchain hubs in the world.
 
Zilliqa seems to already taking advantage of this and recently helped launch Hg Exchange on their platform, together with financial institutions PhillipCapital, PrimePartners and Fundnel. Hg Exchange, which is now approved by the Monetary Authority of Singapore (MAS), uses smart contracts to represent digital assets. Through Hg Exchange financial institutions worldwide can use Zilliqa's safe-by-design smart contracts to enable the trading of private equities. For example, think of companies such as Grab, AirBnB, SpaceX that are not available for public trading right now. Hg Exchange will allow investors to buy shares of private companies & unicorns and capture their value before an IPO. Anquan, the main company behind Zilliqa, has also recently announced that they became a partner and shareholder in TEN31 Bank, which is a fully regulated bank allowing for tokenization of assets and is aiming to bridge the gap between conventional banking and the blockchain world. If STOs, the tokenization of assets, and equity trading will continue to increase, then Zilliqa’s public blockchain would be the ideal candidate due to its strategic positioning, partnerships, regulatory compliance and the technology that is being built on top of it.
 
What is also very encouraging is their focus on banking the un(der)banked. They are launching a stablecoin basket starting with XSGD. As many of you know, stablecoins are currently mostly used for trading. However, Zilliqa is actively trying to broaden the use case of stablecoins. I recommend everybody to read this text that Amrit Kumar wrote (one of the co-founders). These stablecoins will be integrated in the traditional markets and bridge the gap between the crypto world and the traditional world. This could potentially revolutionize and legitimise the crypto space if retailers and companies will for example start to use stablecoins for payments or remittances, instead of it solely being used for trading.
 
Zilliqa also released their DeFi strategic roadmap (dating November 2019) which seems to be aligning well with their OpFi strategy. A non-custodial DEX is coming to Zilliqa made by Switcheo which allows cross-chain trading (atomic swaps) between ETH, EOS and ZIL based tokens. They also signed a Memorandum of Understanding for a (soon to be announced) USD stablecoin. And as Zilliqa is all about regulations and being compliant, I’m speculating on it to be a regulated USD stablecoin. Furthermore, XSGD is already created and visible on block explorer and XIDR (Indonesian Stablecoin) is also coming soon via StraitsX. Here also an overview of the Tech Stack for Financial Applications from September 2019. Further quoting Amrit Kumar on this:
 
There are two basic building blocks in DeFi/OpFi though: 1) stablecoins as you need a non-volatile currency to get access to this market and 2) a dex to be able to trade all these financial assets. The rest are build on top of these blocks.
 
So far, together with our partners and community, we have worked on developing these building blocks with XSGD as a stablecoin. We are working on bringing a USD-backed stablecoin as well. We will soon have a decentralised exchange developed by Switcheo. And with HGX going live, we are also venturing into the tokenization space. More to come in the future.”*
 
Additionally, they also have this ZILHive initiative that injects capital into projects. There have been already 6 waves of various teams working on infrastructure, innovation and research, and they are not from ASEAN or Singapore only but global: see Grantees breakdown by country. Over 60 project teams from over 20 countries have contributed to Zilliqa's ecosystem. This includes individuals and teams developing wallets, explorers, developer toolkits, smart contract testing frameworks, dapps, etc. As some of you may know, Unstoppable Domains (UD) blew up when they launched on Zilliqa. UD aims to replace cryptocurrency addresses with a human readable name and allows for uncensorable websites. Zilliqa will probably be the only one able to handle all these transactions onchain due to ability to scale and its resulting low fees which is why the UD team launched this on Zilliqa in the first place. Furthermore, Zilliqa also has a strong emphasis on security, compliance, and privacy, which is why they partnered with companies like Elliptic, ChainSecurity (part of PwC Switzerland), and Incognito. Their sister company Aqilliz (Zilliqa spelled backwards) focuses on revolutionizing the digital advertising space and is doing interesting things like using Zilliqa to track outdoor digital ads with companies like Foodpanda.
 
Zilliqa is listed on nearly all major exchanges, having several different fiat-gateways and recently have been added to Binance’s margin trading and futures trading with really good volume. They also have a very impressive team with good credentials and experience. They dont just have “tech people”. They have a mix of tech people, business people, marketeers, scientists, and more. Naturally, it's good to have a mix of people with different skill sets if you work in the crypto space.
 
Marketing & Community
 
Zilliqa has a very strong community. If you just follow their Twitter their engagement is much higher for a coin that has approximately 80k followers. They also have been ‘coin of the day’ by LunarCrush many times. LunarCrush tracks real-time cryptocurrency value and social data. According to their data it seems Zilliqa has a more fundamental and deeper understanding of marketing and community engagement than almost all other coins. While almost all coins have been a bit frozen in the last months, Zilliqa seems to be on its own bull run. It was somewhere in the 100s a few months ago and is currently ranked #46 on CoinGecko. Their official Telegram also has over 20k people and is very active, and their community channel which is over 7k now is more active and larger than many other official channels. Their local communities) also seem to be growing.
 
Moreover, their community started ‘Zillacracy’ together with the Zilliqa core team ( see www.zillacracy.com ). It’s a community run initiative where people from all over the world are now helping with marketing and development on Zilliqa. Since its launch in February 2020 they have been doing a lot and will also run their own non custodial seed node for staking. This seed node will also allow them to start generating revenue for them to become a self sustaining entity that could potentially scale up to become a decentralized company working in parallel with the Zilliqa core team. Comparing it to all the other smart contract platforms (e.g. Cardano, EOS, Tezos etc.) they don't seem to have started a similar initiatives (correct me if I’m wrong though). This suggest in my opinion that these other smart contract platforms do not fully understand how to utilize the ‘power of the community’. This is something you cannot ‘buy with money’ and gives many projects in the space a disadvantage.
 
Zilliqa also released two social products called SocialPay and Zeeves. SocialPay allows users to earn ZILs while tweeting with a specific hashtag. They have recently used it in partnership with the Singapore Red Cross for a marketing campaign after their initial pilot program. It seems like a very valuable social product with a good use case. I can see a lot of traditional companies entering the space through this product, which they seem to suggest will happen. Tokenizing hashtags with smart contracts to get network effect is a very smart and innovative idea.
 
Regarding Zeeves, this is a tipping bot for Telegram. They already have 1000s of signups and they plan to keep upgrading it for more and more people to use it (e.g. they recently have added a quiz features). They also use it during AMAs to reward people in real time. It’s a very smart approach to grow their communities and get familiar with ZIL. I can see this becoming very big on Telegram. This tool suggests, again, that the Zilliqa team has a deeper understanding what the crypto space and community needs and is good at finding the right innovative tools to grow and scale.
 
To be honest, I haven’t covered everything (i’m also reaching the character limited haha). So many updates happening lately that it's hard to keep up, such as the International Monetary Fund mentioning Zilliqa in their report, custodial and non-custodial Staking, Binance Margin, Futures & Widget, entering the Indian market, and more. The Head of Marketing Colin Miles has also released this as an overview of what is coming next. And last but not least, Vitalik Buterin has been mentioning Zilliqa lately acknowledging Zilliqa and mentioning that both projects have a lot of room to grow. There is much more info of course and a good part of it has been served to you on a silver platter. I invite you to continue researching by yourself :-) And if you have any comments or questions please post here!
submitted by haveyouheardaboutit to CryptoCurrency [link] [comments]

Some informative responses from Colin and Andy from the just-concluded Nano AMA at the Atomic Wallet Telegram group

The AMA ran today from 13:00 - 14:20 UTC, with Colin and Andy. I've copied over some of their responses that I found give me better insight into Nano. Their responses are in italics. Responses to different questions are separated by double spaces. Colin's responses are listed first, followed by Andy's. Sorry I couldn't copy over the questions as well. I've added my comments in places.
From Colin:
PoW coins have done a good marketing that the energy expenditure makes your coins more secure but it’s really unnecessory. PoW coins need to continue expending work because if they stop, their security parameter erodes.
Nano has no such problem, once an election for a transaction is complete, it’s confirmed. If it sits there it stays confirmed and it doesn’t need any extra effort. Wow, put that way, Bitcoin seems unsustainable in the long term when there is an alternative like Nano.

Yes the circulating supply is forever like this. The reason it can’t change is because nano transactions can only send your current balance or less to someone else, this means new coins can never be injected in to the system. Interesting design reason new Nano can't be minted.

Volatility is a focus with all cryptocurrencies and it comes from low volume, it’s not intrinsic to cryptocurrency itself. To cure low volume our focus is integrating it in to parts of the economy where it solves a problem, rather than just emulating credit cards etc.
Not having fees in the network puts us in a very good position for buying beer, for example. Typically credit card providers will charge 2-5% for a purchase, maybe even more, and it tight margin businesses that make 2-5% profit anyway, this is huge. A lot of Reddit discussion on crypto adoption considers only user experience and overlooks benefits to merchants.

Nano is purpose built to be the fastest and most decentralized currency around. Our transactions settle in less than 1 second and it’s all done on a network with no fees, and a tiny environmental footprint
Decentralization is an essential focus for us, many other cryptocurrencies can get fast or low cost, but they can’t also maintain decentralization which I think we do very well.
Well the sustainability comes from 2 main parts. We have a laser sharp focus on being the most efficient currency. This means our development stays focused and eventually the amount of things going in to the code base will trend downward; once we’ve achieved the goal we just have to make things more efficient.
The second part of sustainability is our Open Representative Voting which is our replacement for PoW mining. We saw the energy expenditure as something that would come in conflict with any system that would attain high adoption so our goal was to get the same or better decentralization benefits and also have a low energy footprint. We think we achieved that goal as our representatives are all over the world under many different organizations. A healthy decentralized representative set is good for long term sustainability.

And on the simplicity, nano is probably one of the easiest cryptocurrencies to use. There are no fees to calculate, the UX impact of entering a fee is greatly understated. How much should the fee be? Does my grandma know what network load is? What does it mean with respect to fee?
Nano simply has accounts and balances, you send and it lands in their wallet in less than a second, nothing can be simpler.

We’re not looking to expand in to defi right now. I have some reservations about it’s viability. One thing I’ve noticed in my many years of seeing technology evolution is to not try and change 2 things at once. We don’t want to simultaneously change the currency people use and also change how finances are done. First change the currency, then change the finances.
I think Libra suffers from a market mis-assesment. Essentially what they’re claiming is be a multi-currency bank account for every facebook user. Getting users electronic bank accounts isn’t a technology problem, it’s a regulatory and logistics problem. Since Facebook is essentially being a bank for people, they’re going to be required to comply with KYC requirements. Sending/receiving isn’t going to be open as it is in cryptocurrency because of AML requirements. People are not going to have access to the system in remote areas because how do they deposit or more importantly withdraw local currency from their Libra accounts.
I think privacy is a big concern with our transactions and credit card purchases and it’s only getting worse. Letting Facebook/Libra know all your purchase history I think is a huge mistake.
I think it also doesn’t fundamentally solve the central banking problem where they can print more money and inflate the currency supply. I see this behavior as a fundamentally unethical thing that cryptocurrency solves and Libra is taking a huge step back on that.
I don’t see anything compelling about it and I don’t see long term viability.

I think disk usage is going to be a low concern long term. The goal with Nano is to be a widely used commercial grade currency so the representatives will be banks and other financial institutions, universities, and tech companies. Considering how much youtube, instagram, and other social media data is created each day, I don’t think the ledger size will be a long-term limiting factor. Looks like the role of hobbyists in running nodes will diminish with widening adoption.

Nano’s value is being the fastest, most efficient currency around. Entreprenuers make use of natural market incentives / natural efficiencies to make money on a business.
Cryptocurrency has distorted that term a bit with something more closely resembling subsidies. The transaction fees and block rewards are subsidizing the security parameter and processing prioritization. PoW chains need this subsidy because their security parameter costs a lot. Additionally we’ve seen miners work to limit the network’s throughput in order to rent-seek on the limited transaction space. Damn, talk about unaligned incentives between users and miners.
The people we’re looking for are the entreprenuers that know how to make use of a faster, lower cost currency.

Yes, having a fixed supply is an essential component of currency. If people can add more currency to the system, they’re taking value away from everyone else in that process. It’s unfair and unethical.
1 Nano actually can be divided down very small so there’s no risk of not having enough coins.

In this response, Colin is addressing a question about Steem and other dPoS systems. One major difference with Nano consensus is: having more Nano does not get you more Nano, there are no rewards for holding Nano. Holding nano doesn’t give people voting privledges on network changes, or any other centralizing component associated with holding.
Another big difference is voting in nano does not produce blocks, it chooses between conflicting blocks that a user publishes. If you don’t attempt to double-spend, your transactions cannot be voted against.

From Andy:
1. The faucet did indeed seed Nano's amazing international communities, and the contributions from around the world to the project have been unbelievable over that last 2.5 years. Communities are still active, engaged and building 💪
2. The effects of Nano being added to the Atomic Wallet (and other multi-currency wallets) is two fold. It increases the accessibility and convenience of storing Nano alongside other coins and also helps to disperse voting weight across a wider spread of representatives - increasing decentralization!

We certainly feel that Nano possesses far and away the best fundamentals, democratic approach to decentralization, and user experience.
Being fully distributed and operating on a the mainnet since 2015 is also very important, and puts Nano way ahead of many other projects making bold claims about future potential.
Nano is here today, and works as one would expect the digital money would!

Privacy is an attractive proposition to users of digital money for obvious reasons, it can be very important. Our position towards privacy is more conservative as we have seen many more hurdles to mainstream adoption being put in front of privacy-based projects.
With that being said, there are eyes towards the technical implications of introducing privacy, but it is extremely difficult to do this without incurring slowdowns to settlement times.
Throughout 2019 we were able to make significant progress in helping some of the more well-established cryptocurrency services such as exchanges, fiat gateways, payment platforms, and wallets- like Atomic 😄, to understand and integrate Nano. This proliferation of Nano across the space has ensured that it is increasingly more convenient for users and merchants to access and begin using Nano for payments.
submitted by Live_Magnetic_Air to nanocurrency [link] [comments]

Bitcoin vs. XRP

Bitcoin operates on a public blockchain ledger that supports a digital currency used to facilitate payments for goods and services. Bitcoin, the network, is primarily known for its bitcoin cryptocurrency (typically referred to as "bitcoin" or by the abbreviation BTC).
The bitcoin network is based on the blockchain concept, a public ledger of verified transactions and record-keeping. Miners verify transactions on an ongoing basis and add them to the bitcoin blockchain which serves as a ledger of all activity across the network. In exchange for their time and the computing power necessary to validate the ledger in this way, miners are rewarded with BTC upon successfully validating certain quantities of transactions.
XRP, on the other hand, is a technology that is mainly known for its digital payment network and protocol. Aside from the cryptocurrency XRP, Ripple is perhaps even better known as a payment settlement, asset exchange, and remittance system that works more like SWIFT, a service for international money and security transfers that is used by a network of banks and financial intermediaries.
Transaction Validation
Instead of using the blockchain mining concept, the Ripple network uses a unique distributed consensus mechanism through a network of servers to validate transactions. By conducting a poll, the servers or nodes on the network decide by consensus about the validity and authenticity of the transaction. This enables almost instant confirmations without any central authority, which helps to keep XRP decentralized and yet faster and more reliable than many of its competitors.
While the bitcoin network is accused of being energy-hungry due to its mining system, the Ripple system consumes negligible power owing to its mining-free mechanism.
Processing Times and Costs
While bitcoin transaction confirmations may take many minutes and may be associated with high transaction costs, XRP transactions are confirmed within seconds at very low costs. BTC has a total supply of 21 million cryptocoins, and XRP has a total of 100 billion pre-mined cryptocoins.
Mining and Circulation
Bitcoin uses a proof-of-work system and mining for releasing new BTC tokens, forming an essential part of the validation process, while all of the XRP tokens are pre-mined. For this reason, XRP mining does not exist in the same way that bitcoin mining does.
The cryptocoin release mechanism is different for both BTC and XRP. While bitcoins are released and added to the network as, and when, the miners find them, a smart contract controls the release of XRP.
Ripple planned to release a maximum of 1 billion XRP tokens each month as governed by an in-built smart contract; the current circulation is over 43 billion. Any unused portion of the XRP in a particular month will be shifted back to an escrow account. This mechanism ensures that there will be no possibility of misuse due to an oversupply of XRP cryptocoins, and it will take many years before all the cryptocoins will be available.
submitted by PresentType to bitcoinsdlaundryd [link] [comments]

Numbers on the screen or how digital payment systems make the market fair?

Numbers on the screen or how digital payment systems make the market fair?

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Continuing the trend of practicality characteristic of the XXI century, paper money is gradually disappearing from our lives, giving way to more practical digital storage. However, the digitized banking that we now use every day is still far from perfect. For starters, it is completely controlled by third parties. No one owns the numbers they see on the screen — control is entirely owned by third parties, such as banks.
Banks create money out of thin air, and credit is a prime example of this. Money is no longer printed when someone takes out an overdraft or mortgage-it is simply created out of nothing. Moreover, these banks charge disproportionately high fees for the services they provide, and these services are outdated and impractical today.
For example, it is impractical to pay a Commission to spend your money abroad, as it is impractical to wait a few days to verify the transfer of a small amount from You to your relative. All this makes no sense in the interconnected and instantaneous world in which We live today.
Thus, the monetary system has ceased to be practical, it is replaced by a higher form of value storage. In this particular case, it is replaced by a faster and safer system that eliminates expensive operations and gives control to the person.
https://i.redd.it/quc2bgmxotx41.gif
Money that you have in your Bank account can be considered a virtual currency since it does not have a physical form and exists only in the Bank book. If they lose the book, your money will simply disappear. These are just numbers that you see on the screen. The numbers are stored on the hard drives of Bank servers.

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Do you open a regular app and think you have money? They are just bytes of the computer system. Today’s global payment infrastructure moves money from one payment system to another through a series of internal Deposit transfers between financial institutions. Since these transfers occur in different systems with a low level of coordination, the calculation of funds is slow, often 3–5 days, capturing liquidity.

How do payments work?

When you make a money transfer, for example, from your Bank card to the Bank card of a friend or acquaintance, you see an instant transfer, so to speak, moving numbers from you to the Recipient. For the user, the transfer is carried out instantly, and the exchange of obligations between the participants of the process takes place within 3–7 days, the User does not know about it and hardly ever thinks about it.

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When you make a payment at a supermarket or any other point of sale, at the time of payment, information from the POS-terminal is sent to the acquiring Bank — then the acquiring Bank sends a request that passes through the payment system (Visa or MasterCard) and then transmitted to Your Bank, which confirms the operation. At this point, there is no write-off of funds. The funds are temporarily held, and the actual withdrawal will take place within a few days, the maximum processing time is up to 30 days.
https://i.redd.it/8njxgxq2ptx41.gif

Currency transactions and payments abroad

You may have noticed that after making a transaction in a different currency, such as yen or dirhams, or any other currency that differs from the currency of your account or buying an item abroad, the amount charged may differ from the amount that was reflected immediately after payment.

Why is this happening?

As soon As you have made a transaction with Your Bank card — the local Bank transfers the information to the payment system: Visa or MasterCard — the payment system converts the currency used into the billing currency.
Billing currency — the currency that will be used for payment with the payment system by your Bank that issued the card. For the US, the billing currency is the dollar, in Europe — the Euro.
The billing currency may also differ depending on the issuing Bank — the Bank that issued your debit card. For example, some banks use the billing currency — Euro when making payments with MasterCard cards in the United States, which will lead to additional costs when converting euros into dollars.
If the payment is in other currencies, the payment scheme will become more complicated and, accordingly, its cost will be more expensive. The transfer rate from one settlement currency to another is set by the payment system: Visa and MasterCard.
If the currency of your Bankcard is the same as the currency of the payment system, the payment will take place without additional operations. For example, You have a dollar card, you make a payment in dollars in the United States, and if you make a payment with a dollar card in Europe, your Bank will convert the amount at its exchange rate, which will lead to additional costs. There are exceptions, some European banks can use dollars for settlements, but this is more an exception than a rule.
Also, if, for example, you pay for purchases in China using a Bank card in euros, then double conversion is inevitable.
Thus, payment in dollars is universal all over the world, except for the European Union countries. The dollar is a global currency and is therefore often used for binding in international settlements.
Now we understand that due to differences in the account currency and the differences in the VISA or MasterCard payment system, additional conversions may occur, which will lead to additional bank fees. as a result, the actual payment amount will differ from the amount debited from your card.
In addition to paying for conversion in the payment system and paying for currency conversion in your Bank, some banks charge an additional fee for conducting a cross-border transaction.

Where do we lose money when making debit card payments?


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  1. Currency conversion by the payment system;
  2. Euro-Dollar, or in the case of processing payment via MasterCard in Turkey, Turkish lira-Euro and additional conversion on the side of the issuing Bank (your Bank) Euro — Dollar.
  3. Currency conversion by an acquiring bank;
  4. The difference between the exchange rate on the purchase date and the write-off date. We purchased at a rate of 0.91 euros per dollar, and the write-off occurred at a rate of 0.94 euros per dollar.
  5. A large number of currency conversions.
  6. The greater the number of them, the more we will lose when buying. For example, when paying in the UAE or China, buying a product for the local currency, we understand that the number of conversions increases several times.
If we touch on the topic of international translations, we will encounter additional nuances:
  • This is the payment processing time. International payments can be processed within 3–5 days, as mentioned above, which in our dynamic time — it interferes with the comfortable use of the system.
  • Restrictions on the amounts;
  • Possible requirements for certain documentation for payment confirmation;
  • Additional fees and commissions, sometimes hidden fees.
It is not always possible to make a transfer quickly and when necessary due to these restrictions. All this confirms the complexity of the operations and additional commissions that the user pays.

Сryptocurrency exchanges

And now back to the numbers on the screen, this topic affects not only banks but also centralized cryptocurrency exchanges:
  • You top up your Deposit on the exchange in cryptocurrency-then you use numbers inside the exchange, and real funds are most often stored on “cold storage” for which administrators or other responsible persons are responsible.
  • Only when you make a withdrawal from the exchange to your wallet-you are sent real funds (tokens or cryptocurrency).
The same applies to centralized applications and online services that deal with cryptocurrencies:
There are many services, both online and apps, that are centralized, regardless of what they will be called: Bitcoin wallet or bitcoin exchange. This means that when you add funds to an account in such a wallet, the funds are stored on the developecompany’s side. In simple words, all your funds are stored in the wallets of the system’s creators.
If you use a centralized app, you have a risk of losing funds. Although the application is called cryptocurrency, it does not affect its main principles — it is decentralization.
In other words, using systems where there is a Central authority, especially in the cryptocurrency market — the risk increases, so we recommend using decentralized systems for storing currency to reduce risks to a minimum.
Decentralization is the process of redistributing, dispersing functions, forces, power, people, or things from a Central location or governing body. Centralization is a condition in which the right to make the most important decisions remains with the highest levels of management.

Peer-to-peer payment systems

The opposite and standard of security and independence are peer-to-peer payment systems. Using the application-level network Protocol, clients running on multiple computers connect to form a peer-to-peer network.

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There are no dedicated servers in such a network, and each node is both a client and performs server functions. In contrast to the client-server architecture, this organization allows you to maintain the network operability with any number and any combination of available nodes. All nodes are members of the network.

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Tkeycoin is a decentralized peer-to-peer payment system based on p2p principles and the concept of electronic cash. P2P technology is a fairer means of mutual settlements between users and companies around the world. Modern payment systems are imperfect and may depend on the will of high-ranking officials.
The main goal of Tkeycoin is to create universal products that will make financial transactions more accessible, profitable and secure.

https://i.redd.it/gk6j0m9bptx41.gif

What do decentralized systems protect against?

Using decentralized tools, for example, a local Tkeycoin wallet or a Multi-currency blockchain tkeyspace wallet — Your funds belong only to You and only You can use them, which eliminates the risks of third-party bankruptcy, and such a decentralized architecture can also protect against natural disasters. Given that there is no central server that can be damaged in a natural disaster, the system can work even if there are 2 nodes.

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In addition to force majeure situations, you protect your funds from theft and any sanctions from third parties-in our time, this is very important. The owner of Tkeycoin does not need Bank branches, does not need additional verifications, and does not need permission to use, transfer, or even transport Tkeycoin. You can easily carry $1 million worth of Tkeycoin in your pocket and even in theory not know any troubles.

https://preview.redd.it/uvw9vfyeptx41.png?width=1400&format=png&auto=webp&s=14b89acca3568fdc5eb82d986aaa2710219ced91
Besides, it is extremely convenient and safe to store even multibillion-dollar capital in Tkeycoin. Imagine that you have a lot, a lot of money, and you need a safe place to store it. Where do you apply? Of course, the Swiss Bank, Yes, but it can easily freeze your accounts and you can easily lose your savings. In recent years, many banks are actively fighting against gray non-cash funds (including offshore ones), and every month more and more legal proceedings are organized on this basis.

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The fact is that serious money, for the most part, has a gray tinge, and only a tiny fraction of billions and millions are clean for the law. That is why their owners are often called to court, subjected to pressure, forced to leave the country, and so on. If your money is stored in Tkeycoin, you will not be subjected to such pressure and will avoid the lion’s share of troubles that usually accompany accounts with many zeros.
Using peer-to-peer systems — you will not be called by a Bank Manager and require documents or a fraudster who asks for Your card number and SMS for confirmation. This is simply not the case, wallets are encrypted, and using different addresses guarantees privacy.
As for fees for transfers, there are no Visa or Mastercard payment systems, as well as additional fees that we discussed above.

How are payments made in the Tkeycoin peer-to-peer payment system?


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As soon as you sign a transaction, it is sent to the blockchain and the miners are engaged in its confirmation, for which they take a symbolic Commission. Let’s look at an example, the key rate is $1, the transfer fee will be 0.00001970 TKEY or 0.00000174 TKEY.
0.00001970 TKEY=$0.00001970 0.00000174 TKEY=$0.00000174
Accordingly, commissions are almost zero. In Europe, on average, you will pay $15–20 for a small Bank transfer.
For example, now sending 1 million dollars to BTC, You will pay a Commission in the area of ≈3–8 dollars. Just think, 1 million dollars, without restrictions, risks, and sanctions, and most importantly, the transaction will be the available day today, and you paid an average of ≈5 dollars for the transfer.

Transactions in the Tkeycoin blockchain

Now let’s touch on the topic of how a transaction in the blockchain goes. Once you have sent a transaction, it will be available to the Recipient. The transaction takes place instantly and the User sees not” numbers on the screen”, but real funds-cryptocurrency. This is very convenient when you make any transactions and the Recipient needs to make sure that the payment came.
In the full node-there is a choice of confirmation blocks — this is the amount after which you can use the received cryptocurrency. When sending, you can select the number of confirmations:
• 2 blocks≈10 minutes • 4 block≈40 minutes • 6 blocks≈60 minutes • 12 blocks≈120 minutes • 24 blocks≈4 hours • 48 blocks≈8 hours • 144 blocks≈24 hours • 504 blocks≈3 days • 1008 blocks≈7 days
As we can see, you can also set a weekly confirmation if necessary. The minimum recommended number is 3 blocks. by default, the full node (local wallet) has 6 blocks installed. The presence of this number of confirmations ensures that Your block will not be forged and will be accepted by the network.
Each new transaction that receives network approval is sent to mempool, where it waits for miners to confirm it. When a miner takes a transaction to include it in the next block, it automatically receives the first confirmation.

Generating blocks in the TKEY network

A block in the TKEY network is generated within 6–10 minutes. the network automatically corrects the complexity and time of block formation. Thousands of transactions or a single transaction can be placed in a block.

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Transactions work faster in the TKEYSPACE app because we have already enabled new algorithms and this is now the fastest and most convenient way to exchange various digital currencies.

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Anyway, using the full node is also one of the safest ways to store and send Tkeycoin cryptocurrency, and most importantly, the full node stores a full copy of the entire blockchain, which benefits the network and provides protection from information forgery.
The more popular the project becomes, the more load is placed on the network itself. For example, 10,000 transactions passed in one block that was processed quickly, while the other 10–20 transactions in another block hung for a longer time, so temporary “pits” may appear. To deal with them, we are working on implementing additional chains-separate chains that are created for cross-transactions, which ensures fast payments under heavy load.
For the global system — we get a shipment around the world in 6–10 minutes, in cross-chains in 10 seconds. In comparison with the global payment system, which processes cross — border payments within 3–5 days, this is a huge advantage. If we add liquidity to this, we will get a perfect payment system.
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Also, you should not forget that if you did not sync with the network and sent a transaction, the transaction may hang in its memory pool and you will have to perform several actions to solve this situation. Here we must understand that syncing with the network is an important point because if you have a connection failure in the Internet Bank, the payment will also not be processed. After all, it will not be sent to a specialist for confirmation.
If you are currently experiencing any delays with transactions, this is due to the transition of CPU mining to GPU, as soon as miners switch to new mining methods, the confirmation of blocks will be consistently fast.
In conclusion: blockchain is a new technology and many terms, concepts and how it all works are still difficult for many to understand and this is normal from innovation.
In many countries, the word cryptocurrency and blockchain are synonymous and no one wants to understand the reality, most people believe that if the blockchain, it means it is related to trading on the cryptocurrency exchange. No one thinks about the real usefulness of certain solutions that will become commonplace for Us in the future.
For example, the Internet banking system dates back to the ’80s of the last century, when the Home Banking system was created in the United States. This system allowed depositors to check their accounts by connecting to the Bank’s computer via their phone. In the future, as the Internet and Internet technologies develop, banks are beginning to introduce systems that allow depositors to get information about their accounts via the Internet. For the first time, the service of transferring funds from accounts was introduced in 1994 in the United States by the Stanford Federal Credit Union, and in 1995 the first virtual Bank was created — Security First Network Bank. But, to the disappointment of the founders of the project, it failed because of strong distrust from potential customers, who, at that time, did not trust such an innovation.
Only in 2001, Bank of America became the first among all banks that provide e-banking services, the whole user base for this service exceeded 2 million customers. At that time, this figure was about 20 % of all Bank customers. And in October of the same year, 2001, and the same Bank of America took the bar in 3 million money transfers made using online banking services for a total amount of more than 1 billion US dollars. Currently, in Western Europe and America, more than 50% of the entire adult population uses e-banking services, and this figure reaches 90% among adult Internet users.
Life changes, and in the bustle of everyday work — we do not even notice how quickly all processes change.
We are experiencing a technological revolution that is inevitable.

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submitted by tkeycoin to Tkeycoin_Official [link] [comments]

Introduction and overview of the Bitcoin system

Based on this post I made a bit earlier:
https://www.reddit.com/BitcoinBeginners/comments/euozq4/blockchain_and_btc_technical_review_of_the_past/
We put together an introductory overview of the Bitcoin System. As this is intended for beginners I think this subreddit would be a good place to get some feedback. What will you learn from the text:
If you do decide to go through the text would love some feedback. Was it clear? Did you get any value from it? Anything that needs to be expanded on?
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1 Introduction to the Bitcoin System

1.1 Introduction and General Description

There are many definitions and descriptions of Bitcoin. Some describe it as an innovative virtual or crypto currency, some as the system for peer-to–peer electronic cash payment transactions, and some others as decentralized platform and infrastructure for anonymous payment transactions using any type of crypto currency.
In this Report we will adopt the concept that the Bitcoin system is a payment system. It has its own features, its own currency, its own protocols and components, and with all that Bitcoin supports payment transactions. In other words, the core function of the Bitcoin system is to support payments between two parties – the party that makes a payment and the party that receives the payment.
Based on the original concept and the description of the Bitcoin [Bitcoin, 2016], “it is a decentralized digital currency that enables instant payments to anyone, anywhere in the world. Bitcoin uses peer-to-peer technology to operate with no central authority: transaction management and money issuance are carried out collectively by the network”.
The system is decentralized since its supporting platform blockchain, comprises an infrastructure of multiple distributed servers, mutually linked by an instantaneous broadcasting protocol. Users perform transactions within the open and distributed community of registered users. Digital currency used in the system is not electronic form of fiat currency, but a special form of the currency generated and used only within the Bitcoin system. This concept is based on the notion that money can be interpreted as any object, or any sort of record, that is accepted as payment for goods and services and repayment of debts in a given country or socio-economic context. Bitcoin system is designed around the idea of using cryptography to control the creation and transfer of money, rather than relying on central authorities.
There are several important requirements when making any type of payment and with any currency. The best example of a “perfect” payment transaction that meets all these requirements is payment using cash over-the-counter. When a consumer pays to a merchant using cash over-the-counter, such transaction satisfies all requirements and expectations of both parties. First, the transaction is instantaneous, as the paper bill is transferred hand-to-hand, from the consumer to the merchant. The transaction is cheap, in fact there is no overhead charge to perform transaction, so the merchant receives the full amount. The transaction is irreversible, what is the property beneficial to merchants. The transaction is legal, as the merchant can verify the legality of the paper bill. And, finally, the transaction is anonymous for the consumer as he/she does not need to reveal his/her identity.
The only “problem” with cash over-the-counter is the cash itself, as using and handling cash has many disadvantages.
Bitcoin concept and system solves all issues and problems with the use of cash, but at the same time provides all advantages when performing transactions using digital and communication technologies. So, paying with Bitcoins is effectively payment transaction that uses “digital cash over-the-counter”. The concept of the Bitcoin system provides all advantages and benefits mentioned above with payments using cash over-the-counter, but eliminates the problems of using cash. That is the reason why Bitcoins are often referred to as “digital cash”.
One of significant features of payments using cash over-the-counter is that there are no third parties to participate or assist in the execution and validation of a transaction. This feature makes Bitcoin transactions very efficient and also very cheap to perform. Other types of todays payment systems, for instance using bank-to-bank account transfers or using bankcards, use many additional intermediate parties and use very complicated background infrastructure to validate and clear payment transactions. These infrastructures are complex to establish and operate, they are expensive, and they are vulnerable to attacks and penetrations by hackers. Bitcoin does not use such complex infrastructures, what is the reason that its transactions are efficient and cheap. An additional problem with third-party transaction players is that transaction parties must put the complete trust in all these parties without any means to verify their functionality, correctness, or security.
Bitcoin system uses public-key cryptography to protect the currency and transactions. Logical relationships between transaction parties is direct, peer-to-peer, and the process of validating transactions is based on cryptographic proof-of-work. When performing a transaction, the net effect is that certain amount of Bitcoins is transferred from one cryptographic address to another. Each user may have and use several addresses simultaneously. Each payment transaction is broadcast to the network of distributed transaction processing servers. These servers collect individual transactions, package them into blocks, and send them for validation.
Each block is cryptographically processed by the large number of so called “miners”. They each attempt to create cryptographic hash value that has special form. This is computationally very difficult and time-consuming task, therefore, it is very difficult to perform and repeat. Individual blocks are validated using cryptographic processing procedures that require substantial amount of work and computing power.
Approximately an hour or two after submitting the transaction for validation, each transaction is locked in time and by cryptographic processing by the massive amount of computing power that was used to complete the block. When the block is validated, it is added to the chain of all previous blocks, thus forming a public archive of all blocks and transactions in the system.
One of the most important problems with uncontrolled digital currency, where there are no third parties to validate and approve transactions, is so called double spending. Since the currency is digital, stored at user’s local workstations, in mobile phones, or on network servers, it can be easily copied and sent to multiple recipients multiple times.
Bitcoin system solves this problem with a very interesting approach. It is the first effective example of the solution for the double-spending problem without the need for assistance of any third party. Bitcoin solves this problem by keeping and distributing an archive of all transactions among all the users of the system via a peer-to-peer distribution network. Every transaction that occurs in the Bitcoin system is recorded in that public and distributed transactions ledger. Since the components in that ledger are blocks with transactions and the blocks are “chained” in time and in a cryptographic sequence, the ledger in the Bitcoin system is called blockchain.
That full blockchain of all transactions that were performed in the Bitcoin system before the specific transaction can be used to verify new transactions. The transactions are verified against the blockchain to ensure that the same Bitcoins have not been previously spent. This approach eliminates the double-spending problem. The essence of the verification procedure for a single transaction in fact is the test of the balance of the sending account. The test is very normal and natural: payment of a certain amount of the currency can be made only of the balance of the outgoing account is equal or larger than the payment amount. Current balance of an account is established by tracing all incoming and outgoing transactions for that account.
The procedure to verify the validity of individual transactions and to prevent double-spending is based on the use of special type of cryptographic protocol called public-key cryptography. With this type of cryptographic systems each user has two cryptographic keys. They are mutually related in the sense that, what ever the one key encrypts, the other key can decrypt. One of the two keys is a private key that is kept secret, and the other key is public key that can be shared with all other users in the system. When a user wants to make a payment to another user, the sender transfers certain amount of Bitcoins from his/her account to the account of the receiver. This action is performed by the sender by creating a payment message, called a “transaction,” which contains recipient’s public key – receiving address and payment amount. The transaction is cryptographically processed by the sender’s private key, the operation called digital signing, and as the result digital signature is created and appended to the transaction.
By using sender’s private key every user in the system can verify that the transaction was indeed created by the indicated sender, as his/her private key can successfully decrypt the content of the digital signature. The exchange is authentic, since the transaction was also cryptographically processed with the recipient’s public key, the operation which is called digital enveloping. This transformation guarantees that the transaction can be accepted and processed only by the holder of the corresponding private key, which is the intended recipient.
Every transaction, and thus the transfer of ownership of the specified amount of Bitcoins, is inserted, then time-stamped, and finally displayed in one “block” of the blockchain. Public-key cryptography ensures that all computers in the network have a constantly updated and verified record of all transactions within the Bitcoin network, which prevents double-spending and fraud.

1.2 The Concept and Features of the Bitcoin System

There are many concepts and even more operational payment systems today in the world. Some are standard paper–based, some are digital and network based. What makes Bitcoin unique and distinctive, compared with all other payment systems that are in use today, are several of its core features.
The first of them is that the system uses its own currency. The reason for using its own currency is to make the system independent of financial institutions as trusted third parties. The unit of the currency is called Bitcoin. The currency is so called crypto currency, because it is generated and used based on execution of certain cryptographic algorithms and protocols. Performing specific cryptographic protocols is in the heart of operations to create new Bitcoins, to transfer them between transaction parties, and to validate the correctness of transactions.
Since appearance of Bitcoins, several new systems were introduced that use cryptography to manage its own currency, so all such currencies represent the category of crypto currencies. Later in this Report, some other digital / virtual currencies will be described that are created and managed using some other principles, so they are not called crypto currency. At the time of writing this Report, all such digital virtual currencies were called with general term tokens, sometimes also digital assets tokens. The reason is that they were created by the process called collateralization and therefore they are related to the value of some categories of real world assets which is expressed in digital tokens units.
The second interesting and important feature of the Bitcoin system is that the logical relationship between the two transaction parties is direct, peer-to–peer, i.e. there are no other parties that participate in the transaction. This is an important feature and benefit / advantage of the system that contributes to its efficiency when compared with the todays complex and expensive financial payment infrastructures and protocols. However, for distribution of transactions to their validators and later to all other members in the Bitcoin system the physical flow of each transaction is very complex and includes many parties.
It should be emphasized that performing transactions as direct, peer-to–peer transfers is one of the key features and the most significant reason for many benefits and advantages of the Bitcoin system. This approach is the key feature of the Bitcoin system as it enables security and anonymity of parties, efficiency in performing transactions, scaling of the system, and instantaneous settlement of payments. Therefore, supporting execution and validation of serious business peer–to–peer transactions is one of the core benefits of the blockchain concept, as it changes the current paradigm of Internet applications and transactions. Currently all Internet applications are organized and performed as client–server transactions. Such transactions are not efficient, do not provide sufficient privacy of participants, have dependencies on third parties and usually are vulnerable due to attacks of functional problems with large centralized application servers.
The next very important characteristic of the Bitcoin system is anonymity of users, their accounts, and transactions. This property means that the identities of the participants in the system are not known even to the partners performing a payment transaction. All other system operations – receiving payments, making payments, validating transactions, etc. are also performed anonymously. Interpreting this property correctly, the anonymity of transaction participants is so called pseudo-anonymity. Namely, in the process of validating transactions, all previous transactions of the sender are traced back to the original initial transaction. If that initial transaction was the purchase of Bitcoins at some Bitcoin Exchange, then the identity of the original owner of Bitcoins is known. Most if not all service providers in the Bitcoin system today require very strict identification of participants for the purpose of enforcing legal and regulated transactions and include certain restrictions of transaction frequency and amounts. This procedure, although understandable from the legal and regulatory point of view, has in fact in essence changed one of the core principles of the original concept of the Bitcoin system – full anonymity of users.
Better solution for fully anonymous payment transactions is so called zero–knowledge protocol, where the identity and authorization to perform Bitcoin transactions, is validated by anyone without revealing any identity information of the parties. The only problem with this approach is revealing the identity of transaction participants to law enforcement authorities in case of illegal transactions. But, such authorities have special authorization under the law and they should be enabled to get identifying information about transaction participants in the process of legal law enforcement procedures. But, all other service providers do not have such status, so if Bitcoin principles are strictly followed, they should not be able to have identifying information about system participants.
This approach and potential improvement of the Bitcoin system implies that the system needs one of the classical security services: role–based authorization. In such arrangement, there would be at least two categories of system participants: those that are authorized to maintain and access identifying information about the participants and those that are only authorized to perform transactions. In the first category are legal authorities, like police, driving license authorities, tax authorities, etc. In the context of the standard Identities Management Systems, such participants are called Identity Providers. All others are Identity Verifiers. Therefore, one of the main conclusions about true anonymity in the Bitcoin system is establishment of a sophisticated and multi-role Identities Management System, where some parties will be authorized Identity Providers and all others will be Identity Validators. Finally, referring back to the infrastructure of the Bitcoin system to perform and validate transactions – blockchain, the conclusion is that what is needed, as one of the most important extensions of the current concept of anonymity of Bitcoins participants, is an Identity Management System based itself on the use of blockchain and without Identity Providers as trusted third parties. Creation, distribution, use and validation of identities are transactions in the system, equivalent to payment transactions, so they should also be performed using blockchain protocol. Such system, that can provide reliable identities of all participants may be called Blockchain Identity Management System.
Another very important feature of the original concept of the Bitcoin system is that it is not controlled by any financial institution, by any regulatory body or by any legal financial authority when it comes to issuing Bitcoins and determining their value. This means that the currency used in the system and all transactions are exempted from any legal and financial rules and regulations. The rules controlling Bitcoin system are built in its code. This property is usually called “rule by the technical code”, as the rules of system operations, built in the code of its operational components, control and rule the operations of the system [UK, 2016], Chapter 3. This property is sometimes described as “control by the community”, i.e. the participating users.
This property implies that the value of Bitcoins is determined solely on the market – based on its supply and demand. This is quite natural approach, as the value of shares of companies are also determined on an open trading market. However, such approach implies that the value of Bitcoin, as crypto currency, is volatile related to fiat currencies. This property represent serious problem to perform payments using Bitcoin. It is well-known that volatile currencies are not suitable for payments. The practice of all the years while Bitcoins are in use has shown that its volatility represents one of the major obstacles for its main purpose – to be used as the payment system. In fact, it was announced that in 2019 the total value of Bitcoin transactions performed was about $ 11 T. However, unfortunately, only about 1.3% of those transactions were payments, all others were trading manipulations on exchanges. Based on that, it may be clearly stated that Bitcoin today is not used as the payment system, but as currency manipulation system. This is one of the main problems with the concept and current implementation and deployment of Bitcoin system and in near future may represent the main reason for its decline in popularity.

1.3 Innovative Contributions of the Bitcoin System

Besides an effective procedure to transfer an amount of crypto currency from one user (account) to another user (account), the major and indeed an essential contribution of the concept of the Bitcoin is the solution to the general problem how to establish trust between two mutually unknown and otherwise unrelated parties to such an extent and certainty that sensitive and secure transactions can be performed with full confidence over an open environment, such as Internet. In all current large scale and not only financial systems that problem is solved by using the assistance of third parties. For many (may be even all) current Internet applications and transactions those third parties are integrated and linked into a large, complex, expensive and vulnerable operational infrastructures. Examples of such infrastructures today are bankcard networks supporting global international payments, global international banking networks supporting international financial transfers, Public–Key Infrastructures (PKI), Identity Management Systems, and many others. It is a general consent that such infrastructures are expensive and, more important, vulnerable to external and internal attacks.
In addition to the complexity and vulnerabilities of such current operational supporting infrastructures, another requirement and prerequisite to use their services is that users must put the complete trust in these third parties. Accepting to trust those third–party service providers is the necessary and mandatory prerequisite to use their services.
Therefore, one of the most important contributions of the concept of Bitcoin is that it solves the issue how two parties, mutually unknown to each other in advance and otherwise completely unrelated, can perform sensitive and secure transactions, such as transfer of money – payments, but without assistance of any third party and without the need to place trust in any component of the system.
The practical benefits of solving this problem and the most important consequence of the solution for this problem – Bitcoin system, is that it provides the possibility for one Internet user to transfer not only Bitcoins, but also any other form of digital asset to or shared with another Internet user, such that the transfer is guaranteed to be safe and secure, that everyone knows that the transfer has been performed, and nobody can challenge the legitimacy of the transfer.
This feature of the Bitcoin system generated many very new, creative and innovative ideas where the concept equivalent to the Bitcoin can be used to perform secure and reliable transactions between users in an open community handling any type of digital asset ([Andreesen, 2014], [Sparkes, 2014], [UniCredit, 2016], [BitID, 2015], [PoE, 2015]). The examples of such applications and transactions range from commercial transitions, real estate transactions, energy trading, electronic voting, medical applications, and many others ([Kounelis, 2015], [Muftic, 2016]). The concept of blockchain as technology supporting validation of all such transactions is therefore called disruptive technology.
As the conclusion in this section, we may give a definition of blockchain:
Blockchain is an innovative concept, implemented as an infrastructure comprising multiple and distributed servers, mutually linked by special broadcasting and synchronization protocols, managing immutable objects with the purpose to enable and protect secure peer–to–peer transactions in a global and open environment.

1.4 Summary of Problems and Potential Solutions

In section 1.2 several problems of the Bitcoin system were mentioned and potential solutions for these problems were outlined. Recently, at the time of writing this Technical Report, several sources, mainly personal blogs and articles, appeared with very interesting opinions and statements regarding some other serious Bitcoin problems. Some of them are problems with the concept of the system, some problems of its design, and some problems of operations. In this section some of these problems are briefly summarized including suggestions for their potential solutions. The source of some problems was the article [Ein, 2018].
Problem 1: Complex Crypto Algorithms
Problem: Bitcoins is crypto currency and cryptographic algorithms used in the current version are very complex, based on the concept of proof–of–work, and require long time, special hardware and a lots of energy to perform
Potential Solution: Potential solution fro this problem is to use cryptographic algorithms that are simpler and therefore more efficient to execute and need less energy
Problems with Potential Solution: Lowering the complexity of crypto algorithms introduces vulnerability to hackers. Therefore, what is needed are strong algorithms and simple to perform for regular users and complex to break by hackers
Problem 2: Indirect Transactions, not Peer–to–Peer
Problem: Contrary to the concept claimed, in todays implementation Bitcoin payment transactions are not performed as direct, peer–to–peer transactions. They are performed indirectly, submitted to the Bitcoin network, and recipients receive them indirectly, by downloading validated transactions from the ledger
Potential Solution: Transactions should be performed directly, by transferring them directly between two users
Problems with Potential Solution: The problem with the potential solution is validation of transaction for proof of possession of Bitcoins by the sender and for prevention of double-spending. Therefore, what is needed is the protocol to validate peer–to–peer transactions.
Problem 3: Anonymity of Users not provided
Problem: Contrary to the concept claimed, in todays deployments of additional system components, mainly exchanges, users are not anonymous
Potential Solution: Blockchain–based Distributed Identity Management System with Role-based Authorizations
Problems with Potential Solution: The problem with potential solution is that it depends on trusted third parties with authorized roles. Therefore, what is needed is blockchain-based Identity Management System using hybrid (permissioned and unpermissioned) blockchain
Problem 4: Volatile Value, not suitable for Payments
Problem: Contrary to the concept claimed that Bitcoin is payment system, volatile value of the currency makes it inconvenient for payments
Potential Solution: Crypto currency with stable value
Problems with Potential Solution: The problem with the potential solution is that the value of Bitcoins is determined on the secondary market, during its trading (cash-in / cash-out). Therefore, what is needed is crypto currency that does not have volatile value
The remaining problems in this section are quoted from [Ein, 2018]:
Problem 5: Negative Environmental Impact
Problem: Mining algorithms and operational facilities (“mining farms”) consume too much electrical energy, based on the “proof-of-work” protocol
Potential Solution: Using mining algorithms that consume less energy, either as simpler / lighter crypto algorithms or using alternative crypto protocols to protect transactions integrity (“proof-of-stake”)
Problems with Potential Solution: The problem with the potential solution is that simpler / lighter algorithms open vulnerabilities to hackers while alternative crypto protocols are not backward compatible with the current system
Problem 6: Slow Performance (Delays) / Low Throughput
Problem: Due to blocking and the designed time for protection of transactions (10 minutes) Bitcoin system has very slow performance – transactions are validated in about an hour and transaction processing throughput is about 7 transactions per second
Potential Solution: Using transaction validation algorithms and protocols that do not need blocking of transactions, but transactions should be validated individually
Problems with Potential Solution: There are no serious problems with the proposed potential solution
Problem 7: Limited Number of Bitcoins
Problem: Due hardware and other types of failures, the number of available Bitcoins in the system is constantly reducing
Potential Solution: Potential solution could be to use smaller portions of Bitcoin (“Satoshi”) or introduce hard-fork by splitting the amount of available Bitcoins
Problems with Potential Solution: The problems with the first solution that it is not user-friendly and the problem with the second solution is backwards compatibility.
Problem 8: Real Value of Bitcoins
Problem: The value of Bitcoins is purely psychological and reflects only pure market speculations
Potential Solution: Potential solution could be to peg the value of Bitcoin to local fiat currencies in countries of deployments
Problems with Potential Solution: The problems with the potential solution is that such Bitcoins would be a new class of Bitcoins, not traded on exchanges and not volatile
At the end of this section, it is very interesting to quote two opinions about the future of Bitcoin and blockchain:
[Ein, 2018]: “It seems that Bitcoin will likely cease to have meaningful value, defeating the whole point and philosophy imagined by Satoshi Nakamoto, the alleged inventor of Bitcoin. Its current value appears to be purely psychological, and the hype seems to be driven by irrational exuberance, greed and speculation. Modern human history has seen many bubbles, including the dot-com bubble, the housing bubble and even the tulip bubble. However, when these bubbles exploded, many excellent dot-com companies survived, most houses regained their value and tulips still have meaning and carry value in our lives today. But what will happen when the Bitcoin bubble bursts? What utility or residual value will Bitcoin have to consumers and businesses? Most likely none. And this is the real problem with Bitcoin and crypto currencies.
Bitcoin will likely go down in history as a great technological invention that popularized blockchain yet failed due to its design limitations. Just like the industrial revolution was fueled by the combustion engine, Nakamoto’s most valuable contribution is the blockchain polymorphic engine that will further accelerate innovation in the post-information age and immensely affect our lives”.
This quote makes two very important and far–reaching predictions:
(1) Bitcoin, as the payment system will disappear (“. . . will go down in history”), and
(2) The most valuable contribution of the Bitcoin system is blockchain
This article was written in 2018. It is very interesting to notice that at the time of writing this Technical Report, (1) Bitcoin was still “alive” and (2) the concept and deployments of blockchain were in serious trouble.
Based on the principle of positive and creative approach, in the rest of this Technical Report, besides description of all technical details of the Bitcoin system, some potential solutions for its improvement will also be discussed.
However, contrary to the predicted status of Bitcoin, it seems that the predicted status of blockchain, in 2020 was still facing serious problems.
[Barber, 2019]: What's Blockchain Actually Good for, Anyway? For Now, Not Much
“Not long ago, blockchain technology was touted as a way to track tuna, bypass banks, and preserve property records. Reality has proved a much tougher challenge”.

[Lucanus, 2020]: Has Blockchain Failed Before It Even Really Began?

“Just as everyone was getting really excited about its potential, it appears blockchain is dead. For a technology that was supposed to transform and solve seemingly every problem in the world, the enthusiasm is fading pretty quickly”.
At the time of writing this Technical Report, there were many new blockchain – concepts, design and even several deployed and operational instances. Some of them are even very popular, but only among enthusiastic developers. The overall trends with real life deployments, and more and more comments about the capabilities and features of blockchains are appearing with negative connotation. Therefore, seems that even for blockchain some innovative concepts and approaches are needed. They are beyond the scope of this Technical Report and will be addressed in some of our follow-up reports.
submitted by Theus5 to u/Theus5 [link] [comments]

Introduction and overview of the Bitcoin system

In relation to this post:
https://www.reddit.com/btc/comments/eupegk/technical_review_of_the_past_10_years_and_how_the/
We put together an introductory overview of the Bitcoin System. As this is intended to help increase public understanding of BTC and thus increase it's adoption. What will you learn from the text:
If you do decide to go through the text would love some feedback. Was it clear? Did you get any value from it? Anything that needs to be expanded on? - we are really excited about this project and hope to make it to the best of our abilities.
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1 Introduction to the Bitcoin System

1.1 Introduction and General Description

There are many definitions and descriptions of Bitcoin. Some describe it as an innovative virtual or crypto currency, some as the system for peer-to–peer electronic cash payment transactions, and some others as decentralized platform and infrastructure for anonymous payment transactions using any type of crypto currency.
In this Report we will adopt the concept that the Bitcoin system is a payment system. It has its own features, its own currency, its own protocols and components, and with all that Bitcoin supports payment transactions. In other words, the core function of the Bitcoin system is to support payments between two parties – the party that makes a payment and the party that receives the payment.
Based on the original concept and the description of the Bitcoin [Bitcoin, 2016], “it is a decentralized digital currency that enables instant payments to anyone, anywhere in the world. Bitcoin uses peer-to-peer technology to operate with no central authority: transaction management and money issuance are carried out collectively by the network”.
The system is decentralized since its supporting platform blockchain, comprises an infrastructure of multiple distributed servers, mutually linked by an instantaneous broadcasting protocol. Users perform transactions within the open and distributed community of registered users. Digital currency used in the system is not electronic form of fiat currency, but a special form of the currency generated and used only within the Bitcoin system. This concept is based on the notion that money can be interpreted as any object, or any sort of record, that is accepted as payment for goods and services and repayment of debts in a given country or socio-economic context. Bitcoin system is designed around the idea of using cryptography to control the creation and transfer of money, rather than relying on central authorities.
There are several important requirements when making any type of payment and with any currency. The best example of a “perfect” payment transaction that meets all these requirements is payment using cash over-the-counter. When a consumer pays to a merchant using cash over-the-counter, such transaction satisfies all requirements and expectations of both parties. First, the transaction is instantaneous, as the paper bill is transferred hand-to-hand, from the consumer to the merchant. The transaction is cheap, in fact there is no overhead charge to perform transaction, so the merchant receives the full amount. The transaction is irreversible, what is the property beneficial to merchants. The transaction is legal, as the merchant can verify the legality of the paper bill. And, finally, the transaction is anonymous for the consumer as he/she does not need to reveal his/her identity.
The only “problem” with cash over-the-counter is the cash itself, as using and handling cash has many disadvantages.
Bitcoin concept and system solves all issues and problems with the use of cash, but at the same time provides all advantages when performing transactions using digital and communication technologies. So, paying with Bitcoins is effectively payment transaction that uses “digital cash over-the-counter”. The concept of the Bitcoin system provides all advantages and benefits mentioned above with payments using cash over-the-counter, but eliminates the problems of using cash. That is the reason why Bitcoins are often referred to as “digital cash”.
One of significant features of payments using cash over-the-counter is that there are no third parties to participate or assist in the execution and validation of a transaction. This feature makes Bitcoin transactions very efficient and also very cheap to perform. Other types of todays payment systems, for instance using bank-to-bank account transfers or using bankcards, use many additional intermediate parties and use very complicated background infrastructure to validate and clear payment transactions. These infrastructures are complex to establish and operate, they are expensive, and they are vulnerable to attacks and penetrations by hackers. Bitcoin does not use such complex infrastructures, what is the reason that its transactions are efficient and cheap. An additional problem with third-party transaction players is that transaction parties must put the complete trust in all these parties without any means to verify their functionality, correctness, or security.
Bitcoin system uses public-key cryptography to protect the currency and transactions. Logical relationships between transaction parties is direct, peer-to-peer, and the process of validating transactions is based on cryptographic proof-of-work. When performing a transaction, the net effect is that certain amount of Bitcoins is transferred from one cryptographic address to another. Each user may have and use several addresses simultaneously. Each payment transaction is broadcast to the network of distributed transaction processing servers. These servers collect individual transactions, package them into blocks, and send them for validation.
Each block is cryptographically processed by the large number of so called “miners”. They each attempt to create cryptographic hash value that has special form. This is computationally very difficult and time-consuming task, therefore, it is very difficult to perform and repeat. Individual blocks are validated using cryptographic processing procedures that require substantial amount of work and computing power.
Approximately an hour or two after submitting the transaction for validation, each transaction is locked in time and by cryptographic processing by the massive amount of computing power that was used to complete the block. When the block is validated, it is added to the chain of all previous blocks, thus forming a public archive of all blocks and transactions in the system.
One of the most important problems with uncontrolled digital currency, where there are no third parties to validate and approve transactions, is so called double spending. Since the currency is digital, stored at user’s local workstations, in mobile phones, or on network servers, it can be easily copied and sent to multiple recipients multiple times.
Bitcoin system solves this problem with a very interesting approach. It is the first effective example of the solution for the double-spending problem without the need for assistance of any third party. Bitcoin solves this problem by keeping and distributing an archive of all transactions among all the users of the system via a peer-to-peer distribution network. Every transaction that occurs in the Bitcoin system is recorded in that public and distributed transactions ledger. Since the components in that ledger are blocks with transactions and the blocks are “chained” in time and in a cryptographic sequence, the ledger in the Bitcoin system is called blockchain.
That full blockchain of all transactions that were performed in the Bitcoin system before the specific transaction can be used to verify new transactions. The transactions are verified against the blockchain to ensure that the same Bitcoins have not been previously spent. This approach eliminates the double-spending problem. The essence of the verification procedure for a single transaction in fact is the test of the balance of the sending account. The test is very normal and natural: payment of a certain amount of the currency can be made only of the balance of the outgoing account is equal or larger than the payment amount. Current balance of an account is established by tracing all incoming and outgoing transactions for that account.
The procedure to verify the validity of individual transactions and to prevent double-spending is based on the use of special type of cryptographic protocol called public-key cryptography. With this type of cryptographic systems each user has two cryptographic keys. They are mutually related in the sense that, what ever the one key encrypts, the other key can decrypt. One of the two keys is a private key that is kept secret, and the other key is public key that can be shared with all other users in the system. When a user wants to make a payment to another user, the sender transfers certain amount of Bitcoins from his/her account to the account of the receiver. This action is performed by the sender by creating a payment message, called a “transaction,” which contains recipient’s public key – receiving address and payment amount. The transaction is cryptographically processed by the sender’s private key, the operation called digital signing, and as the result digital signature is created and appended to the transaction.
By using sender’s private key every user in the system can verify that the transaction was indeed created by the indicated sender, as his/her private key can successfully decrypt the content of the digital signature. The exchange is authentic, since the transaction was also cryptographically processed with the recipient’s public key, the operation which is called digital enveloping. This transformation guarantees that the transaction can be accepted and processed only by the holder of the corresponding private key, which is the intended recipient.
Every transaction, and thus the transfer of ownership of the specified amount of Bitcoins, is inserted, then time-stamped, and finally displayed in one “block” of the blockchain. Public-key cryptography ensures that all computers in the network have a constantly updated and verified record of all transactions within the Bitcoin network, which prevents double-spending and fraud.

1.2 The Concept and Features of the Bitcoin System

There are many concepts and even more operational payment systems today in the world. Some are standard paper–based, some are digital and network based. What makes Bitcoin unique and distinctive, compared with all other payment systems that are in use today, are several of its core features.
The first of them is that the system uses its own currency. The reason for using its own currency is to make the system independent of financial institutions as trusted third parties. The unit of the currency is called Bitcoin. The currency is so called crypto currency, because it is generated and used based on execution of certain cryptographic algorithms and protocols. Performing specific cryptographic protocols is in the heart of operations to create new Bitcoins, to transfer them between transaction parties, and to validate the correctness of transactions.
Since appearance of Bitcoins, several new systems were introduced that use cryptography to manage its own currency, so all such currencies represent the category of crypto currencies. Later in this Report, some other digital / virtual currencies will be described that are created and managed using some other principles, so they are not called crypto currency. At the time of writing this Report, all such digital virtual currencies were called with general term tokens, sometimes also digital assets tokens. The reason is that they were created by the process called collateralization and therefore they are related to the value of some categories of real world assets which is expressed in digital tokens units.
The second interesting and important feature of the Bitcoin system is that the logical relationship between the two transaction parties is direct, peer-to–peer, i.e. there are no other parties that participate in the transaction. This is an important feature and benefit / advantage of the system that contributes to its efficiency when compared with the todays complex and expensive financial payment infrastructures and protocols. However, for distribution of transactions to their validators and later to all other members in the Bitcoin system the physical flow of each transaction is very complex and includes many parties.
It should be emphasized that performing transactions as direct, peer-to–peer transfers is one of the key features and the most significant reason for many benefits and advantages of the Bitcoin system. This approach is the key feature of the Bitcoin system as it enables security and anonymity of parties, efficiency in performing transactions, scaling of the system, and instantaneous settlement of payments. Therefore, supporting execution and validation of serious business peer–to–peer transactions is one of the core benefits of the blockchain concept, as it changes the current paradigm of Internet applications and transactions. Currently all Internet applications are organized and performed as client–server transactions. Such transactions are not efficient, do not provide sufficient privacy of participants, have dependencies on third parties and usually are vulnerable due to attacks of functional problems with large centralized application servers.
The next very important characteristic of the Bitcoin system is anonymity of users, their accounts, and transactions. This property means that the identities of the participants in the system are not known even to the partners performing a payment transaction. All other system operations – receiving payments, making payments, validating transactions, etc. are also performed anonymously. Interpreting this property correctly, the anonymity of transaction participants is so called pseudo-anonymity. Namely, in the process of validating transactions, all previous transactions of the sender are traced back to the original initial transaction. If that initial transaction was the purchase of Bitcoins at some Bitcoin Exchange, then the identity of the original owner of Bitcoins is known. Most if not all service providers in the Bitcoin system today require very strict identification of participants for the purpose of enforcing legal and regulated transactions and include certain restrictions of transaction frequency and amounts. This procedure, although understandable from the legal and regulatory point of view, has in fact in essence changed one of the core principles of the original concept of the Bitcoin system – full anonymity of users.
Better solution for fully anonymous payment transactions is so called zero–knowledge protocol, where the identity and authorization to perform Bitcoin transactions, is validated by anyone without revealing any identity information of the parties. The only problem with this approach is revealing the identity of transaction participants to law enforcement authorities in case of illegal transactions. But, such authorities have special authorization under the law and they should be enabled to get identifying information about transaction participants in the process of legal law enforcement procedures. But, all other service providers do not have such status, so if Bitcoin principles are strictly followed, they should not be able to have identifying information about system participants.
This approach and potential improvement of the Bitcoin system implies that the system needs one of the classical security services: role–based authorization. In such arrangement, there would be at least two categories of system participants: those that are authorized to maintain and access identifying information about the participants and those that are only authorized to perform transactions. In the first category are legal authorities, like police, driving license authorities, tax authorities, etc. In the context of the standard Identities Management Systems, such participants are called Identity Providers. All others are Identity Verifiers. Therefore, one of the main conclusions about true anonymity in the Bitcoin system is establishment of a sophisticated and multi-role Identities Management System, where some parties will be authorized Identity Providers and all others will be Identity Validators. Finally, referring back to the infrastructure of the Bitcoin system to perform and validate transactions – blockchain, the conclusion is that what is needed, as one of the most important extensions of the current concept of anonymity of Bitcoins participants, is an Identity Management System based itself on the use of blockchain and without Identity Providers as trusted third parties. Creation, distribution, use and validation of identities are transactions in the system, equivalent to payment transactions, so they should also be performed using blockchain protocol. Such system, that can provide reliable identities of all participants may be called Blockchain Identity Management System.
Another very important feature of the original concept of the Bitcoin system is that it is not controlled by any financial institution, by any regulatory body or by any legal financial authority when it comes to issuing Bitcoins and determining their value. This means that the currency used in the system and all transactions are exempted from any legal and financial rules and regulations. The rules controlling Bitcoin system are built in its code. This property is usually called “rule by the technical code”, as the rules of system operations, built in the code of its operational components, control and rule the operations of the system [UK, 2016], Chapter 3. This property is sometimes described as “control by the community”, i.e. the participating users.
This property implies that the value of Bitcoins is determined solely on the market – based on its supply and demand. This is quite natural approach, as the value of shares of companies are also determined on an open trading market. However, such approach implies that the value of Bitcoin, as crypto currency, is volatile related to fiat currencies. This property represent serious problem to perform payments using Bitcoin. It is well-known that volatile currencies are not suitable for payments. The practice of all the years while Bitcoins are in use has shown that its volatility represents one of the major obstacles for its main purpose – to be used as the payment system. In fact, it was announced that in 2019 the total value of Bitcoin transactions performed was about $ 11 T. However, unfortunately, only about 1.3% of those transactions were payments, all others were trading manipulations on exchanges. Based on that, it may be clearly stated that Bitcoin today is not used as the payment system, but as currency manipulation system. This is one of the main problems with the concept and current implementation and deployment of Bitcoin system and in near future may represent the main reason for its decline in popularity.

1.3 Innovative Contributions of the Bitcoin System

Besides an effective procedure to transfer an amount of crypto currency from one user (account) to another user (account), the major and indeed an essential contribution of the concept of the Bitcoin is the solution to the general problem how to establish trust between two mutually unknown and otherwise unrelated parties to such an extent and certainty that sensitive and secure transactions can be performed with full confidence over an open environment, such as Internet. In all current large scale and not only financial systems that problem is solved by using the assistance of third parties. For many (may be even all) current Internet applications and transactions those third parties are integrated and linked into a large, complex, expensive and vulnerable operational infrastructures. Examples of such infrastructures today are bankcard networks supporting global international payments, global international banking networks supporting international financial transfers, Public–Key Infrastructures (PKI), Identity Management Systems, and many others. It is a general consent that such infrastructures are expensive and, more important, vulnerable to external and internal attacks.
In addition to the complexity and vulnerabilities of such current operational supporting infrastructures, another requirement and prerequisite to use their services is that users must put the complete trust in these third parties. Accepting to trust those third–party service providers is the necessary and mandatory prerequisite to use their services.
Therefore, one of the most important contributions of the concept of Bitcoin is that it solves the issue how two parties, mutually unknown to each other in advance and otherwise completely unrelated, can perform sensitive and secure transactions, such as transfer of money – payments, but without assistance of any third party and without the need to place trust in any component of the system.
The practical benefits of solving this problem and the most important consequence of the solution for this problem – Bitcoin system, is that it provides the possibility for one Internet user to transfer not only Bitcoins, but also any other form of digital asset to or shared with another Internet user, such that the transfer is guaranteed to be safe and secure, that everyone knows that the transfer has been performed, and nobody can challenge the legitimacy of the transfer.
This feature of the Bitcoin system generated many very new, creative and innovative ideas where the concept equivalent to the Bitcoin can be used to perform secure and reliable transactions between users in an open community handling any type of digital asset ([Andreesen, 2014], [Sparkes, 2014], [UniCredit, 2016], [BitID, 2015], [PoE, 2015]). The examples of such applications and transactions range from commercial transitions, real estate transactions, energy trading, electronic voting, medical applications, and many others ([Kounelis, 2015], [Muftic, 2016]). The concept of blockchain as technology supporting validation of all such transactions is therefore called disruptive technology.
As the conclusion in this section, we may give a definition of blockchain:
Blockchain is an innovative concept, implemented as an infrastructure comprising multiple and distributed servers, mutually linked by special broadcasting and synchronization protocols, managing immutable objects with the purpose to enable and protect secure peer–to–peer transactions in a global and open environment.

1.4 Summary of Problems and Potential Solutions

In section 1.2 several problems of the Bitcoin system were mentioned and potential solutions for these problems were outlined. Recently, at the time of writing this Technical Report, several sources, mainly personal blogs and articles, appeared with very interesting opinions and statements regarding some other serious Bitcoin problems. Some of them are problems with the concept of the system, some problems of its design, and some problems of operations. In this section some of these problems are briefly summarized including suggestions for their potential solutions. The source of some problems was the article [Ein, 2018].
Problem 1: Complex Crypto Algorithms
Problem: Bitcoins is crypto currency and cryptographic algorithms used in the current version are very complex, based on the concept of proof–of–work, and require long time, special hardware and a lots of energy to perform
Potential Solution: Potential solution fro this problem is to use cryptographic algorithms that are simpler and therefore more efficient to execute and need less energy
Problems with Potential Solution: Lowering the complexity of crypto algorithms introduces vulnerability to hackers. Therefore, what is needed are strong algorithms and simple to perform for regular users and complex to break by hackers
Problem 2: Indirect Transactions, not Peer–to–Peer
Problem: Contrary to the concept claimed, in todays implementation Bitcoin payment transactions are not performed as direct, peer–to–peer transactions. They are performed indirectly, submitted to the Bitcoin network, and recipients receive them indirectly, by downloading validated transactions from the ledger
Potential Solution: Transactions should be performed directly, by transferring them directly between two users
Problems with Potential Solution: The problem with the potential solution is validation of transaction for proof of possession of Bitcoins by the sender and for prevention of double-spending. Therefore, what is needed is the protocol to validate peer–to–peer transactions.
Problem 3: Anonymity of Users not provided
Problem: Contrary to the concept claimed, in todays deployments of additional system components, mainly exchanges, users are not anonymous
Potential Solution: Blockchain–based Distributed Identity Management System with Role-based Authorizations
Problems with Potential Solution: The problem with potential solution is that it depends on trusted third parties with authorized roles. Therefore, what is needed is blockchain-based Identity Management System using hybrid (permissioned and unpermissioned) blockchain
Problem 4: Volatile Value, not suitable for Payments
Problem: Contrary to the concept claimed that Bitcoin is payment system, volatile value of the currency makes it inconvenient for payments
Potential Solution: Crypto currency with stable value
Problems with Potential Solution: The problem with the potential solution is that the value of Bitcoins is determined on the secondary market, during its trading (cash-in / cash-out). Therefore, what is needed is crypto currency that does not have volatile value
The remaining problems in this section are quoted from [Ein, 2018]:
Problem 5: Negative Environmental Impact
Problem: Mining algorithms and operational facilities (“mining farms”) consume too much electrical energy, based on the “proof-of-work” protocol
Potential Solution: Using mining algorithms that consume less energy, either as simpler / lighter crypto algorithms or using alternative crypto protocols to protect transactions integrity (“proof-of-stake”)
Problems with Potential Solution: The problem with the potential solution is that simpler / lighter algorithms open vulnerabilities to hackers while alternative crypto protocols are not backward compatible with the current system
Problem 6: Slow Performance (Delays) / Low Throughput
Problem: Due to blocking and the designed time for protection of transactions (10 minutes) Bitcoin system has very slow performance – transactions are validated in about an hour and transaction processing throughput is about 7 transactions per second
Potential Solution: Using transaction validation algorithms and protocols that do not need blocking of transactions, but transactions should be validated individually
Problems with Potential Solution: There are no serious problems with the proposed potential solution
Problem 7: Limited Number of Bitcoins
Problem: Due hardware and other types of failures, the number of available Bitcoins in the system is constantly reducing
Potential Solution: Potential solution could be to use smaller portions of Bitcoin (“Satoshi”) or introduce hard-fork by splitting the amount of available Bitcoins
Problems with Potential Solution: The problems with the first solution that it is not user-friendly and the problem with the second solution is backwards compatibility.
Problem 8: Real Value of Bitcoins
Problem: The value of Bitcoins is purely psychological and reflects only pure market speculations
Potential Solution: Potential solution could be to peg the value of Bitcoin to local fiat currencies in countries of deployments
Problems with Potential Solution: The problems with the potential solution is that such Bitcoins would be a new class of Bitcoins, not traded on exchanges and not volatile
At the end of this section, it is very interesting to quote two opinions about the future of Bitcoin and blockchain:
[Ein, 2018]: “It seems that Bitcoin will likely cease to have meaningful value*, defeating the whole point and philosophy imagined by Satoshi Nakamoto, the alleged inventor of Bitcoin. Its current value appears to be purely psychological, and the hype seems to be driven by irrational exuberance, greed and speculation. Modern human history has seen many* bubbles*, including the dot-com bubble, the housing bubble and even the tulip bubble. However, when these bubbles exploded, many excellent dot-com companies survived, most houses regained their value and tulips still have meaning and carry value in our lives today. But what will happen when the Bitcoin bubble bursts? What* utility or residual value will Bitcoin have to consumers and businesses? Most likely none*. And this is the real problem with Bitcoin and crypto currencies.*
Bitcoin will likely go down in history as a great technological invention that popularized blockchain yet failed due to its design limitations*. Just like the industrial revolution was fueled by the combustion engine, Nakamoto’s most valuable contribution is the* blockchain polymorphic engine that will further accelerate innovation in the post-information age and immensely affect our lives”.
This quote makes two very important and far–reaching predictions:
(1) Bitcoin, as the payment system will disappear (“. . . will go down in history”), and
(2) The most valuable contribution of the Bitcoin system is blockchain
This article was written in 2018. It is very interesting to notice that at the time of writing this Technical Report, (1) Bitcoin was still “alive” and (2) the concept and deployments of blockchain were in serious trouble.
Based on the principle of positive and creative approach, in the rest of this Technical Report, besides description of all technical details of the Bitcoin system, some potential solutions for its improvement will also be discussed.
However, contrary to the predicted status of Bitcoin, it seems that the predicted status of blockchain, in 2020 was still facing serious problems.
[Barber, 2019]: What's Blockchain Actually Good for, Anyway? For Now, Not Much
“Not long ago, blockchain technology was touted as a way to track tuna, bypass banks, and preserve property records. Reality has proved a much tougher challenge”.

[Lucanus, 2020]: Has Blockchain Failed Before It Even Really Began?

“Just as everyone was getting really excited about its potential, it appears blockchain is dead. For a technology that was supposed to transform and solve seemingly every problem in the world, the enthusiasm is fading pretty quickly”.
At the time of writing this Technical Report, there were many new blockchain – concepts, design and even several deployed and operational instances. Some of them are even very popular, but only among enthusiastic developers. The overall trends with real life deployments, and more and more comments about the capabilities and features of blockchains are appearing with negative connotation. Therefore, seems that even for blockchain some innovative concepts and approaches are needed. They are beyond the scope of this Technical Report and will be addressed in some of our follow-up reports.
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Bank of International Settlements Changes its Tune Bank of International Settlements Report: More Central Bank/Government Crypto Currencies Coming Ripple Bank Of International Settlements Document & Central Bank Of Brazil IMF Crypto Guidelines Bitcoin SV Update: Block Reward Halving Highlights Transaction-Fee Future for Mining Revenue! Breaking Bitcoin Market Update - Baseline Rejection and Fundamentals - Let's Prepare For the Week!

Bank For International Settlements (BIS) or better known as the “Central Bank of Banks” just released their annual report, in which they didn’t seem too happy about big tech firms entry into the space of financial services.The entry of large technology firms or “big techs” into financial services can enhance financial inclusion but comes with new risks #BigTech https://t.co A recent report published by the Bank of International Settlements (BIS), also known as the “central bank of central banks,” shows some concern about cryptocurrencies. The paper under the name “Beyond the Doomsday Economics of ‘Proof-of-work’ in Cryptocurrencies” was published on Jan. 21. It puts the main focus on the process of how Bitcoin (BTC) and other related cryptocurrencies The Bank of International Settlements (BIS) General Manager, Agustin Carstens this week made it clear that he is against central bank-issued cryptocurrencies.. Speaking at the Central Bank of Ireland’s annual Whitaker Lecture, Carstens claimed that “for most countries, cash is still in high demand” so there is not necessarily a desire for it to be replaced by a state-backed cryptocurrency. The Bank for International settlement established a BIS innovation Hub in June last year to spearhead Fintech research and innovations especially those that are related to the functioning of global financial systems and to serve as a focal point for a network of central bank experts on innovation. Bank of America filed a patent application for the blockchain system for interbank settlements, with the illustrations included in the application refer to the Ripple technology. The document describes a system using distributed registry technology as an interbank communications tool that will allow for real-time settlement.

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Bank of International Settlements Changes its Tune

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