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What does Bitcoin provide over PayPal?

Republished by Plato

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The Desert Island Case for Cryptocurrency

Working as COO at Blockchain.com means I constantly field cryptocurrency related questions from all sorts of people. The most interesting of which don’t focus on price, or mechanism, but the very purpose of digital money: Why do we need cryptocurrencies? What’s the point in Bitcoin when we already have Paypal and banking apps?

The confusion is not restricted to those outside of finance — I faced similar questions from bankers whilst I was at UBS working to develop a form of ‘digital money’ (eventually known as the ‘Utility Settlement Coin’): Why do we need this ‘digital money’? Surely all the money we deal with is already electronic?

In the past I explained that the aim is to create a decentralised digital bearer asset that enables fast and trustless peer-to-peer transaction settlement without a centralised third party, using a blockchain and distributed ledger technology. I recognise that this description is a mouthful and while it may be technically accurate, without a glossary of terms at hand, it doesn’t provide much clarity. An inquisitive listener is stuck wondering: So why do we all need that again? Here’s my attempt to explain.

When considering the role of Bitcoin, it’s helpful to conceptualise different monetary systems and take a look back at the history of money. For the purposes of today, let’s imagine a community on a self-sufficient, remote-island. In my head it looks something like the community in the book The Beach, made famous by Leonardo DiCaprio’s starring role in Danny Boyle’s 90’s film.

Imagine that on this beach Leo and his settler-buddies decide it would be useful to establish a form of rudimentary money and decide to use bags of rice for this purpose. Each of the beach members store their individual rice bags in various locations and when they trade between themselves they physically move the rice bags around as payment. These rice bags are both ‘commodity money’ and ‘bearer assets’ meaning that the person who owns the asset is the one who controls it. Transactions are ‘peer-to-peer’ because they take place directly between two people without any third party involved.

Soon the beach members realise it’s tiresome to store each of their own rice bags and move them around constantly. Leo has better things to do. So they decide to store all the rice bags in the same storage hut, and everybody keeps their own record (on paper) of how many bags each person owns. Every evening the community gathers round a fire and any new transactions and changes in rice ownership are announced, with everyone updating their own records accordingly. If there are any disagreements the beach leader (she’s called ‘Sal’ in the film) steps in and decides who’s right.

This money is no longer a bearer asset as it’s now ledger-based, in this case using a ‘distributed ledger’ — as everybody has their own copy of the transaction history and its current state. They have a centralised consensus mechanism for dispute resolution (Sal, the beach leader decides). However, if they were able to come up with a set of enforceable rules for reaching consensus without the need to rely on Sal then this would be a ‘decentralised consensus mechanism’.

A few weeks pass and the group decide that it’s inefficient and boring for everyone to come together nightly to update their individual ledgers. Instead they decide to rely on one ledger that they entrust to the beach leader, Sal. Now, every time a transaction happens the people involved inform Sal and she updates her ‘golden record’. This saves everyone time. Money is still ledger-based, but it’s no longer a distributed ledger.

Every few weeks Sal sails to the mainland to make trades and purchases on behalf of the island community. During one of these trips she has an idea! The rice bags which are the ‘asset-backed’ feature of the community’s money are never used and just sit idly in the central storage hut. So she decides to trade the rice in the mainland markets in return for other useful things like vegetables seeds and livestock that she takes back to the beach. The community members are pretty happy with this arrangement because they are able to grow more food.

They keep using the centralised ledger maintained by Sal for recording transactions and they continue to use rice bags as the ‘unit of account’ for their money. Only now there are no rice bags in the storage hut — they have all been traded out on the mainland. The islander’s ‘money’ is no longer asset-backed by anything physical — it has become a ‘fiat money’. The term ‘fiat’ derives from Latin, “let it be done” in the context of an order, requirement, or decree.

The money no longer had intrinsic value as it can no longer be converted back into rice bags. The islanders are now not only trusting Sal to look after the money and keep track of who owns what, they are now trusting Sal to also maintain the value of the money itself. For this to work the islanders must trust that the money will always be exchangeable for goods and services on the island and that Sal won’t devalue the existing money by creating more money out of thin air.

This system works fairly well, but because it’s based on a centralised ledger everybody has to continually come and speak to Sal each time a transaction is made. This also becomes tiresome, so Sal comes up with another idea. She starts handing out pieces of paper that represents a claim to exactly one bag of rice from the central storage hut (which of course are no longer there). She personally signs each piece of paper to prevent forgery. Beach members now use these notes as money to make peer-to-peer payments between themselves in whatever manner they like, without involving Sal.

Just like the bags of rice at the beginning, these notes are again ‘bearer assets’ as they no longer rely on a ledger and instead it’s the control of the asset (now the paper notes) that determines ownership. We have almost come full circle, only now we have ‘peer-to-peer fiat-money’ rather than the ‘peer-to peer commodity-money’ that we started with.

The island example is simplistic but most forms of money used today can be understood in these terms. Just like the beach community, our modern economies have gravitated towards centralised ledgers. The majority of money today exists as electronic ledgers maintained by banks, like the one controlled by the beach leader, Sal. A small proportion of money exists as physical cash, like the notes the beach members used to settle transactions directly between themselves. Almost all of this money is fiat money — it’s not ‘backed’ by anything and so it’s value relies on trust.

In our current society, you first need to trust the institutions that issue the money and maintain the ledgers (i.e. that banks won’t go bust, or mess with the ledger to take your funds). Second, you need to trust the value of the fiat money itself. Just as the islanders had to trust that the Sal’s money would continue to be exchangeable on the island and on the mainland, we must trust that the money we own will be forever exchangeable for goods and services in our economies. We must trust that people will always be willing to accept our money and that banks won’t create too much of it. We trust (hope!) that there will continue to be demand and not too much supply to ensure that the value (price) is maintained over time. But sometimes this trust is lost. Beach leaders like Sal can make mistakes or sometimes be downright cheats. And that has consequences.

Banks can fail. Looking back to the last decade, the world economy was defined by the 2008 Global Financial Crisis. This demonstrated quite clearly that the money in banks was not as sound as many had assumed. Banks had created money out of thin air by using borrowed money to create loans. But these loans turned out to be bad. Imagine if Sal had borrowed the rice bags from the storage hut and traded them in on the mainland for seeds and livestock that turned out to be rotten and totally useless. This is essentially what happened in 2008 — people realised the assets the banks had were worthless and so trust and confidence in the economy was lost. As a result, banks became insolvent, people were unable to withdraw money and in some cases funds had to be frozen.

Transactions can be blocked. Many users have found their accounts frozen or transactions blocked by banks and payment providers, like PayPal. Sometimes this is due to fraud detection algorithms that are protecting the customer, but at other times it’s due to false positives or other factors. The result is that your money isn’t fully yours when it’s at a bank, with PayPal, or any other traditional financial institution. That institution must ‘co-sign’ every transaction and has the ability to block it.

Fiat can be inflated. Economics 101 tells us that if you create too much supply without enough corresponding demand, prices will fall. Money is no different: If a country prints too much money but the economy does not grow to generate demand, the value of money will decrease. We call this inflation and right now there are high levels of inflation in countries like Venezuela, Argentina, Turkey, Iran and Zimbabwe. The impact means that people don’t have easy access to stable currencies or safe haven assets and so their options for wealth preservation are very limited — in many cases their life savings disappear. Imagine a mother in Venezuela trying to save money for her children’s future. She’s been carefully storing cash in a safety deposit box for years, but now due to hyperinflation the money is essentially worthless. Savings that used to be enough to pay for tuition fees are now worth less than a toilet roll.

Millions of Venezuelan bolivars are worth less than toilet paper

Cryptocurrencies can offer an appealing alternative to fiat in cases where people have limited trust in centralised institutions or a way to store wealth. Cryptocurrencies like bitcoin can be understood as the digital equivalent of the beach members coming together around fire to collectively come to consensus as to which transactions are valid and then each updating their own individual ledger at the same time. (Please note that this brushes over many technical details as to just how these ledgers are kept in sync and why someone can’t award themselves a large amount of money!)

But the general concept is that if you can solve these technical details, then each beach member need no longer rely on the golden ledger controlled by Sal. They can choose whether to trust Sal or not. They don’t need to follow Sal if they don’t want to, because now the system is completely decentralised — no one needs to trust Sal to maintain the ledger or the value of the money itself.

Bringing this back to the present, as a concrete example of loss in fiat trust, Venezuela has recently experienced hyperinflation. A Venezuelan holding 1000 USD worth of bolivars a few years ago has seen the value of this holding evaporate to basically zero. Had that person been able to swap those bolivars into bitcoin over this time — had they had a choice of who to trust — they would have preserved their purchasing power in USD terms and would be better off.

But this is only part of the story. Right now when you send money to a friend (via an app, using PayPal or otherwise) what you are really doing is sending a message telling your bank to make a change in their centralised ledger. This is limiting, as everything is constrained by the need to plug-in to the bank’s centralised ledger. By contrast, cryptocurrencies are like digital cash which can be transferred between two people directly (peer-to-peer) over the internet without the need for any permissions from PayPal. Just like physical cash in the physical world, digital cash such as Bitcoin is untethered from legacy constraints and is ‘free’.

The existence of ‘digital cash’ is transforming the way in which value is transferred over networks because it theoretically enables any amount of money to be sent to anyone (or thing) at any time, extremely cheaply. The money itself is ‘programmable’, meaning it can literally do anything a programmer is able to fathom.

To make it real, imagine a scene back on the beach. Leo is lying in his hammock, sipping out of a coconut whilst reading an article about cryptocurrencies on his smartphone. His digital wallet ‘streams’ bitcoin directly to the London based author in real-time as he reads. Leo enjoys the article so he shares it on Twitter. He’s especially incentivised to do this because the author has applied some basic code that pays Leo a small amount of crypto every-time one of Leo’s followers click on the article link. Note that this can be difficult or impossible to do with PayPal, as it would depend on the dollar amounts being sent, the number of payments, and whether both author and reader had bank accounts. This is just one application of programmable money; over time money will flow over the internet as freely as information does today.

With PayPal or other fiat currency payment mechanisms you have to: a) store your money with a bank, b) trust the bank not to fail, c ) trust the bank to let all your payments go through and not freeze your account, and d) trust the government of the bank not to inflate the currency. Moreover, PayPal is not as freely programmable as Bitcoin and other cryptocurrencies.

Millions of people, maybe even hundreds of millions of people may become attracted to cryptocurrencies like bitcoin as an alternative to trusting banks, governments, and centralised forms of money with their life savings. However, in my view the driver for billions of people to use crypto will not be due solely to a breakdown in trust. It will be because this programmable digital money will be fundamentally more useful than anything that went before it, at the beach or at the bank.

For updates on future posts follow me on twitter

Source: https://medium.com/blockchain/what-does-bitcoin-provide-over-paypal-19e48656183e?source=rss—-8ac49aa8fe03—4

Blockchain

PARSIQ Integrated Into Polkadot For Smart Triggers Across the Relay Chain

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[PRESS RELEASE – Tallinn, Estonia, 11th May 2021]

PARSIQ, a platform that monitors data and automation across blockchains, bridging both on and off-chain apps and sending out user alerts once transactions are executed, now offers compatibility for smart triggers with the Polkadot Relay Chain.

A smart trigger is effectively a smart contract that is deployed into the PARSIQ ecosystem. It allows triggers from external chains to be passed to off-chain systems. It collects data across a variety of chains in real-time and then constructs an indexed composition of actions in any one chain in the process of reverse-engineering. It can validate and process a huge amount of real-time data simultaneously via its distributed data management layer by utilizing chain-specific feature extraction.

Building a Bridge

PARSIQ shares the same ideology as Polkadot, which is to bridge data across a huge network of chains, leaving all chains completely equal to one another, where each chain has its own personal real-world uses and strengths. This is a model which builds strength from numbers and enhances usability by combining the entire group of chains into one strong network.

PARSIQ, rather than being a chain itself, is the bridge between the chains and between off-chain applications too. Developers can build their own smart triggers using PARSIQ. These smart triggers react to events, plus they are able to store and alter data and also to learn from the data as they grow.

The platform, in addition to monitoring data and creating alerts, can also be used to deploy bots, as well as for areas like monitoring AML, performing automated accounting, and more. Each developer’s data stream is completely unique with its own branding retaining as well as its pricing structure, even while it is growing and learning from the entire network.

PARSIQ is now integrated across all of the major blockchains, including Bitcoin, Ethereum, Binance Smart Chain, Solana, Celo, Dash, and Algorand, to give users a way to simplify the automation of all their processes and applications off-chain, on-chain, and even across Layer-2 chains.

About PARSIQ

PARSIQ’s smart triggers have far-reaching functionality, including monitoring transactions, assets are withdrawn from a user, sent to other users, transfers exceeding a pre-set level, and many more. Developers can use the PARSIQ platform to build their own smart triggers for data workflow automation, storage, and learning here:

https://portal.parsiq.net/signup

Examples of workflows include:

Alerts of DOT transactions as they happen

Bridging events in the Polkadot Relay Chain (as well as other chains) with a simple user interface

Monitor data flow and create advanced analytics from the data

Alerting to strong potential trades

Usage for traders, platforms, and market researchers to build strong, data-backed pictures of the markets.

About Polkadot

Created by one of Ethereum’s founders, Dr. Gavin Wood Polkadot’s goal is to take blockchains to a state closer to Web3, where all on-chain activity is shared across a variety of chains. It is an intersection capable of translating architecture into one heterogeneous language for customizing side chains to connect with public blockchains.

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Source: https://cryptopotato.com/parsiq-integrated-into-polkadot-for-smart-triggers-across-the-relay-chain/

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Blockchain

Raze Network Kicks Off Testnet Phase With UI Community Voting

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[PRESS RELEASE – Singapore, Singapore, 11th May 2021]

Raze Network, the first Polkadot-based privacy protocol, is bracing to engage community members with our first testnet. Early birds will be able to provide feedback on the quality, function, and overall experience of the Polkadot-based privacy protocol.

This huge milestone clears the way for ‘Razers’ and collaborators to easily test drive the newest features and allows plenty of maturation time for these new features to be fully tested.

Our team already started designing the user interface of the privacy protocol we promised to launch. However, we want to resort to the collective wisdom of our community on how to actually bring this to realization, thus launching this UI Community Voting Campaign.

The beta testnet marks the latest step forward in Raze Network’s overall mission to enable the broader community to contribute to the evolution of our trustless decentralized privacy protocol.

Raze Network’s applications present the decentralized finance (DeFi) community with a cross-chain middleware solution on Polkadot for concealing transactions when operating on decentralized exchanges.

With a clear vision and solid use-case, the protocol-based solution leverages the Polkadot ecosystem to offer the required privacy layer for the crypto sphere. The privateness protocol aims to guard anonymity for all the DeFi stack on the Polkadot.

To achieve higher participation during the testnet, Raze Network is organizing a number of events, competitions, and challenges to encourage participants to actively test critical components of our ecosystem. Specifically, we will airdrop 1,000 $RAZE tokens to 10 lucky voters based on how many entries they generated to vote for the best UI style.

$RAZE is set to be the lifeblood of the Raze Network, designed as a utility token to represent participation in the ecosystem.

The launch of Raze Network’s UI testnet comes on the heels of several other recent milestones, including a robust set of developer resources and partnerships that continues to expand.

Just in April, we announced the strategic listing of Raze token on the popular DeFi platform, Uniswap. This listing closely follows our completed triple IDO event on three launchpads.

Interestingly, apart from going live on DEX exchanges, $RAZE tokens will also soon be listed on several tier-1 centralized exchanges.

This networked testnet release allows Raze to continue working with our partners towards the mass adoption of decentralized applications and smart contracts.

Since its inception, Raze Network sought to develop an infrastructure that is easy to understand and smooth to navigate. One where even new users can reap the benefits of a cross-chain middleware solution for anonymous transactions, payments trading, and mining.

Although the token launch is done, the real work starts. Most recently, we have completed the development of mint, transfer, and redeem contracts in Solidity. Currently, we are testing how to deploy these contracts on EVM.

Also, the major front-end and client modules that can invoke the aforementioned contracts have been developed.

About Raze Network

Raze Network is a Substrate-based cross-chain privacy protocol for the Polkadot ecosystem. It is built as a native privacy layer that can provide end-to-end anonymity for the entire DeFi stack. The Raze Network applies zk-SNARKs to the Zether framework to build a second-layer decentralized anonymous module.

It will then be imported as a Substrate-based smart contract. The objective of Raze Network is to enable cross-chain privacy-preserving payment and trading systems while protecting the transparency of your assets and behaviors from surveillance.

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Source: https://cryptopotato.com/raze-network-kicks-off-testnet-phase-with-ui-community-voting/

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Blockchain

First Spot: Coinbase’s App Surpassed TikTok, Instagram, and Facebook on iOS in the US

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Coinbase’s mobile application has become the most popular app on iOS in the US. With its rise to the top, it has surpassed some highly utilized applications like TikTok, YouTube, Instagram, Facebook, and more.

Coinbase Tops US iOS Chart

According to data from SensorTower, the mobile application of the largest US crypto exchange has taken the first spot in terms of the most popular free apps on iOS in the country.

The app enabling users to buy, sell, or simply hold various digital assets has climbed with several spots in the past few weeks.

As of writing these lines, TikTok – the Chinese video-sharing social networking giant that saw the light of day in 2016 takes the second spot.

Further down the list is YouTube, followed by other social media giants like Instagram and Facebook. Interestingly, Robinhood’s app is not even in the top ten. The iOS application of the financial services company takes the 12th spot.


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It’s worth noting that the top 50 free iOS applications have two Coinbase representatives. The exchanges’ wallet app is the 46th most popular application, which places it ahead of Uber, Google Drive, and Microsoft Teams.

Coinbase’s Rise

Taking the aforementioned first spot only validates Coinbase’s popularity boost in the past year or so. The company took full advantage of the ongoing crypto bull market, which has seen prices exploding.

Consequently, the firm reported a massive increase in terms of user base, volume, and revenue in the first quarter of 2021.

These impressive results came shortly before Coinbase became a publicly traded company. As CryptoPotato reported in mid-April, the firm’s shares (COIN) launched on the giant US exchange – Nasdaq.

Although some of the early backers sold off their stocks and prices suffered in the month that followed, Coinbase only intensified its aggressive expansion. In the latest endeavor, the firm agreed to acquire Skew – the popular crypto analytics company.

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Coinsmart. Beste Bitcoin-Börse in Europa
Source: https://cryptopotato.com/first-spot-coinbases-app-surpassed-tiktok-instagram-and-facebook-on-ios-in-the-us/

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