What Is Blockchain 2.0?

Tai Zen: We have Tim Swanson joining us. Hello Tim.

Tim Swanson: Hi Guys. It’s great to be here. Thanks for the invitation, David and everyone else.

Tai Zen: Tim is here to talk about the Blockchain 2.0 and I’d like to turn over to David and I’ll chime in with questions because David is the one who actually told me about the Blockchain 2.0, so you want to start David?

David S.: Yeah. Basically, I just got a lot of questions regarding it. Because of the technicalities is a bit too complicated for me to grasp the entire picture of it. So it would be great if you could present the idea of the Blockchain 2.0 and how it would affect Bitcoin.

Tim Swanson: Sure. Okay. So again Blockchain 2.0 is just a filler name, they haven’t announced the actual name yet. To give you guys a background if you haven’t seen it, Austin Hillary of UC, who works in the space about 15-20 years ago with the original cypher hacker guys and he’s working with Adam Back who invented hash-cash as well as a few other developers.

I don’t know any specific names involved besides those two but what they’ve done is they figured out a way to use what’s called the 2-way pegging system to back up the site.

They’re actually… they’re working with merged mining, this technique Namecoin’s using and atomic transactions to move between this merged mine-chain, they’re calling it Sidechains.

This sidechain is actually not new.

Actually, all the stuff that they’ve been talking about in this announcement have been discussed openly for basically 6 months. This is just putting it all together and the company is the new part and the announcement was like yesterday.

I think it’ll impact a lot of the 2.0’s cryptocurrency space, especially like Ethereum.

Because what they want to do with the sidechains… they want to enable smart contracting and using liquidated assets, HFT, a more robust scripting language. I’m not sure if it’s necessarily going to be Turing-complete.

So you have these competing Sidechains but it’s all unified using the Bitcoin name as a kind of transactional currency. I don’t know too many specific details other than they’re going to use two-way pegging system and I don’t know the actual specifics on how that technically works.

There’s a thread I’ll link to in an article I wrote with Gregory Maxwell explaining it and apparently this method has been signed off by several other core devs.

I don’t know exactly how it will impact NXT per se. It’s just more competition for you guys in an organized manner. I mean these guys have funding, they have shipped products before.

So it’s not like another … no offence to Bitshares but it’s not like Bitshares. I hope everyone survived.

It’s just there’s so much talk in the space, not enough shipped code and these guys at least have a proven track record of actually shipping production code. So any questions?

David S.: Okay, let’s have a question from Tai first.

Tai Zen: So what makes this so exciting and such a big thing in the crypto-world right now Tim, other than the fact that it’s coming from a group of guys that have been proven to produce code and products before?

Tim Swanson: Sure yeah I think that the biggest issue is the fact that they’re going to continue using ASICS and shareholders of Bitcoin are going to want to promote this. What happened is in the last year you’ve seen about eight projects spring up or last eighteen months, eight projects and it’s moved Mindshare away.

You guys are taking Mindshare away to a different system and as result, those who hold Bitcoin are torn, like “Oh I like this new idea of NXT but I have these assets and I want the assets to appreciate in value.” By creating new utility with the actual system itself in currently, it’s actually going to be easier for them to evangelize.

Basically, this created a whole pile of an evangelist for their new product and once people… especially the anti-alt-coin crowd learn about how the system works they’ll be all about promoting it and so I’m not saying that this exactly will happen tomorrow but there’s a built-in incentive for those who hold Bitcoin to promote this product.

Because it benefits them a hundred per cent by bringing more utility, more developers back into the space around the existing ASIC framed infrastructure.

Tai Zen: So basically it’s easier for people to promote it because they already have a stake in the Bitcoin?

Tim Swanson: Yeah I think there’s no downside to it but…so this is a 2.0 system we can believe in because it benefits us. I am not saying that’s going to be the selling point but as a Bitcoin holder, if you hold any amount, this is a great way to increase the potential utility of your own system and therefore the price appreciation of your token.

Because in order to use these Sidechains you’ll necessarily need to use Bitcoin tokens initially to move between, so therefore it creates more demand for the underlying asset.

Tai Zen: So just to make sure I understand correctly. You’re saying that the side blockchains are able to connect into the Bitcoin blockchain and so that the Bitcoin tokens (currency) can flow between these different blockchains?

Tim Swanson: Essentially yes, they don’t actually move to the other chain, in Adam Back’s term they’re firewalled off and it’s done through an atomic transaction.

So if guys are not familiar with atomic transactions, the easiest example would be, if you’re trying to register for a flight, when you click your seat you either get the seat and the time or you don’t.

There’s no like you get half and half. So you just transfer all the way and it’s known property within the crypto ledger space and that’s what they’re going to try to do to move between these chains.

Tai Zen: Alright. The name Blockchain 2.0… could you clarify that so that the viewers know exactly what the difference between that in the cryptocurrencies 2.0 like NXT so that there’s no confusion there?

Because the term 2.0 makes that sound like it’s an alt-coin and from your article on Let’s Talk Bitcoin it does not appear that this is an alt-coin, this is a part of Bitcoin.

Tim Swanson: Absolutely yeah, so that was their own term, they call it Blockchain 2.0. I think to want to say that, “Hey we’re going to have these features in 2.0 that these adults have but we’re not an alt.”

In their words, they’re not creating another scarcity chase or scarcity war because no new Bitcoins are created.

You’re just going to create these sidechains and these sidechains will create this extensibility. Like I said, using smart contracts or using created assets.

So, yes they aren’t technically alt they are just an extension to the existing code base and this is where it’s interesting because since they hired Core Devs and the Core Devs work in Bitcoin main, I think it’s an easier way for them to actually get what they want to have done.

It’s actually smart, you’ll have people complaining about what’s not fair blah, blah, blah, it’s just the way the system is.

Tai Zen: When you say that people will complain that it’s not fair? What exactly is not fair about it?

Tim Swanson: Sure, I’m not sure if you saw the Counterparty fight about two weeks ago between a couple of core developers for Counterparty.

There was a feature, non-feature called “upper turn” which was announced in October by Gavin Andresen and he said, “Hey we had this 80-byte hash and you can do extra self with this hash like a distributed contract.”

Right before 0.9.0 Bitcoin was released, they actually reduce it to 40 bytes and there’s no actual technical, I mean they give the technical reasons like this is not what it’s supposed to be used for, it’s supposed to be used for ECDSA, right?

But in the long the short there’s really no big difference between holding 40-byte vs 80-byte. So based on the emails I’ve gotten in the last couple days, I’ve had some people, someone contacted different groups like said this was not fair, that was a conflict of interest, the reason they reduced it is because they’re working on another competing project.

So that’s the only reason I’m saying that people might complain. It could be seen as a conflict, I’m not saying there is, again I try to be as diplomatic as possible. I think it’s cool to have more competition in the space but that’s the comment I was referring to.

Tai Zen: Okay. Do you have another question, David?

David S.: I’m just so wondering you have any opinion on how it’ll affect Mastercoin, Counterparty and NXT?

Tim Swanson:

Sure, so there’s a difference between what they have on paper and what they’ve announced as well as what they’ll actually execute on. So again there’s no ship code. You just have some really, really clever smart guys who understand this stuff.

Immediately, I don’t see it necessarily impacting anybody, it’s just going to make everyone want to work faster because you see this competitive force coming right at you.

Long term, if they execute on this obviously it will move Mindshare back to square one which was the Bitcoin community. So, I could be wrong but I think this could affect Mastercoin and CounterParty in the long run but this is assuming that they execute what they’ve mentioned.

Bas Wisselink: I’ve been reading the article during your talk, the one that was linked to the sidebar and as far as I’ve seen, they’re trying to do the same thing as a lot of 2.0s, yes and at the same time keep the network that’s already there. They try to get that in from the start instead of the other like us and the other 2.0s who are building. Is that basically what’s happening here?

Tim Swanson:

Yeah in a way that one of this takes these cool ideas everyone else has been working on. Creative method to “hey we already have all this…”. We all agree ASIC is almost dead weight, there are no uses after your 50 per cent in the cash rate has this special protection.

So how can we bring back utility to do actual other things with this network other than extra overhead, you still have overhead but it does solve the fact that Bitcoin only tracks one particular asset for one particular thing.

So that they can integrate all these other different features in an experimental fashion where it doesn’t affect Bitcoin name and it’s really a brilliant idea. I’m not necessarily endorsing it, it’s just really cool looking at how they actually trying to approach this.

Bas Wisselink: Well that’s not…I’m always interested in these things. The first knee-jerk reaction of all these things is to say, “It’s competition” but one of the things that I find in all these projects is that competition works. As you say it gives everyone an incentive to see where they are and what their deadlines are at the moment.

Tim Swanson: Yeah, I totally agree.

Tai Zen: I think that based on what you’re saying, Tim, when they have the core developers involved from Bitcoin, I think that lends a lot credibility to their project and the fact that you claim that they have produced results before that gives further claim to their project over the other cryptocurrency 2.0s.

Tim Swanson: Yeah again I’m not necessarily endorsing them but they went with the right approach. I just finished writing a paper on this like explaining how you have this unused asset, these volunteers who are really smart and really skilled, that’s not what I mean. No offence to you guys in here but there are not many people who can actually build a blockchain like I was going to put you in a room and say “Hey, build a blockchain, and you can’t use anybody else” so you have this scarce labour that is not being rewarded.

So if you have that ability, you want to create, you want to be rewarded for that so you’ve created 2.0. Well, this is a way I see these valuable people, I’m going to hire you and since you already have this inside knowledge, let just get you to work on the system as it is. So I think it’s a brilliant coup, I’d have to give them an applaud for thinking of it.

Tai Zen: Would you say that will likely drain talent away from there the cryptocurrencies 2.0s like like NXT or Ethereum or any of the other 2.0 currencies?

Tim Swanson: I’m not sure if you’ll see necessarily like Daniel Alomar leaves Bitshares or Vitalik leave Ethereum but I think people who may have gone to work with them and in either voluntary capacity or actual business capacity that they might reconsider that and begin to work on this other project. So that’s my assumption going forward I don’t know if that will be the case.

Tai Zen: Any input Graviton?

David S: No, I’m fine.

Tai Zen: Okay.

David S.: I just got a quick question. Are transactions going to be confirmed faster than Bitcoin?

Tim Swanson: Yeah, great question. So each sidechain will it looks like it will be…what have any actual new blocks it’ll be fee-bays. So basically, I’m not sure how the times work but there was a question that Adam Levine ask these guys and they said.

Hey look, initially it’s going to be kind of like the Namecoin merging but they want to basically create HFT capabilities where they can do tens of thousands, hundreds of thousands of transactions per second so faster block faster timings. I don’t know exactly how they’ll do that with a merge mining process.

I’ve read the different post, the longest that I want to recommend people read through is from Killerstorm about seven months ago on Bitcointalk and Killerstorm is actually Alex Mizrahi, he’s the lead of coloured coin and he posts how merge mining can work and you could do different types of cool things with it. To answer your question technically, apparently, there’s a way it’s actually done faster confirmation times, faster transactions per second.

Tai Zen: What happens if some cryptocurrency 2.0 like NXT comes out and able to exceed these transactions speeds us everyone is dreaming of?

Tim Swanson: Well I think VISA will call you up and hire you all. So the hardest problems and this is not to a knock on the community but in a decentralized system you going to have some overhead because you have all these different systems going at the same time.

In a centralized system, typically is easier to do these confirmation times because you know exactly which nodes you going to go at. I think NXT actually has a smart idea in fact in you guys RNGed to a specific forger right, that’s how you guys do this.

So it’s pretty clever if you guys could somehow speed up the block timings significantly you might be able to compete at some point but if you just look at the amount of volume and how much it cost for the transaction. The actual transaction costs for VISA are like .0005 cents something.

It is itty-bitty per transaction all this there’s a lot of other middle players take different pieces of it but the idea that you could actually compete with these might end up having just to create a facility like VISA that kind of defeats the purpose is being de-centralized right?

Tai Zen: Yeah.

Tim Swanson: If you’ve seen that already that’s on the new issue. I wish you guys good luck by the way if you guys could do timings like them and that’d be really cool.

Tai Zen: Yeah and that’s what they’re currently working on. So we’ll see how it goes, it’s one thing to what say it but it’s another thing to actually produce code that produces those results. So what keeps a blockchain like that the next blockchain from merging with the Bitcoin blockchain with this Blockchain 2.0. Is that even possible? Is that something that so farfetched that we shouldn’t even talk about it?

Tim Swanson:

Sure, the most important thing people should be aware of this merge mining is you have to get the mining pools on board because again consensus is reached through the mining network and they’re going to reject code that’s not profitable to them.

So what you have to do and this is what Austin Hill said in his interviews, is to contact these mining pools to get them on board. I’m not sure how many mining pools are on board. If you don’t have them on board you’ll have a problem with a 51% attack.

So two years ago Coiled coils were attempting to do merge mining without getting these guys on board and Eligius which was Luke Jr’s pool, they did a 51 per cent attack. So you really have to give them the incentives to actually cycle through your code in a sense and as a proof of stake, there’s no mining really involved although I just saw someone point to some mining site, I don’t know what to think of it, that he has nothing to do with this right now.

Tai Zen: Yeah, okay that’s all the questions I have for now unless if you guys have any other questions for Tim.

Bas Wisselink: Well that’s one of the things that’s not the technical part but it’s one of those things that I was asking earlier about basically this 2.0s also profiting from the fact that there’s already a big community behind it. One of the things that all the new 2.0s have the problem with is building community and getting to some form of critical mass, you’re already saying this also with the 51% problem. If you don’t have critical mass, you die. That’s probably what happened.

What’s your view on that and this is also about the diluting of all these projects together, we have now about four or five? What’s the way to go in this, is this the best way of working together, sharing things, etc, no idea.

Tim Swanson:

Sure, yeah, again I don’t have to the best idea for you, I have one idea that you could possibly look at. So you saw what happened to Oculus people donated $250,000 worth of money to IndieGoGo and they were bought and they didn’t receive any kind of equity. If it hadn’t been for $250,000, it wouldn’t have been able to succeed, to get to that point, right? So one way to get around that in the future is through to crowd equity.

Basically, Oculus could’ve issued some shares and if they could’ve done this in a cryptographic manner. There are two projects that I’m aware that they are trying to do this: join my IPO which is through one of the guys in the coloured coin team. Basically, they issued these dividends of shares and through Bitcoin eco-system used the coloured coin wallet to track it so something like that.

Another one that I’ve been actually trying to help out of a little bit is LetsTalkBitcoinCoin, it’s LTBcoin.com and basically they would do the same thing for content like Huffington Post doesn’t pay their bloggers and yet they benefit from the traffic from it.

So one way to do this is saying “Hey if you post content or you post a comment, we will give you a token,” right, so it creates this desire to actually improve the system. There are obvious ways to game it, but what some of these 2.0 projects can do including NXT since you guys are still relatively young maybe instead of using bounty, you should say “Hey if you’re producing this stuff, here’s a percentage of equity”.

It’s harder to do since you already launched but Ethereum, this is something I’ve been trying to tell them about like “Dude, you guys …” by the way they have 60 founders, like “founder shares” now, there are up to 60 people receiving this thing and that eventually could cause conflicts because what if you done just as much as number 61 and you somehow lost out right?

So you want to create this buy-in and you want to create an incentive to get people to actually want to continue reinforcing this so doing some kind of crowd equity might be a way to get people on board.

I don’t know how you do after you begun shipping as you guys have, that’s something… we talk about that later if you like but these are good questions, Bas.

Bas Wisselink: Thank you.

Tai Zen: This Blockchain 2.0, can people invest into that or are they going to have like IPO, like Ethereum or is this something that’s going to be a set of token that’s going to be issued when they come out or is this all in-house? So how does this work I mean like from an investor’s perspective right? Is there anything I can do to get involved in it other than own Bitcoins?

Tim Swanson: Yes. That’s a good question.

Tai Zen: I’m not a technical person. all I need now is “hey basically what’s in it for me?”, “Do I invest into it?”, “Do I look into it?”, “Do I preach about it?”, what is it that they’re offering besides their products and services?

Tim Swanson:

Sure so again this is just based on what I’ve known from people whom I’ve talked to. It’s public information at this point, is that there’s one company which is funded by Austin Hill. Again, Austin Hill is this VC, you guys could look him up, he’s really active on Twitter and he’s…

I don’t know how the investment model works with his company, I’m not sure if you could email and say “hey I’m an angel, I want to put some certain amount into it.” I don’t know how that specific aspect works.

I don’t think if they will do a public IPO like Ethereum or Mastercoin or some kind of burning as Counterparty did. I think it will this be a company and the way that they will monetize I’m not quite sure.

Maybe they’ll license it to enterprise it because ultimately they see themselves as a blockchain company, not as a Bitcoin company. They want to figure a way to do utilize this technology to bring it to enterprises and institutions and help out asset managers and so on.

More to the point I don’t think that there will be a necessarily any additional tokens you could buy on these sidechains like I initially starting off like Adam Back says he doesn’t want to have another scarcity race.

So they create three or four different sidechains, if you want to move a Bitcoin to one of these chains, there’s got to be like a value like one to one thousand. I don’t know that breakdown or how that works. I’ll let as soon as I do though.

Tai Zen: Okay and let us know if he’s interested in using NXT the token.

Tim Swanson: Sure, if I figure anything about that.

Tai Zen: If you want to use NXT to pay all of his developers.

Tim Swanson: Yeah I’ll let, I will put that down, I’ll ask him.

Tai Zen: Okay, Tim thanks for joining us. Can you type in the chat your blog or where people can reach out to you or subscribe to some of your material or some of your content?

Tim Swanson:

Sure here’s my email address, here is my Twitter, and here’s my website. Just a little disclosure I actually work in a completely different area. I do, I worked in China for a while and most of my clients they’re still in China. I do market research for Chinese companies basically.

The crypto stuff is a really cool… it racked my brain, I have to think of new things and everyone is really brilliant and really friendly to me and they teach me. They’re all smarter than me. You guys are good teachers.

 

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