This unit is Part 11 of the Annotated Princeton Bitcoin Video Course.
Introduction (1 minute)
The unit will discuss the ways in which Bitcoin can be used to decentralized things other than currency.
The Blockchain as a Vehicle for Decentralization (14 minutes)
Smart property requires solutions to two problems:
- representation: the digital form of an ownership title or right to use;
- atomicity: cryptographically bind payment for property with payment of money
Onboard electronics connected to the P2P network can help solve the first problem for certain kinds of property. For example, a car’s engine can be programmed to operate only if payment on its loan remains current.
Given a suitable representation, atomicity can be guaranteed simply. For representations based on the Bitcoin block chain, a single transaction will ensure that the owner receives money simultaneously with the payer receiving title. For representations on other block chains, atomic cross-chain swaps can be used.
Routes to Blockchain Integration (28 minutes)
An implementation of Bitcoin-based crowdfunding called Lighthouse launched in 2015.
The discussion of sidechains mentions “modifications” to Bitcoin that are required. In a nutshell, the problem is moving funds from a sidechain onto the Bitcoin block chain. The opposite process is already possible today. The ability to move money to a sidechain and back is called a “two-way peg.”
Ethereum launched in 2015. The security of smart contracts executed on the platform has come into play multiple times since then.
What Can We Decentralize? (24 minutes)
Bisq (originally BitSquare) is decentralized Bitcoin exchange launched in 2016. Users can exchange bitcoin for local currencies without a trusted intermediary.
The debt-based social network payment system described near the end of this unit has been abandoned by Ripple. Today the Ripple cryptocurrency (XRP) employs an alternative to proof-of-work (the Ripple Consensus Process), but carries over none of the original vision.
When is Decentralization a Good Idea? (16 minutes)
There are three types of security:
Cryptocurrencies such as Bitcoin focus heavily on preventive and detective security. Bitcoin’s history, however, contains several examples of corrective security. In one well-known example (the value overflow incident), a soft-fork update was released to prevent billions of bitcoin from being created outside of a coinbase transaction. This update occurred after a transaction exploiting the defect had already been confirmed. In effect, the recipient’s ability to spend the funds was blocked through a soft fork.