The Revelator: On Permissioned Ledgers & Bitcoin

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Opposing camps have emerged regarding the debate of permissioned ledger technology and Bitcoin. Here I summarize my thoughts on this dynamic and make the case that permissioned ledger tech and bitcoin represent two radically different experiments; one evolutionary — the other revolutionary.


A Difference in Opinion

I think it is fair to say that the perspectives of these camps could be summarized as follows:

Proponents of Permissioned Ledger Tech: Believe it is possible to harness value through blockchain technology innovations without the requirement of decentralization or native tokens. Believe a blockchain is a distributed ledger. Are generally blockchain agnostic. Work with legacy systems to explore savings opportunities such as clearing. (Ex: Ripple, R3 CEV, ERIS).

Opponents of Permissioned Ledger Tech: Believe the primary benefit of blockchain technology is the ability to transact P2P without the need for a 3rd party (legacy systems). Believe a blockchain is a distributed and decentralized (to the extent possible) ledger with a native token. Generally support the most decentralized blockchains; bitcoin, litecoin, ethereum, etc.

I imagine many will read these definitions and assume that these two camps are fundamentally at odds with one another. In the landscape of public debate they are often presented as such.

I believe these assumptions to be misguided based on the idea that these experiments (permissioned ledgers & bitcoin) represent two drastically different efforts. Permissioned ledgers represent projects focused on improving legacy systems. Bitcoin and decentralized blockchains represent a movement to remove the need for legacy systems entirely.

Evolution vs. Revolution

Evolution can be defined as a gradual change or improvement. When comparing the Model-T to the Tesla the superiority of the Tesla is the result of successive evolution’s in automotive technology.

modelttesla

The first Model-T went into production in 1908. The first Tesla Roadster went on sale in 2008. 100 years of automotive evolution.

Revolution can be defined as a sudden, complete or marked change. When comparing the Tesla to the first airplanes the superiority of the airplane is the result of a revolution in the concept of transportation.

teslaplane

The first Tesla Roadster can only drive on roads and can not leave the ground, traverse over a stone wall or cross a river. The first airplane flown by the Wright Brothers in 1903 traveled 120 feet by air and could do all of the above even in its primitive state. This was a revolution in transportation.

Blockchain Technology: Evolution & Revolution

Permissioned ledgers represent an evolution in banking. The goal of permissioned ledgers experiments is to explore how legacy systems could marginally improve with the use of the technology. The primary focus is to understand what kind of savings and efficiency might be achieved to the benefit of financial institutions and their customers. If I were to take the liberty of assuming the principles of those working on such efforts I might imagine them being as follows: explore how blockchain technology can provide better services at lower cost to customers.

Distributed and token-based technologies like Bitcoin represent a revolution in banking. The seed of bitcoin efforts (and where most of the debate in the space is focused) is how to establish as decentralized a system as possible to ensure transactions can be secured P2P with no middle man. This is revolutionary in both thought and application and has significant implications if the movement grows. If I were to take the liberty of assuming the principles of those working on decentralized efforts I would imagine them being as follows: explore how blockchain technology can establish a sustainable system enabling P2P transactions without the need for a third party.

A Healthy Co-existence

An evolution in banking is a good thing. If legacy institutions can leverage permissioned ledger technology in the short term, however marginally,  to reduce costs and improve the services they provide their customers this is a good thing. Who doesn’t want to be charged less and have faster clearing of their assets?

A revolution in banking is a great thing. If the promise of P2P systems like Bitcoin can be achieved at scale in the long term  the world will be a dramatically different place in the decades ahead (likely for the better). Who doesn’t want to have true financial autonomy?

Today we have both planes and automobiles. Despite the revolutions in transportation not everyone is a pilot — and evolution in automotive technology is welcome and frequent. These technologies co-exist and likely will for some time.

I view permissioned ledgers and blockchain experiments in much the same way. Despite the revolutionary opportunities Bitcoin foreshadows not everyone uses it yet — and evolution in modern banking should be welcome in the interim.

That being said, I welcome the day I can fly my Tesla over a river while paying my electric bill in bitcoin.

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Bitcoin’s Digital Waiting Line: “Micropay-for-Queue”

Bitcoin and micropayment-enabling technologies (like the 21 Bitcoin Computer) will allow society to monetize economies previously untouched by legacy payment methods. One of the first potential applications, monetizing time, may revolutionize the way we “wait”.

“Micro-Pay for Queue” with Bitcoin

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Pay per second with satoshi’s instead of wait in line? Sure!

Historically the currency we spend to hold our spot line is time. One individual might be willing to spend 2 hours waiting in line to purchase tickets while those more fanatical are willing to spend 18 hours and camp out overnight. We see such scenarios play out with all kinds of events (sports, music, appearances) and releases (iphone, Black Friday, etc.). The cost of time is a prohibitive mechanism for many who might otherwise be willing to participate.

The challenge for online sales is that there is no prohibitive mechanism (cost) to develop a queue for priority… until now. By placing a bitcoin micro-fee to each second/minute/hour a spot in the queue is held we can now develop true digital waiting lines to establish order. (i.e. whoever is willing to pay the most over the longest period of time gets the first spot, second spot, third spot, and so-on).

I’m Still Not Getting It, Give Me a Metaphor

Imagine you are waiting in line to purchase something in high demand… something you want very badly. Maybe it’s playoff tickets for your favorite sports team or preferred seats for your favorite band. You know they’re gonna sell out fast.

Also imagine that instead of waiting in line overnight for hours, you have the option to simply pay a fraction of a penny per second (say 0.01 pennies = 28 satoshi’s) to hold a spot in line.

Tickets go on sale Friday at 10 AM. You decide to start paying for a “spot in line”on Thursday night at 8:00 PM. To hold this spot you will pay second-by-second for 14 hours of “micro-pay for queue” time. 14 hours amounts to 50,400 seconds. Here is a rate breakdown:

50,400 seconds x $0.0001 Dollars = $5.04

OR

50,400 seconds x 28 Satoshis = 0.014 BTC

You’ve effectively monetized the cost of your time and paid it out on a second-by-second basis to maintain your spot in queue.

Additional Benefits of “Micro-Pay for Queue”

Enabling digital queues online via “micro-pay for queue” systems would make a host of other added benefits possible.

  • Preventing Bad Actors

Spam free e-mail is an application often touted by bitcoin micropayment proponents. A cost to send an e-mail acts as a disincentive for spammers because the fees of high-volume spam attacks have the potential outweigh the benefit. The same principles apply for an online queue.

A sunk cost needs to exist in a queue to prevent bad-actors from participating. If there is no sunk cost bad-actors are free to clog the line (DDoS attack) to:

A) Generate the illusion of demand

B) Dominate the queue with their own requests

C) Clog the queue to disrupt the service

  • A New Revenue Stream

A new revenue stream would emerge for both merchants and service providers. High demand events would likely drive the fee-per-second price higher. You might imagine a future where “micropay-for-queue” fees add entire percentage points to tickets sales.

  • Reducing Customer Dissatisfaction

For many consumers high-demand events can lead to significant issues for online sales. Crashed servers, faulty purchases, customer service nightmares, etc. By enabling digital waiting lines many of these issues would be mitigated, providing ideal experiences for the most invested customers. In fact, you’d imagine that events with greater demand (high cost-per-second queue fee) would become more anti-fragile.

Beyond Ticketing

Ticketing is a palatable example for how this kind of system might apply to the real world. In the short term I can imagine such technologies being adopted by major online ticket-brokers to save real costs and add new revenue streams.

What I believe is even more exciting is for this kind of queue-ing technology to make its way into the physical world. You might imagine this kind of system applying to reservations of any kind for high-demand services; be it a table at a restaurant, a parking space in a garage, or future IoT machines claiming a spot in a queue against other machines. I wonder if robots call shotgun?


 

**Update 12/5/2015**

If this post was of interest you may also enjoy this paper from @AnouarElHaji:

 


 

Case in Point: The night tickets went on sale for “Star Wars: The Force Awakens” I did my best to buy seats for opening night with bitcoin on http://www.movietickets.com and via my credit card on Fandango. Given that both servers crashed and that I had to do a number of refunds based on faulty purchases — I think a few satoshi’s would have been well worth the cost to ensure a smooth and fair experience.

StarWarsBTC

To the credit of http://www.movietickets.com they refunded the bitcoin I paid for this purchase after a couple days and e-mails.

Poking the Bitcoin Bear

In my continued dive into the “bitcoin rabbit-hole” I’ve found myself researching the origins and history of the early internet. Along the way I found myself viewing a 45-minute long History Channel program “The Invention of the Internet”. A particular story from Bob Metcalfe stands out.

In the clip below Metcalfe recalls a patronizing encounter with AT&T executives when he first shared a demo of the early ARPANET. (a foundational network preceding the internet)

I wonder how many young (and old) bitcoin and blockchain enthusiasts have experienced the exact same episode in the past 5 years?

It is worth noting that Metcalfe went on to co-invent Ethernet and be attributed with a principle coined as Metcalfe’s Law. I wonder what this generation of angry kids will come up with?