Research perspectives and challenges for Bitcoin and cryptocurrency Bonneau et al. Key parameters that can be varied in an upgrade are the inter-block time and difficulty adjustment window, limits on block and transaction size, and the monetary policy rewards. Bitcoin automatically adjusts the difficulty of its computational puzzle so that solutions are found on average ten minutes apart. This setting is constrained primarily by the network latency.
Thus miners that underpin the system are less incentivised to make the change. Maybe this will change again once per transaction fees become a significant part of revenue as block mining rewards decline. At that point, more transactions in a block is good for miners again. By mandating a capped amount of currency, Bitcoin effectively has a deflationary monetary policy which has caused multiple economists to predict the system will eventually be destabilized by a deflationary spiral in which nobody is willing to spend bitcoins as hoarding them is considered more profitable.
Other systems take different approaches. For example in Dogecoin inflation will continue indefinitely but at a harmonically-diminishing rate, and in Freicoin the inflation rate stays constant forever. Within the proof-of-work system, another variable is the puzzle used to prove work.
Another variant is non-outsourceable puzzles which would discourage the formation of mining pools. Finally, there are puzzles which perform some useful work as a side-effect. Due to the limits on what can be changed about Bitcoin without a hard fork, hundreds of derivative systems, referred to as altcoins, have arisen with alternate design approaches.
Altcoins need a way to bootstrap the initial allocation of currency, and there are several ways of doing this:. Altcoins also need miners we saw some of the issues surrounding this when we looked at Blockstack last week.
The two primary options are to compete for miners, by encouraging them to spend their compute resources mining on your chain rather than competing chains, or to adopt something called merged miningin which an altcoin accepts blocks if their root is included in a valid Bitcoin block, and hence miners do not need to do any additional work. Bitcoin provides a limited form of unlinkability: This was argued in the original specification to provide strong privacy, however it quickly became clear that due to the public nature of the blockchain it is sometimes possible to trace the flow of money between pseudonyms and conclude that they are likely controlled by the same individual.
Beyond tracing transactions, it also also possible to de-anonymise using IP addresses. Full privacy also requires masking your IP address therefore e. Mixing protocols try to jumble up transaction inputs and outputs making tracing harder.
There are peer-to-peer mixing protocols, and also distributed mix networks using third-party mix services. Bitcoin has three characteristics that make it suitable for disintermediation use cases beyond just cryptocurrencies:.
An alternate approach to extending Bitcoin is to use it only as a global append-only log to which anybody can write. Section IV of the paper also contains a short discussion on key management issues for clients.
Another important area to understand is smart contracts. They turn out be very tricky to get right! For previous posts on The Morning Paper discussing the challenges of smart contracts see:. Bitcoin is a rare case where practice seems to be ahead of theory. We consider that a tremendous opportunity for the research community to tackle the many open questions about Bitcoin which we have laid out. You are commenting using your WordPress.
You are commenting using your Twitter account. You are commenting using your Facebook account. Notify me of new comments via email. Notify me of new posts via email. Hard forks are required when a change enables transactions or blocks that would previously have been considered invalid.
Changes involving a hard fork require near-unanimity among miners to be attempted in practice. Soft forks are backwards compatible with existing clients, and generally further restrict the set of blocks or transactions considered valid.
Changing the relay policy or other aspects of network communication using require the least coordination and can be done in a backwards compatible manner through nodes advertising their protocol version number.
The way that coins are issued is a key component of monetary policy: Altcoins Due to the limits on what can be changed about Bitcoin without a hard fork, hundreds of derivative systems, referred to as altcoins, have arisen with alternate design approaches. Altcoins need a way to bootstrap the initial allocation of currency, and there are several ways of doing this: One option is to create a new blockchain from scratch a new genesis blockbut the community has become wary of the ability of founders to cash in on this model through early mining.
An alternative therefore is to fork Bitcoinand give every owner of bitcoin in the Bitcoin blockchain a proportional amount of new currency in the new blockchain at inception. Proof-of-burn allows users to transfer funds in Bitcoin to a special address from which they cannot be retrieved, and the transfer results in an allocation of coins in the new currency on the new chain. This has the downside of permanently reducing the quantity of bitcoins in circulation. Pegged sidechains anchor one chain the sidechain within another e.
Beyond Bitcoin, systems such as ZeroCash build stronger privacy in by design. In many cases a desired security property can be enforced directly using functionality provided by the blockchain and the fact that transactions can be atomicbeing invalid until multiple parties sign. When a desired security property cannot be enforced directly, it may be possible to post a deposit or bond which is only refunded in the case of correct behaviour.
Finally, the auditability property means that even if Bitcoin is not used to apply a remedy against a dishonest party, it can still play a crucial role in providing incriminating evidence. The blockchain can be used as a secure timestamping service, with e. By writing data into individual transactions, it is possible to mark certain transactions with a colour.
This known as an overlay protocol. For previous posts on The Morning Paper discussing the challenges of smart contracts see: Twitter LinkedIn Email Print. Leave a Reply Cancel reply Enter your comment here Fill in your details below or click an icon to log in: Email required Address never made public. Subscribe never miss an issue! The Morning Paper delivered straight to your inbox.
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