PoWx: The New Effort to Change Bitcoin Mining Explained
A long-controversial bid to change bitcoin just got a big boost.
Boasting the support of tenured developers, a non-profit foundation called PoWx launched this week with the goal of putting a more sophisticated wrapper on the idea that proof-of-work (PoW), the way the network comes to agreement on which transactions are valid, could be replaced with a newer, supposedly better, algorithm.
In short, PoWx advocates bitcoin adopt a new technology it calls “optical” proof-of-work, which uses a more energy-efficient laser technology as the cornerstone of mining.
The hope is to “fix” mining by making it easier for more people to participate in the process, in part, because the barriers to entry have become so prohibitive. (At the beginning in 2009, users just needed a simple laptop to run the code to mine bitcoins. Now, they need to purchase specialized computers costing thousands of dollars and which they don’t do anything else.)
Not to mention, the developers behind PoWx are the latest to point to one mining firm, Bitmain, and its influence on the network as a major issue. Though exact numbers are cloudy, estimates say the company is manufacturing between 50 and 80 percent of bitcoin’s mining hardware.
Against this backdrop, the idea of swapping bitcoin’s mining algorithm has been around for some time, mostly flaring up in times of perceived crisis. It’s been seen almost as a last resort to be deployed only in the case miners do something really bad, such as colluding to attack the network.
But PoWx founder Michael Dubrovsky sees the change as an inevitability.
He calls mining centralization bitcoin’s “Seldon Crisis,” a specific type of earth-shattering issue found in the famous sci-fi series “Foundation” and which denotes a point of no return.
Dubrovsky told CoinDesk:
“I think PoW consensus is the most important innovation in bitcoin, and bitcoin is an incredibly important innovation in personal freedom and property rights.”
To this end, he argues changing this underlying technology will help to “ensure the mining ecosystem is healthy enough and scalable enough to support crypto’s growth over the next decade.”
A better way?
More broadly, developers have long worried about bitcoin’s level of “centralization,” or the measure of how much control single stakeholders have over the technology. (Decentralization is seen as a key differentiator, one that makes bitcoin more unprecedented in the history of money.)
To that end, they’ve argued that if this problem goes unaddressed, mining centralization might lead bitcoin to turn into something resembling the financial system it’s supposed to replace.
So, to attempt to put this problem to rest, developers have put forth a variety of potential technical fixes.
Dubrovsky grew interested in changing proof-of-work as a solution, deciding to work on the idea about a year ago as he became convinced optical PoW was the best solution.
According to the PoWx team, this new algorithm, if implemented, would usher in two huge improvements to bitcoin. One, the barrier to entry for startups producing the chips will be lower, thus increasing decentralization of the network. Two, it reduces power consumption (estimates suggest bitcoin now makes up 0.15 percent of the world’s electricity costs).
One hurdle though is PoWx has yet to secure fundraising.
But their goals are nonetheless ambitious, vowing in the short-term to develop open-source hardware putting optical PoW into practice and to release a test network demonstrating their open-source design by Q1 of 2019.
Longer-term, they hope to launch a for-profit company called Arrakis Photonics to put this cutting-edge optical mining hardware into practice. (Their presentation outlines more specific details, including the technical makeup of the hardware they want to create.)
Although they’re putting plenty of thought into this idea, swapping bitcoin’s proof-of-work isn’t at all an easy task.
It’s a pretty drastic change, one that would require every user to update their software if it was coded into a formal proposal. If a larger number of users were to disagree on the proposal (if and when introduced), bitcoin could even split into two different cryptocurrencies, similar how bitcoin cash broke off due to disagreement about the project’s technical direction.
Still, it’s perhaps too early to say what users want – though the general idea has prompted outpourings of controversy, including lawsuit threats, in the past. And as bitcoin is a decentralized system, the opinion of users can make all the difference.
But Dubrovsky argues there’s no choice – the community needs to make the change.
“I think it will be difficult, but what we are proposing is not just an improvement,” he told CoinDesk. “Something like this is a necessity if cryptocurrency is going to be truly decentralized and used to securely store and move trillions of dollars of value.”
As such, one of PoWx’s main goals is to work with the bitcoin community to make the switch.
So far, the effort has won the support of Bitcoin Core contributor Luke Dashjr and pseudonymous bitcoin.org maintainer Cobra, two influential figures in the space who are also both known for espousing controversial points of view. (Most bitcoin developers have yet to make a public statement about their views.)
Finally, there’s always the question of whether mining will just centralize again, even after PoW is changed. However, Dubrovsky argues it’s unlikely.
“It is not clear that OPoW could ever lead to the same level of centralization we see today,” he said.
Still, he’s trying his best to look at the problem realistically, agreeing it’s unclear how PoWx will work yet. And, even if it does, he admits bitcoin could still have future problems.
“I hope PoWx can participate in solving that next crisis as well, but we will all cross that bridge when the time comes.”
Bitcoin miners via Shutterstock
Written by CoinDesk.com
Switzerland Considers Granting Crypto Businesses Access to Banking Services
Banks Expected to Offer Services by the End of the Year
In terms of crypto development, Switzerland is now standing at a crossroad. With very few exceptions, most of its banks have been refusing banking services to a growing number of startups residing in the country’s Crypto Valley and this is beginning to suffocate growth in the fintech sector.
Luckily, far-sighted policy makers and seasoned financiers have already pulled their sleeves up and are working to break the deadlock. One of them is Heinz Tännler, the finance director of the canton of Zug, home of the Swiss Crypto Valley. Speaking to the Financial Times, Tännler said he expected Swiss politicians and regulators to remove the obstacles in the coming months, which would allow crypto companies based in the country to operate with banks just like any other business. He added:
We hope to clarify relationships by the end of the year at the latest. Time is pressing – other jurisdictions such as Malta and Singapore are very active and making a lot of effort to attract these companies. The lack of access to bank services is a significant competitive disadvantage.
According to Mr. Tännler, the country’s central bank, financial supervisor and federal government “are willing to help.” He also stressed that “We have to push certain national institutions to resolve this problem quickly and effectively, but that now seems to be going well.”
Traditional financial institutions are increasingly under pressure to offer crypto startups regular services like bank accounts. According to Swissinfo, the bottleneck has become acute since the ICO craze brought $1.46 billion to Switzerland last year. A recent report by the Crypto Valley Association revealed that token sales through May this year have attracted nearly double the funds raised in 2017.
Mounting Pressure to Break the Deadlock
Representatives of the industry have warned that if crypto businesses are not provided with access to banking services they may start looking for better conditions elsewhere.
“Starving startups of bank accounts is akin to killing the goose that laid the golden egg,” said blockchain and cryptocurrency expert Guido Schmitz-Krummacher, former director of the Tezos foundation and advisor to projects like Cardano. He believes that the failure to provide a reliable environment for startups will harm the reputation of the Crypto Valley in Zug.
“I am already seeing projects choose Singapore, Malta and Gibraltar because they can’t get a bank account in Switzerland. They will be followed by projects already established in Switzerland unless the banks and politicians address this topic.” The lack of access to normal banking services is worrying, according to Alain Kunz, chief executive of Coinlab Capital, a startup offering blockchain asset management services. “You can do a lot with crypto but you can’t pay rents and salaries,” he told the FT.
Some Swiss politicians and bankers have already heard these worries. In January, economy minister Johann Schneider-Ammann shared a vision of Switzerland becoming a “Crypto Nation.” His colleague, finance minister Ueli Maurer went a step further by forming a working group with representatives of the Swiss Bankers Association (SBA), the financial regulator and the central bank in an attempt to find a solution. The SBA has also set up a taskforce and is planning to establish a set of standards for ICO startups in order to simplify the process of opening bank accounts.
“Both we as an association and the banks have an interest in business relations in this growth area. Banks see the potential that the blockchain technology offers for their industry and Switzerland as a financial and technology hub,” the SBA said in a written statement quoted by Swissinfo. Welcoming its actions, the Crypto Valley Association (CVA) said it anticipated “a progressive broadening of offerings by a number of Swiss banks.”
Very few legacy institutions in Switzerland have so far declared readiness to offer services to the 200 Zug-based blockchain and crypto firms. Among them are Neuchâtel Cantonal Bank and Neue Helvetische Bank. They were joined recently by Hypothekarbank Lenzburg, which announced this month it was accepting cryptocurrency related businesses as account holders. In the meantime, some Swiss startups have opened bank accounts in neighboring Liechtenstein using the services of local banks such as Frick and Alpinum. Others have decided to enter the sector of traditional financial services through partnerships.
Written by Bitcoin.com
Ripple, CEO Face Another Securities Fraud Lawsuit
Ripple Labs Faces Third Securities Fraud Lawsuit
Managing partner of Robbins Arroyo LLP, Brian J. Robbins, filed a class action lawsuit against Ripple Labs Inc, XRPII LLC, and CEO Bradley Glaringhouse on behalf of San Diego college senior David Oconer. Signed by fax late June of this year in the San Mateo, California Superior Court, its more than two dozen pages set about making the case Ripple is in clear violation of the Howey Test.
Mr. Oconer, through his legal team, stresses how Ripple fought to manipulate the XRP price, including placing tens of millions XRP tokens into a kind of escrow, creating an arbitrary scarcity. It was also a way to signal to worried longer term investors the company would not dump the lot all at once. Indeed, XRP mooned to many hundreds of percent, the suit alleges, as a result of such moves.
It’s the third such lawsuit filed against the company since early May of this year. A common theme between each suit is the claim XRP is a security as defined under US regulatory statute – which insist Ripple Labs is the token’s puppet master indistinguishable from XRP itself. The Oconer version leans heavy on making a case for a Howey Test violation. Ripple isn’t taking any of the suits lightly, hiring two former US Securities and Exchange Commission heavies, Andrew Ceresney and Mary Jo White, as lead counsel.
XRP has long been held in a controversial light due in part to its origin story. While leading cryptos were to be mined on chain, ripples appeared ex nihilo with more than 60 percent still held by its parent company. If deemed a security, the company would be most likely ordered to cease all trading, and it’s not unusual to presume holders would be given the chance at refunds. Violations of securities law, what’s more, can also be prosecuted criminally, though those in the know believe it will not get to that stage.