Goodbye Bugs? How Formal Verification Could Fortify Smart Contracts


As a way to eliminate bugs in high-risk code, a style of software programming known as formal verification is making its way into the blockchain world.

Put simply, formal verification uses math to specify and analyze a program for errors in logic. However, because of the time and cost involved, formal verification is best reserved for situations where human life or large sums of money are at stake.

Currently, formal verification is used to verify the correctness of high-risk code in transportation, the military and cryptography. Chip companies use it to fortify algorithms before embedding them in silicon. And banks use it to develop financial algorithms.

Applied to blockchain technology, formal verification could provide assurances that self-executing transactions known as smart contracts will work as intended, eliminating some of the bugs and financial losses that come as a result of coding errors.

This year alone, bugs in Ethereum’s Parity wallet accounted for $180 million in losses. Last year, a bug in a virtual organization known as The DAO enabled a hacker to siphon $50 million from the Ethereum smart contract.  

Platforms like Cardano and Tezos are already working on smart contract languages specifically designed to facilitate formal verification. Ethereum is also working on bringing formal verification to its smart contracts.

But what is formal verification? How does it work? And why is software so difficult to get right in the first place?

To Err Is Human

Software is inherently unforgiving. If you are constructing a building, you can leave out a nail or a screw, and the structure still stands. But when it comes to software, something as simple as a single typo can cause the entire program to stop working.

“Programming languages are incredibly powerful,” Gerard Holzmann, former lead scientist at NASA, explained in an interview with Bitcoin Magazine. “As a programmer, you have to deal with a lot of detail, and unless you get every detail right, there is some effect.”  

The traditional approach to getting software right is testing. After you write an algorithm, you input a variable and check to see if it gives back the correct output. But how do you test every single input? You can’t. There are too many to test, and there could be errors lurking in the cases that you do not test.

“There are so many possible executions that really, when you test or execute, you just scratch the surface of what is possible,” Holzmann said.

Put another way, testing only looks for the presence of bugs, not the absence of bugs, and one small mistake could have devastating results.  

“If you take any failure of a system, like Fukushima and Three Mile Island, and look at the sequence of events that led to that failure, it is always fascinating because there are so many things that nobody could have predicted that would happen in a particular accommodation,” said Holzmann. “Same as in software; so many things can happen.”

In contrast, instead of testing one situation at a time, formal verification is a way to test that a program works in every situation. What you care about is whether the logic holds true, and the best way to check that logic is with a computer.  

“A formalism for me has the purpose that you can reason about things, and the most useful way of reasoning about things is if you can program a machine to do the reasoning for you,” said Holzmann.

Making a Plan

Generally, the first step in formal verification is to create a mathematical model. The math needed is not complicated; it’s just basic logic written up in a so-called “formal language” that is machine checkable.  

Typically, the process of specifying a model begins with a stakeholder who understands what the system needs to do. In the case of a medical device, the stakeholder might be a doctor; in the case of a smart contract, it might be a lawyer or a banker, or both.

The job of a stakeholder is to convey the information in her head to a requirements engineer who collects that information and creates the model. The process begins informally with discussions and abstractions, but ends formally with a precise mathematical specification.

This is not easy. It is a time consuming, iterative process that can take months, depending on the situation, but it often brings a clarity to a situation that was not there before because it forces programmers to think deeply about the behavior of a software.

“You can think of it as laws and regulations,” said Andreas Zeller, professor of software engineering at Saarland University in Saarbruecken, Germany, who likens creating a formal specification to developing a plan for a building.

“You refine the regulations,” he told Bitcoin Magazine. “But if you do not have regulations in the first place, your building crashes, and that is when you realize, you had better make a plan.”   

Checking the Logic

Once a model is specified, the next step is to verify the model’s logic with proofs. This is a critical step in the process. “If you do not have a proof, you do not have a guarantee that the model, as it is, will work,” explained Zeller.

But because you have to make explicit every single logical step, proofs can be immensely long and complex. In the past, this made formal verification agonizingly difficult. Even the simplest statement could require dozens of theorems and lemmas.

Fortunately, these days, many formal systems use automated theorem provers, like Coq, Isabelle or Metamath, that can check or even partially construct a formal proof.

Once a model is proven to work, the next step is building your program. But you still must make sure the software you build conforms to the specification.  

This is where functional programming languages like ML, Haskell, OCaml or F# enter into the picture. Because these languages are closer to algebra in their expressiveness, they are a better match for formal verification than languages like C, Java, or JavaScript.

For this reason, Tezos is written in OCaml and Cardano is written in Haskell, so changes to the protocol are easier to formally verify. (A formal specification for Ouroboros Praos, the next generation of the consensus algorithm powering Cardano, is already in the works.) Similarly, Tezos’ smart contract language Michelson is based on OCaml; Cardano’s smart contract language Plutus is based on Haskell.

Pros and Cons

On the plus side, formal verification allows computer scientists greater assurances in developing software. On the negative side, because of the rigor involved, formal methods can be a time-consuming, costly undertaking for projects developing the code.

Because of this, formal methods are best used to guarantee smaller building blocks of code that get reused over and over. You would not use it for, say, an entire operating system, but only those parts of a system that require the highest safety or security assurances.  

Naturally, any type of security comes at a cost. The question is, how much security will blockchain and smart contract developers be willing to pay for?

If you want something that is error free, “you had better be prepared to spend tens to hundreds of thousands of dollars for people who will provide a full proof,” cautioned Zeller.  

On the other hand, for smart contracts securing tens of millions of dollars in funds, those costs may be well worth it. Looking at it another way, in a competitive environment, formal verification could make smart contracts more appealing to the consumer.

If, for instance, you had the choice of entrusting your funds to a smart contract that had been formally verified versus one that has not, which one would you choose?  


Thanks to Tim Menzies, professor of computer science at North Carolina University, and Brighten Godfrey, co-founder and CTO at Veriflow, and Automated Software Engineering 2017.

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Hacker Allegedly Siphons $31 Million Out of Tether, Driving Further Speculations About the Cryptocurrency

Hacker Allegedly Siphons $31 Million Out of Tether, Driving Further Speculations About the Cryptocurrency

Tether, a cryptocurrency pegged 1-to-1 to the U.S. dollar, was allegedly hacked today to the tune of $31 million.

Tether functions to convert U.S. dollars to a type of cryptocurrency. The project’s token (USDT) is pegged to the dollar and is used in exchange trading. The idea behind Tether is that instead of having to sell your bitcoin or other token for a fiat currency, you can convert it to USDT, and either hold it in USDT or else transfer your USDT to another exchange and use it to purchase tokens there.

As for the exchanges, USDT allows them to trade in something akin to dollars, without requiring them to have a bank account.

Tether operates on the “Omni Layer Protocol,” which itself operates on top of the Bitcoin network, and uses Bitcoin addresses. According to a blog post on the project’s website, $31 million worth of USDT was sent to an unauthorized Bitcoin address on November 19, 2017.

In the blog post, Tether also noted it released a new version of the Omni Core software used by exchanges and wallets to support USDT transactions, thus implementing a temporary hard fork to the Omni Layer. As a result, the affected tokens are frozen in place, making them essentially worthless to the hacker.

“We strongly urge all Tether integrators to install this software immediately to prevent the coins from entering the ecosystem,” Tether wrote, adding that “any tokens from the attacker’s addresses will not be redeemed.”

Some exchanges, like Kraken, have stopped trading USDT temporarily while they upgrade to the newer software.

The heist was made in three separate USDT transfers out of Tether’s core Treasury wallet in the amounts of 23,000,000; 7,900,000; and 500,000 USDT. It is unclear why the hacker did not move all of the money out at once.

In addition to the other exchanges it trades on, USDT is widely traded on Bitfinex, an exchange that lost 119,756 BTC (worth $72 million at the time) in a hack that took place a year and a half ago.

News of the Tether attack comes at a time when some — notably the blogger “Bitfinex’ed” — are questioning whether USDTs are being issued without backing of actual U.S. dollars. Similarly, there has been growing speculation that Tether is being used in possible market manipulation to drive up the price of bitcoin.

The current market cap value of USDT is around $673 million. If that money is backed by real reserves, as Tether claims, the project would need to have at least that much in its bank account in Taiwan.

Tether publishes a bank account balance on its website’s Transparency page and claims the money is redeemable for U.S. dollars at any time directly through the Tether platform.

The project’s website has been up and down sporadically, since the hack. An archive of the site is available here.

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Blockchain Coalition Seeks to Make Bitcoin Welcome in Wyoming


A group of people are on a mission to bring Bitcoin back to the state of Wyoming after unfriendly laws made it impossible to transact with cryptocurrencies there more than two years ago.

The Wyoming Blockchain Coalition announced its formation this week. Its volunteer members aim to create a legal and regulatory environment in the state that welcomes cryptocurrencies and blockchain technology companies with open arms.

Among the group’s advisors are Patrick Byrne, CEO of Overstock — Byrne lives in Utah but has been a Bitcoin advocate for years — a former Wyoming governor, and two deans and a computer science department head from the University of Wyoming.

Outdated Laws

Bitcoin used to be welcome in Wyoming. But a 2015 interpretation of the Wyoming Money Transmitters Act (which the state passed in 2003, years before Bitcoin even existed) by the Wyoming Division of Banking made it impractical for cryptocurrency exchanges to operate in the state.

Cryptocurrencies are not specifically included on the list of “permissible investments” within the Act, as stocks or securities would be. As a result, after learning it would have to put up huge financial backing to stay in operation in the state, Coinbase suspended its operations in Wyoming indefinitely in June 2015.   

But a lot of people think the law doesn’t make sense. They see cryptocurrency as the future, and they think Wyoming would benefit from being more progressive.

Caitlin Long is one of those people. Now living in New York, where she serves as chairman and president at smart contracts platform company Symbiont, Long grew up in Laramie, Wyoming.

Over the summer, she wanted to give back to her alma mater. But when she went to personally fund an endowment for female engineers at the University of Wyoming, she found out the school was unable to accept her bitcoin as an appreciated asset.  

Fortunately, Long was able to find a charity outside of Wyoming that could legally liquidate the bitcoin and send it to the university through a donor-advised fund.

“They still got the cash, but it prompted a lot of discussion internally in the university about ‘what just happened here?’” Long told Bitcoin Magazine.

Long would not disclose how much she donated, but typically, donations to an endowment are $50,000 and up.

“When universities have donors that are interested in donating properties, they usually try to find ways to accept the properties,” she said.  

The event prompted a lot of discussion among some of the people within the university and eventually led to the formation of a coalition aimed at educating about and advocating for the adoption of blockchain technology in the state.  

Long offered up her services as an advisor member. “I’m in the business,” she said. “So I volunteered to help with both the bitcoin and the blockchain education efforts.”

No Time to Lose

The coalition is moving quickly. Within a week, the group formed an LLC, sent out a press release stating its goals and launched a website. “This is very, very new, and it is happening in real time,” said Long.

They have good reason to make haste. The new legislative session begins in February. If the coalition wants to push through a bill that will get digital currencies recognized as a “permissible investment” under the Wyoming Money Transmitters Act, they will need to move quickly.

Currently the group is working on legislative language with local attorneys and legislators. Next, they need to educate the citizens of Wyoming and the legislators about the benefits of Bitcoin and blockchain technologies. Some of that will involve webinars and live events, as as well as organizing a dinner in Cheyenne during the legislative session.  

Last year, a similar regulatory effort, Wyoming House Bill 26, did not pass, but that was due to lack of knowledge and some “unrelated political feuds,” Robert Jennings, another one of the group’s advisor members, told Bitcoin Magazine.

This time around, he thinks “blockchain [technology] and cryptocurrency will stand on its own merits.”

Jennings added, “There is already a groundswell of support in the state due to the rise in popularity of Bitcoin.”

But, he cautioned, it will require “an extensive education campaign, which is why we formed the Wyoming Blockchain Coalition.”

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Overstock Reveals Plans for Equity Token Exchange and ICO


Overstock CEO Patrick Byrne believes that one day all company shares will be blockchain-based equity tokens classed as securities, and they will need a regulated exchange to trade on.

To raise funds to develop that exchange, the online retail giant is launching an initial coin offering (ICO) for (tZero), the company’s blockchain-focused subsidiary and trading platform that supports equity tokens.

Byrne announced details of the ICO at Money20/20 in Las Vegas on October 24, 2017.

The ICO will take place from November 15–December 31 and will include the sale of 50 million tZero security tokens. Tokens will be sold in a type of presale known as a SAFT (simple agreement for future token), which limits participation to accredited investors.

tZero will incorporate profit sharing features of a security as well as utility features of an app token. For instance, token holders will be able to use the tokens to pay for exchange fees. They will also receive a percentage of tZero’s profits, distributed quarterly and paid into their tZero digital wallets.

Speaking to Bitcoin Magazine, Byrne said proceeds from the ICO will go to further developing an ecosystem around tZero.

He did not reveal how much Overstock hoped to raise or whether the sale would be capped or uncapped, but he said additional details would be made available around November 8.

Forward Thinking

Byrne has been thinking about a blockchain-based equity exchange for trading blockchain shares for some time now.

Right now, most tokens are utility tokens that play some role in the distributed app they were designed to work with. Equity tokens, on the other hand, are regulated by the U.S. Security and Exchange Commission (SEC) and represent an actual share in a company.

Byrne thinks that, eventually, most of the tokens in blockchains today will convert to equity tokens. Taking that concept a step further, he believes all company traded stocks will ultimately be issued as blockchain share certificates.

Right now, however, no SEC approved exchange exists that can handle equity tokens, so Overstock is creating one.

In 2015, Overstock acquired SpeedRoute, a Wall Street trade routing securities firm already licensed by the SEC. Byrne felt that building an exchange from scratch was too risky. Instead, he wanted to buy something in Wall Street that was already pre-SEC approved.

SpeedRoute already had an alternative trading system (ATS) set up, so it only needed minor modifications to get it ready for selling blockchain shares. “We changed it and altered it so it could handle blockchain instruments,” he said. By doing so, Overstock turned the platform into what is now tZero.

To make sure the technology worked, Overstock issued its own blockchain securities last December, distributing more than 126,000 company shares via the platform. “We did it to sort of demonstrate this technology,” Byrne said.  

A Future of Securities

Byrne thinks regulations coming down the pipes are going to dramatically change how tokens are traded.

“If they count as securities, they need a place to trade; it has to be an SEC compliant exchange that can handle blockchain,” he said. “Well, there is exactly one in the world. It is tZero.”

Eventually, he said tZero will have market makers and large pools of capital supporting it to keep the trading liquid. “The markets are very bad now in this whole crypto world. They are very sticky and illiquid markets,” he said. “It is really going to be just what the world of crypto needs.”

But to fulfill that vision, will need to raise a substantial amount of capital through its tZero ICO. “It is going to take several tens of millions of dollars to build that out,” Byrne explained.

Overstock will likely expedite the process by purchasing some $50 million in custody and clearing firms to finish stitching together the ecosystem it needs.

“We actually will make a couple acquisitions that will short the whole thing; supersize it,” Byrne added.

It may take a few years, but eventually,  Byrne said, the idea is to make tZero the largest exchange in the world, and the tZero ICO is a part of that.

“We are thinking very big,” he said. “I’m not just talking crypto exchange; I’m talking exchange.”

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BitGive Launches Bitcoin Donation Platform GiveTrack


BitGive Foundation, a nonprofit organization, announced the launch of the beta version of GiveTrack, a blockchain-based platform that allows donors to donate bitcoin to charitable causes and track those donations in real time.

Connie Gallippi, founder of BitGive, made the announcement on October 24, 2017 at Money20/20, a four-day payments and finance event in Las Vegas.

“It is a real working version; this will be the first time that it has gone live for anyone to access it,” Gallippi said of the platform in an interview with Bitcoin Magazine.

One issue with charities is donors never know for sure how much of the funds they give actually make it to the intended cause. GiveTrack solves that problem by bringing transparency to the donation process. By using Bitcoin and blockchain technology, the web-based project allows donors to give to a cause and then track the progress of those funds in real-time, thereby reducing opportunities for fraud.

Now that GiveTrack is officially up and running for the first time, users can begin trying the platform out by contributing to projects featured on the GiveTrack website. However, the user interface on the web-based app is still bare bones.

“This is a minimal viable product. Essentially, instead of it being a prototype, it is an actual working product, but it is very basic. It doesn’t have a lot of bells and whistles,” Gallippi explained. “We will be doing small improvements along the way when we have feedback for things we can fix quickly.”

Two Working Pilots

Along with the launch of the GiveTrack platform, the landing page of the GiveTrack website will feature two pilot projects from long-standing nonprofit partners: Medic Mobile and The Water Project, along with a description of what each project is raising funds for.

Medic Mobile, a nonprofit that creates mobile apps to allow community health workers to better coordinate care, is raising money for a project to monitor and facilitate timely treatment of malnourished children in Desa Ban, Bali.

The Water Project is raising money to build a new rain catchment tank and latrines at Chandolo primary school in Kenya and provide sanitation and hygiene training for the students there.

Since its founding in 2013, BitGive has been partnering with international relief efforts and local charities seeking to create better communities.

Gallipi explained that what sets GiveTrack apart from other blockchain-based charity platforms is its straightforward and simple approach. Instead of relying on complex smart contracts and tokens, for instance, BitGive sticks to Bitcoin.

“What we have built is really just a way to make it easier for charities and donors to interact with Bitcoin,” said Gallippi. “We are not doing anything fancy or new with the tech; we are simply making it usable for donors to contribute and then to watch the money move.”

As a Bitcoin donation platform, GiveTrack is also helping to spread the word about Bitcoin. “When people who don’t know much about Bitcoin hear about what we are doing, it makes [Bitcoin] more real for them,” she said, “this is such a cool use case for it.”

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Abra Closes $16M in Funding and Looks to Venture Into Consumer Product Space

Abra Foxconn

Abra, a mobile payment and digital currency platform that relies on Bitcoin, closed $16 million in series B funding, led by Foxconn, the electronics supplier for Apple and other tech giants.  

Bill Barhydt, founder and CEO of Abra, made the announcement on October 23, 2017, at Money20/20 in Las Vegas, where he also outlined his vision for how consumer product companies will use Bitcoin in the future.

Other investors in the round include Silver Capital and IGNIA, as well as previous investors Arbor Ventures, American Express Ventures, Jungle Ventures, Lerer Hippeau and RRE Ventures. Total funding to date for the company now stands at nearly $35 million.

“We believe that Abra represents the future of digital payments and banking,” Jack Lee, founding managing partner at HCM, the investment arm of Foxconn, said in a statement, adding that Abra could potentially usher in a new era of financial inclusion to billions of people.

In speaking with Bitcoin Magazine, Barhydt explained that Abra plans to use the funds to expand globally and invest in future product development. “We have a lot of project announcements we will be making on a rolling basis,” he said.

Three-Part Vision

Though Barhydt did not offer exact details on what Abra’s new products will be, he did drop several hints in his three-part vision for how consumer products will implement Bitcoin in the future.

The first part, he explained, involves cross-border and consumer payments, which he said has been Abra’s focus for a couple of years now.

The second part involves using Bitcoin as an investment vehicle, in which smart contracts built on top of Bitcoin’s ledger would enable more complicated if-then types of financial transactions — payments that go through only if specific conditions are met.

Abra already relies on smart contracts to hold fiat currency and manage bitcoin price fluctuations, Barhydt explained.

He went on to describe the third part of his vision: “A new model of consumer asset finance,” which he said is where consumer product companies like Foxconn enter into the picture.

It was an idea that he conceived while recently traveling to Africa. There, he saw how a company was leasing solar panels to people who were making regular micro-payments via M-Pesa, a mobile money transfer service.

“They give solar kits to people who use them only if they make a weekly lease payment from M-Pesa wallet,” he explained. If a borrower does not make the payment, a SIM card in the phone communicates with the battery in the solar panel, shutting it off.

His idea was to extend the concept to other consumer appliances, like refrigerators, flat-panel TVs and washing machines, that people in developing countries struggle to afford.

“Using this model of embedding this cellular technology combined with a Bitcoin-based payment system like Abra, you now have a new model where people can do instant on-lease payments,” he said, calling it a “new trillion-dollar business” that can only be done on scale using something like Bitcoin.

Continuing to remain tight-lipped about future product launches, Barhydt said, “Our goal is to be the best digital currency wallet in the world for the average consumer, starting with real cash and bitcoin, and we’ll see how it evolves from there.”

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Money20/20: Wozniak Thinks Bitcoin Is Better Than Gold

Wozniak 2020

Steve Wozniak (aka the ‘Woz’) thinks Bitcoin is better than gold and the U.S. dollar, which he called “phony,” because the government can always print more.

On Sunday, October 22, 2017, the co-founder of Apple Computers shared his thoughts on cryptocurrencies and blockchain technologies at Money20/20 in Las Vegas where he was interviewed by Deirdre Bosa, technology reporter at CNBC. The conversation was around artificial intelligence, but the topic of Bitcoin emerged as well.

Wozniak feels a currency is more “stable” when it cannot be diluted and, while Bitcoin has a fixed future supply (only 21 million bitcoins will ever be mined), the same cannot be said about government-backed fiat currencies.

“There is a certain finite amount of bitcoin that can ever exist,” Wozniak said in explaining that the U.S. government could wind up printing more dollars for political reasons. He described the U.S. dollar as “kind of phony” in that sense, while describing Bitcoin as more “genuine and real.”

Similarly, he said, gold does not necessarily have a fixed supply either, because humans will continue to find more efficient ways to dig it out of the earth.

“Gold gets mined and mined and mined,” Wozniak said. “Maybe there’s a finite amount of gold in the world, but Bitcoin is even more mathematical and regulated and nobody can change mathematics.”

He compared owning Bitcoin to owning a house. “Your house has value. And if it is a house today, 40 years from now, it still is a house in value,” he said, even if the price goes up and the government draws more taxes out of it.

Mathematical Appreciation

Wozniak said he “admired” Bitcoin when the digital currency was first presented.

“I looked at it as a form of currency,” he said, adding that initially he did not understand the underlying blockchain technology but now he does.

He said, initially, he had a tough time buying bitcoin because that required setting up a special bank account. The process, he said was “so awkward, it kept me from getting early bitcoin.” When he finally was able to buy bitcoin, he said the price immediately dropped in half.

But those kind of numbers don’t mean so much to Wozniak. “I am not financial,” he told the crowd, admitting he never followed the price of bitcoin, nor the price of Apple stock but said he was drawn to bitcoin because it was based on mathematics.

“My wife and I, we judge a hotel room more by the number on the door than what is inside the room. We are both mathematicians,” he said.

Countless Opportunities for Blockchain Technology

Wozniak also touched on Bitcoin’s underlying blockchain technology, and its importance in allowing people to transparently track things, like minerals.

“Right now, there is conflict with minerals in the world, and you don’t want to buy conflict minerals. Well, how do you avoid it?” He continued by explaining how companies will usually buy gold from different countries and smelt it together, so there is no way of knowing where it all comes from. With blockchain-based solutions, however, tracking where that gold comes from is now possible.

“They are applying the technology where all the payment can only go to the good, legitimate sources that don’t have conflict minerals,” he added.

Wozniak pointed out that, currently, there are so many applications popping up using blockchain technology that are so different than what people initially imagined, and it will take time to get used to.

He also likened the introduction of smart contract platforms, like Ethereum, to when computers first came out and suddenly people were writing “tens of thousands of programs” nobody had ever thought of before. Smart contract platforms open those same doors of opportunity.

“There is a lot more to this cryptocurrency than just the Bitcoin,” he said.

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Blockchain-Focused Presentations to Watch at Money 20/20 in Las Vegas

Blockchain-Focused Presentations to Watch at Money 20/20 in Las Vegas

Money 20/20 Las Vegas is only a few days away. The event, to be held on October 22–25, 2017, at the Venetian, will be packed with people from the top tiers of banking and finance looking to learn more about the future of money.

One thing is for sure, blockchain technology will play a key role in that future. Since 2014, the financial event, which will attract more than 11,000 visitors this year, has devoted an entire track to blockchain topics. Originally, the track was called “Bit(coin) World,” but that changed as conversations shifted to Bitcoin’s underlying ledger technology.  

For blockchain enthusiasts struggling to sort through the 450 presentations at Money 20/20, the following is a breakdown of the blockchain track and other blockchain-related talks at the event.

Blockchain Tuesday

Tuesday is the main day for blockchain programming at Money 20/20. Kicking off the blockchain track will be Adam Ludwin, CEO and co-founder of Chain, a company that provides blockchain solutions to banks. Ludwin’s talk will center on whether crypto-assets are in a sort of ‘90s bubble or if something real and substantial is happening beneath the hype.

To give a sense of how fast things are moving, bitcoin was around $650 at last year’s Money 20/20, when one panelist at the event, then Blockstream developer Eric Martindale, predicted bitcoin would increase 10x in value over the next 12 months. His prediction was nearly spot on. Bitcoin reached more than $5,800 just last week.

With crypto-assets hitting all time highs across the board, the new funding model known as initial coin offerings (ICOs) have raised $2.2 billion this year alone. Yet, amidst the enthusiasm, the threat of increased regulations hover like a dark cloud. Last month, the SEC brought the first charges against two so-called ICOs in what may be just the beginning of a long-anticipated crackdown.   

Four more panels on Tuesday will focus on issues like: What problems are private blockchains solving? Are ICOs here to stay or are they just a passing fad? What threats do regulatory agencies pose to ICOs? And, how will blockchain technology potentially transform stock exchanges? These panels will include experts from companies like Bloq, Kik, Fenbushi Capital, AngelList, Pantera, JP Morgan Chase, R3, Hyperledger, Nasdaq, and the London Stock Exchange Group. 

In between those, Arthur and Kathleen Breitman will talk about their new smart contract platform Tezos. The project raised $230 million in an ICO in July.

Tezos is a proof-of-stake cryptocurrency and smart contract platform built in the functional language OCaml. Eventually, Tezos’ goal is to compete with the likes of Ethereum and Cardano, another emerging platform. A primary feature of Tezos is its formal governance scheme, where coin holders get a say in how the protocol evolves.

It will be interesting to see how Tezos plans to differentiate itself in an increasingly competitive landscape.

Finally, Bobby Lee, CEO and co-founder of BTCC, China’s longest running bitcoin exchange, will share war stories on what it has been like operating an exchange in the biggest payments market in the world.

He should have a good story to tell, given that China’s central bank recently cracked down on digital currency exchanges, causing BTCC to halt all China-facing trading last month.  

Other Talks

Two other blockchain-related talks will take place at Money 20/20 on Monday. Bridget van Kralingen, who leads a group called “Industry Platforms” at IBM will talk about how AI, blockchain and cloud computing are converging to create better customer experiences.  

Bill Barhydt, co-founder and CEO of Abra, a cryptocurrency wallet, will give a keynote announcement on Abra’s “next chapter.” Barhydt attracted some attention recently when he chose actress Gwyneth Paltrow as an advisor for Abra in “Planet of the Apps,” a kind of “Shark Tank” for iOS apps.  

Also on Tuesday, BitGive Foundation, a nonprofit that receives bitcoin donations for charitable causes, will be giving a presentation on GiveTrack, its blockchain-based system for tracking donations in real time.

The topic of blockchain applications is sure to come up in plenty of other talks and discussions at Money 20/20, such as this one on financial inclusion on Sunday and those centered around pressing issues like security (the event comes on the heels of the Equifax breach), identity and more.  

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Interview: Cryptographer Silvio Micali on Bitcoin, Ethereum and Proof of Stake

Interview: Cryptographer Silvio Micali on Bitcoin, Ethereum and Proof of Stake

Silvio Micali is an MIT professor and Turing Award–winning cryptographer known for his work in technologies that form the bedrock of blockchains today: public-key cryptosystems, digital signatures, pseudorandomness and multiparty computations. He is also the co-inventor of the zero-knowledge proof.

In the ’90s, he worked on Byzantine agreement, a protocol for getting nodes in a distributed system to agree on a state change. And in 2012, he and long-time collaborator Shafi Goldwasser were co-recipients of the A.M. Turing Award, essentially, the “Nobel Prize in computing.”

Upon learning about Bitcoin three years ago, Micali turned his attention from mechanism design, which had consumed him for the previous seven years, and dove headlong into creating a proof-of-stake algorithm. His project is called Algorand.

Put simply, Algorand relies on a novel form of Byzantine agreement with only nine expected steps. In each step, committee members, chosen at random in a private lottery, are replaced. The result is a high-security system with a negligible risk of forks.

According to Micali, recent tests show Algorand can process 2 MB blocks in 17 seconds, compared to Bitcoin, which produces a 1 MB block every 10 minutes. (A paper on these results will be presented at SOSP, the biennial ACM Symposium on Operating Systems Principles, later this month.)

In an interview with Bitcoin Magazine, Micali explained why he thinks proof of stake is superior to proof of work, the consensus algorithm that underlies most cryptocurrencies today, including Bitcoin and Ethereum. Although Ethereum, more often viewed as a smart contract platform, aims to transition to proof of stake next year.

Unnecessary Evil

Micali thinks proof of work was a great idea when it first came out, but now that we have seen the consequences, he calls it an “unnecessary evil” for several reasons.

“The first time I heard about Bitcoin, I saw all the difficulties. To me, the main difficulty is the waste of computational resources. That is really appalling,” he said. “It drives up prices and depletes the planet of resources.”

Second, he sees miners as “a new center of power” and an orthogonal force to the real users of the system: the coin holders.

“If five mining pools can control what goes in or does not go in a block, in what sense is the ledger decentralized? You don’t want miners having control over the ledger, particularly when they have low margins, are far away and accountable to no one. I think it is a recipe for disaster,” he said.

Finally, transaction ambiguity does not sit well with him. In Bitcoin, occasionally two blocks are found at roughly the same time, creating a temporary fork in the chain. When that happens, the branch with the greater hash power is elongated, while the other and its blocks “disappear.” If your transactions happened to be in an orphaned block, it will eventually get picked up again in the main chain, but for Micali, the idea is unsettling.

“Every time I see my transaction is in a block, I worry the block may disappear. But never mind anxious people like me; banks may not be willing to take on the additional risk,” he said. “Can you imagine a financial world where wire transfers could be taken back?”  

Natural Democracy

Micali thinks proof of stake is a better option. In proof of stake, there are no miners, just the coin holders. Further, a coin holder’s ability to create or validate a block is based on how many coins in the system he or she owns.

“This is a natural interpretation of democracy,” Micali said. “Your influence in maintaining the integrity of the system is based on how much you are really invested in the system.”  

But there is a catch: creating a proof-of-stake algorithm is hard to do. While several projects claim to have come up with a secure protocol, Micali thinks some of those claims are questionable. “The fact is, people can claim anything they want,” he said.

One of the biggest challenges in proof of stake is the “nothing at stake” problem. If the chain forks, the optimal strategy for any coin holder is to extend both chains to earn additional block rewards or to double spend. That goes against the central design goal of all blockchains: getting users to converge on a single chain.

Some projects are looking at ways to sculpt their proof-of-stake protocols by adding perks or punishments to get coin holders to abide by the rules. As part of that, some proof-of-stake systems require users to put up a type of security deposit or bond.

Micali feels a well-designed proof-of-stake cryptocurrency should stand on its own, however, without extra measures. He thinks bonding opens doors to bad actors.

“Let me ask you, what fraction of your disposable income can you put on the table and not touch?” he said and suggested that honest people will put up only a small amount, ceding control to bad actors with big pockets.

“The danger is that only bad people will give up control over a large amount of money to manipulate the system. And if they earn much more money by misbehaving, they will be happy to lose what they put on the table,” he said.

He also disagrees with the idea of using punishment to get users to fall in line.

“A weak state rules through threats and fear,” he said, comparing the practice to barbaric punishments used by some nations to fight crime. Why do they do it? Because criminals are so rarely caught, he said. “So once they catch one, they disembowel the poor guy.”

He continued, “Do you want to oust somebody who misbehaves? Of course. But a well organized system is one in which you don’t need to punish people.”

Bitcoin and Ethereum

Most people view Bitcoin solely as a cryptocurrency, but Micali thinks the greatest value of Bitcoin and Ethereum are as enablers of smart contracts, in which users can stipulate if-then conditions around payments.  

“At the end of the day, doing only payments is easy,” he said, adding that he did not want to trivialize the problem. “Of course, decentralized payments are better than centralized payments, but what really differentiates a cryptocurrency from any other form of money is that you can actually do a smart contract.”

Based on that, he thinks that both Bitcoin and Ethereum would benefit from implementing the best consensus algorithm available. Currently, both systems are “huffing and puffing,” he said. Bitcoin is constrained to 7 transactions per second, while Ethereum can process only 15 per second, compared to Visa’s 2,000 per second.

“If the blockchain scales, isn’t it better for Bitcoin and Ethereum? If the blockchain has a [mathematical] proof of security, isn’t it better for its users?” he said. “If the blockchain cannot be hijacked by miners who are accountable to nobody and live in some faraway jurisdiction, isn’t that a plus for all users?” Micali thinks so.

The post Interview: Cryptographer Silvio Micali on Bitcoin, Ethereum and Proof of Stake appeared first on Bitcoin Magazine.

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IOHK Launches Cardano Blockchain; Ada Now Trading on Bittrex

IOHK Launches Cardano Blockchain; Ada Now Trading on Bittrex

So far, Ethereum has been the lead player in the smart contract platform space. Now a new competitor is steadily creeping into the game. And, in an interesting twist, the effort is being led by a former Ethereum CEO.

Last week, blockchain development firm IOHK, led by Charles Hoskinson, launched Cardano, a new blockchain. And yesterday, Ada (ADA), the platform’s native cryptocurrency, began trading on the U.S.-regulated exchange Bittrex.

The 10,000 Ada voucher holders who participated in the earlier crowdsale can now download the Cardano wallet Daedalus and use that to redeem their Ada tokens and begin trading.

Westerners, who were omitted from the crowdsale, which was focused mainly in Japan, now have a chance to purchase those tokens via Bittrex.

If all goes according to IOHK’s plans, these events will mark the beginning of a two-year process that will see Cardano evolve into a full-fledged smart contract platform with an impressive library of protocols that developers can use to build their decentralized apps.  

How It All Began

Hoskinson was an an early founder of Ethereum. He left the project before the network launched and eventually went on to form IOHK with colleague Jeremy Woods in 2014.  

The following year, IOHK was approached by a group of Japanese business people interested in creating a blockchain that would function as a cryptocurrency and a smart contract platform while meeting the needs for the increasing regulatory oversight in the blockchain space.

To raise funds for the development, the group wanted to do an initial coin offering (ICO) focused on Asian markets. “They said it would be really nice to do a large-scale distribution in Asia, as opposed to the Western world, which is already saturated with cryptocurrencies,” Hoskinson said, in an interview with Bitcoin Magazine.

So the group hired IOHK to build software to assist with compliance during the sale. The Japanese company Attain was enlisted to coordinate the sale, and another entity, Cardano Foundation, handled oversight and auditing.

Meanwhile, the crowdsale, which ran from September 2015 to January 2017, raised $62 million and resulted in the sale of roughly 30 billion Ada vouchers. (Only 45 billion Ada will ever be in circulation.)

Because none of those vouchers were sold to U.S. citizens, the sale did not fall under the umbrella of the U.S. Security and Exchange Commission rules. “There was some regulatory advantages to offshoring it,” said Hoskinson. “And there were also some cultural advantages; mainly we had a blue sky, wide-open marketplace.”

The Japanese group, which has come to be called Emurgo, also hired IOHK to build Cardano under a five-year contract that will end in 2020. Emurgo will become to Cardano what ConsenSys is to Ethereum: a studio for designing smart contracts and decentralized apps that will run on the platform.


So what is Cardano exactly? It is a full blockchain, built from scratch in the functional programming language Haskell. IOHK hired Philip Wadler, a principal designer of the Haskell language to work on the Cardano project.

According to Hoskinson, because Haskell is similar to math in its approach, code can be written more precisely, resulting in a more secure and reliable protocol.

At the heart of Cardano lies Ouroboros, a proof-of-stake consensus algorithm. While Bitcoin and most other cryptocurrencies rely on proof of work, where miners solve a cryptographic puzzle to reach consensus on the state of the ledger, proof-of-stake systems reach consensus by coin-holder vote.

As a result, proof of stake is vastly more energy efficient than proof of work. It also enables faster transactions and opens the door to governance schemes, where coin holders can have a say in how the protocol evolves.

Yet, developing a secure proof of stake is exceedingly difficult. To that end, Ouroboros comes with a mathematical proof of security which has gone through a rigorous peer review, resulting in its acceptance and presentation at Crypto 2017, a major cryptography conference. Several other projects are also working on proof-of-stake algorithms, including Ethereum (Casper), Algorand and Snow White.

Byron and Shelley

In terms of Cardano, what is live now is the first major release of the platform dubbed “Byron.” This is the first generation of the settlement layer, which is where Ada lives.

Some functionality is not yet switched on, however, because the platform is currently in bootstrap mode. The system will need a broader distribution of coin holders before it is up and running in full form. So, at this early stage, even though Ouroboros is turned on, consensus is locked to private nodes until the system gathers momentum, and that may take another four to six months, said Hoskinson.  

Following Byron, the next major release of Cardano, dubbed “Shelley,” is scheduled to arrive in the first half of 2018. During the Shelley phase, the system will evolve into a full-featured, independent cryptocurrency.

“If I died and IOHK shut down, Cardano could run forever in that form,” said Hoskinson.  

Equally important, Shelley will prepare Cardano for a range of impressive features, including smart contracts, side chains, multi-party computation, metadata and more. Those protocols will be added gradually over time.

“We will just keep putting them in when they become available,” said Hoskinson, adding that most of those features will debut next year.

He expects to launch a trusted hardware feature, which will allow for off-chain payments, in 2019.  

Smart Contracts

IOHK is currently developing its own virtual machine (VM), akin to Ethereum’s EVM. This will become the computation layer of the platform, where self-executing code will live. Hoskinson said he expects the Cardano VM to be available sometime in the first half of next year.

Along with that, Cardano will have its own smart contract language called Plutus, a lightweight version of Haskell. Plutus is intended for high-assurance contracts where a security breach could have devastating consequences.

Eventually, new capabilities will allow users to write decentralized apps in legacy languages like Java, C and JavaScript.

“You have to be pragmatic,” said Hoskinson. “People are not always going want to write high-assurance code.”

Also in the works are plans for a governance system in which decisions about the future of the protocol are made on-chain, and a treasury system in which a portion of the transaction fees are retained for future development.

Overall, Hoskinson made it clear that this is to be a slow and steady launch, with the goal of creating a secure, reliable platform that will span decades.

“Cardano is a rigorous, systematic project,” he said. “It has a lot of principles behind it.”

For more details on Cardano, check out Why Cardano?, Cardano Settlement Layer Documentation, Cardano Monetary Policy and the project’s GitHub code.

The post IOHK Launches Cardano Blockchain; Ada Now Trading on Bittrex appeared first on Bitcoin Magazine.

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