Schnorr Is Looking Poised to Become Bitcoin’s Biggest Change Since SegWit

Schnorr Is Looking Poised to Become Bitcoin’s Biggest Change Since SegWit

Schnorr is coming…

In fact, the bitcoin upgrade arguably took its most significant step yet toward implementation last week when influential developer Pieter Wuille unveiled a draft outlining its technical makeup. With the release, the idea, one that’s been in the works by bitcoin developers for years, is one step closer to improving the scaling and privacy of the world’s most valuable cryptocurrency.

Effectively, this sets up Schnorr as the next big change to bitcoin, meaning it will be the largest code change since Segregated Witness (SegWit), a pivotal bug fix that prompted a drawn-out battle in the bitcoin community last year before ultimately being adopted.

At a technical level, adding support for Schnorr, a digital signature scheme, would give bitcoin users a new way to generate the cryptographic keys they need to used to store and send bitcoin. By doing so, it also paves the way for a number of exciting benefits, including tackling privacy and scalability, arguably two of bitcoin’s most worrisome problems.

“It is a building block for a variety of improvements,” Wuille told CoinDesk, adding there are even some further-out improvements that haven’t gotten a lot of attention quite yet. And while Wuille hopes the change will ultimately be adopted, he added it’s “ultimately up to the users” if they want to adopt it – as was the case with SegWit.

Co-authored by several top bitcoin developers, including the likes of Bitcoin Core contributor Johnson Lau and Gregory Maxwell, the technical, math-ridden proposal outlines the exact signature scheme that could be coded in bitcoin.

And while it’s far from that final goal, it’s a necessary piece.

Blockstream engineer and co-author Jonas Nick told CoinDesk:

“Standardizing Schnorr for bitcoin is a big step towards using it in bitcoin.”

A way forward

For one, the BIP draft helps to avoid future confusion by proposing a standard that ensures that all developers and merchants eventually implement the Schnorr signature code in the same way.

Though the full description can be read in the highly-technical BIP, the main idea is it describes the math necessary to produce Schnorr signatures, offering an alternative to Elliptic Curve Digital Signature Algorithm (ECDSA), the sole algorithm used to produce keys and verify transactions in bitcoin today.

Schnorr will have one thing in common with the signature scheme it seeks to crowd out, though. If plan is accepted, it will use the same mathematical “curve” that ECDSA uses to produce the keys, called “secp256k1.”

It’s a lot of tricky math, so it’s no surprise the release sparked technical discussion on the bitcoin developer mailing list.

But nothing major has come up so far and developers are optimistic, especially since one of Schnorr’s key benefits is that, unlike ECDSA, Schnorr’s security can actually be proved mathematically.

While Schnorr offers a number of improvements on its own, developers are also excited that it will also pave the way for a range of changes that can be built on top of it, such new privacy techniques.

Right now, it’s obvious when users send so-called “multi-sig transactions,” which are a more advanced type of transaction where more than one person is required to sign off on a transaction, because of bitcoin’s public ledger. But Schnorr pave the way for a technique that will make these transactions look the same as every other transaction.

Nick noted Schnorr will also lead these advanced transactions will be cheaper as well, an important improvement since transactions can grow very expensive in times of congestion.

And it seems like new tech built on top of Schnorr are being proposed on a regular basis.

“Due to the wealth of new discoveries lately I believe these technologies should be developed in a step-by-step basis, and my focus for a first step is just Schnorr and Taproot,” Wuille said, referring to the bitcoin improvement “Taproot” proposed earlier this year by another influential bitcoin developer Greg Maxwell to further improve bitcoin’s privacy.

Less detractors?

That said, there’s still a ways to go – Schnorr’s a massive project with many moving pieces.

While this BIP proposes a standard for developers to chime in on, Nick noted there’s also a code implementation that’s been in the works for ages, putting much of what’s in the BIP draft into practice.

Plus, once developers fight it out until they decide there are no longer any outstanding problems, developers need to come up with a way to actually add it to bitcoin, among other things.

“The specifics for how to deploy it in bitcoin are still being actively discussed,” Nick said.

Having been through a few so-called “consensus” changes in his years as a bitcoin developer, Wuille gave a particularly long list of things to do.

“Like any consensus change, it will be a long process involving fully fleshing out a draft for integration, publishing it, gathering comments from the technical community and ecosystem, writing implementations of both consensus rules and integration in wallet software, proposing a deployment plan, and if all goes well, get it activated,” he said.

In the email where he introduced the BIP, he added that if the BIP is “accepted” by the broader bitcoin community “we’ll work on more production-ready reference implementations and tests.”

Not to mention, there’s another potential stumbling block on everyone’s minds.

Schnorr is a particularly big upgrade. Although changes are being made to bitcoin’s most-used client every day, with code contributions coming from a diverse group of contributors stationed around the world, Schnorr is a rarer type of change, since it affects the most important rules in bitcoin.

SegWit was the last code change “consensus” change made to bitcoin, sparking a debate so big, those who disagreed with the change split off and created their own cryptocurrency with SegWit removed.

The most enthusiastic SegWit supporters even made hats to express their support for the code change. Blockchain consultant Francis Pouliot joked that similar advocacy hats should be made in advance of Schnorr, in case a similar vicious debate breaks out.

He’s not the only developer mulling this possibility.

“It looks for now there are less detractors than there was for SegWit,” developer Riccardo Casatta said, though adding he’s not taking any chances:

“You cannot say how things​ will go and as always, it is better to be patient.”

Welding laser image via Shutterstock

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​​Market Mania Is Unavoidable, But Crypto Must Get Past It

​​Market Mania Is Unavoidable, But Crypto Must Get Past It

Michael J. Casey is the chairman of CoinDesk’s advisory board and a senior advisor for blockchain research at MIT’s Digital Currency Initiative.

The following article originally appeared in CoinDesk Weekly, a custom-curated newsletter delivered every Sunday exclusively to our subscribers.


The financial bubbles of 17th and 18th century Europe are favorite references for those, among both believers and detractors, who warn of the excesses in crypto-asset markets.

The events of those times long past capture the same problems of information asymmetry and irrational speculation that leave many seasoned observers concerned about this moment. The South Sea Bubble, the Mississippi Bubble, and Tulip Mania were all examples of how, during money-crazed manias, unscrupulous entrepreneurs and early investors exploit their privileged access to information to do great harm to an ill-informed investing public. This, at its essence, describes the risk inherent in initial coin offerings (ICOs).

But the historical context behind those centuries-ago events is also important: they were a direct, almost unavoidable side effect of the invention at that same time of limited liability companies, stock markets and derivatives, some of the most game-changing financial innovations of all time.

On the one hand, these inventions – spearheaded by the Dutch – created vast new opportunities for a growing middle class to engage in wild, ill-conceived speculation. But on the other, they unlocked a giant, previously unavailable pool of collective capital, offering a much more efficient way for entrepreneurs to fund their ventures.

Vast worldwide enterprises were launched on the back of these new money-raising tools. They gave us the global capitalist economy we now take for granted.

This context is important because everything that looks like investor mania in cryptoland today – the 2017 bubble in token prices, the scam coins, the vaporware, the 10-figure ICO raises without a line of code written – might similarly be viewed as the unpleasant but unavoidable side effect of a major technological transformation.

If crypto-assets, smart contracts and blockchain technology fulfill their potential to decentralize the economy, the change they promise could be just as profound, if not more, as that sparked by those inventions during the Dutch renaissance. This technology represents a radical re-imagining of record-keeping, fundraising, organizational design and of money itself.

At times like this, you just can’t stop the unsavory, get-rich-quick types.

Tech lures speculation

As I’ve noted elsewhere, if you examine moments through history when a new, general-purpose technology upended the economic order, they were almost always accompanied by periods of intensified financial speculation.

It was the case with railroads, with electricity and, of course, with the rise of the internet in the late nineties. The Venezuelan economist Carlota Perez has even argued that the social phenomena of bubbles and speculation are necessary elements in how societies fund and build the infrastructure upon which transformative technologies become entrenched in the economy.

But the opposite causal relationship does not necessarily hold true.

Tracing every moment of hype and speculation that has been associated with a new technology will not at all find that it’s always associated with the successful deployment of a powerful new technology. History is rife with supposedly “revolutionary” ideas that captured people’s imaginations but weren’t ultimately deployed in a widespread, society-altering way.

The past 50 years are full of them: the Segway, Google Glass, Betamax, the Concorde, to name a few. Note: all of these were impressive technologies and some have gone on to be important components of subsequent inventions. But for various reasons – the cost of production, marketing, fashion, etc. – they never took off in a way that matched the hype.

Gambling as a service

I was thinking about all this as I read about Augur’s impressive launch of its prediction market. In one day, its ethereum-based decentralized application processed $400,000 in bets on everything from U.S. elections to the World Cup.

The question to me is whether the initial enthusiasm for decentralized prediction markets – in which contracts can be written for payouts between parties on the outcome of any particular event – will go beyond human beings’ natural proclivity to gamble and ultimately deliver on Augur’s real promise to society: a crowd-sourced, market-based forecasting system and an incentive, reputation token model for rewarding honesty.

In this case, the market Augur is developing literally requires speculation to function. Gambling is not just a byproduct; it is integral to its success. But just because people want to bet in this way does not mean that the price discovery around their predictions will be widely used by society at large to process and value information about occurrences that matter. Only time will tell on that one.

You could ask similar questions about other sectors of the crypto industry that attract significant speculation but also represent potentially powerful, cutting-edge ideas. While I’m convinced that the underlying concepts of incentivized consensus, cryptographically secured distributed ledgers, digital assets, and decentralized exchange will succeed in some form, I see no guarantees yet that any of the various manifestations of those ideas – including bitcoin – will necessarily survive and make an impact on the world.

So, let’s ask these questions:

  • Are ICOs just enabling scammers and founders of doomed-to-failure projects to get rich on the greater fool theory of bubble-nomics? Or is this truly the killer app of blockchain technology, the one that emancipates capital from Silicon Valley gatekeepers and creates a global market for ideas?
  • Was the recent enthusiasm for Cryptokitties a fad, a crypto Beanie Babies moment, or will it go down as the vital use case that proves the value of digital scarcity and fosters markets in which producers of unique creative works can monetize them
  • Will bitcoin be forever viewed as a fanatic passion of “To the Moon” HODLers or can it truly be the foundation of a new global reserve asset and payments platform?

These and others like them are vital questions to answer if we are to ensure that blockchain technology’s vast potential plays out to the benefit of matters to society at large.

Value to society

Answering these questions comes down to how the technology itself is integrated into the wider economy.

That notion itself can refer as much to a new type of market as any other kind of technology. (The early Dutch stock markets offer a good analogy here for Augur’s prediction markets – organizational technologies in their own right.) Regardless, there still has to be broad-based value to society if the technology (and the market it supports) is to survive and prosper.

Here the history of Europe’s early capital markets is again valuable. The fallout from the disastrous South Sea Bubble didn’t kill the idea of public capital markets for funding new ventures, but it did bring order and societal interest into play. These came in the form of new rules from governments on who could issue public stock and how. From that evolved the entrenched, regulated stock exchanges and related asset markets that we use today.

This is not at all to say that government regulation must be the answer to crypto’s aspirations to go mainstream – the very concept of a censorship-resistant system tends to run counter to it. But it does mean that those of us involved in developing this technology should encourage protocols, best practices, standards and norms of behavior that have at their core the interests of society at large.

History suggests that naysayers like Nouriel Roubini who scoff at the hype and speculation in crypto communities could be blind to the major transformational moment that underpins it. But it equally offers a warning to crypto enthusiasts: don’t get lost in the hype; create something that lasts; build something that matters to everyone.

South Sea Bubble image via Wikimedia Commons.

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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G20 Watchdog Releases Framework for ‘Vigilant’ Crypto Monitoring

G20 Watchdog Releases Framework for ‘Vigilant’ Crypto Monitoring

The Financial Stability Board (FSB), an organization focused on analyzing and making recommendations to the G20 on global financial systems, has presented a framework for monitoring cryptocurrency assets.

It notably lists several metrics that the FSB will use to keep an eye on the developing crypto markets and “should help to identify and mitigate risks to consumer and investor protection, market integrity, and potentially to financial stability.”

The standardized framework was published along with a report on Monday and has been submitted to the G20 nations’ financial ministers and central bank governors.

According to the document, the FSB’s monitoring efforts will focus on crypto assets’ price volatility, the size and growth of initial coin offerings (ICOs), crypto’s wider use in payments and institutional exposure, as well as the market’s volatility when compared to gold, currencies and equities.

The FSB – which is led by Bank of England governor Mark Carney – will also periodically compile qualitative reports to gather intelligence for market confidence, the report says.

The organization further sets out the reasoning behind the framework, saying:

“While the FSB believes that crypto-assets do not pose a material risk to global financial stability at this time it recognizes the need for vigilant monitoring in light of the speed of market developments.”

The report indicated that, apart from the FSB, other international regulatory organizations too are stepping up their efforts in monitoring specific areas of the cryptocurrency industry.

For instance, International Organization of Securities Commissions, a global regulatory body made of securities watchdogs, is developing its own framework in an effort to help member countries better analyze the impacts of domestic and foreign ICOs on investors.

Meanwhile, the Basel Committee on Banking Supervision (BCBS) is gathering data on its member banks’ direct and indirect exposure to cryptocurrency in an effort to quantify the potential impact of the technology.

The FSB report comes as the result of the G20 meeting in March this year, at which there were calls for global regulation of cryptocurrencies. As previously reported by CoinDesk, member countries agreed at the time that initial recommendations were required over what data should be used to monitor the crypto space, and set July as a deadline.

Mark Carney image courtesy to the FSB

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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Bitcoin Eyes Bull Reversal As Volumes Spike From 36-Week Lows

Bitcoin Eyes Bull Reversal As Volumes Spike From 36-Week Lows

Bitcoin is eyeing change of fortunes above $6,800, having convincingly scaled a key moving average hurdle earlier today.

At press time, BTC is changing hands at a six-day high of $6,600 on Bitfinex – up 3.44 percent on the day.

The cryptocurrency remained bid over the weekend and rose to $6,400 as expected despite low investor participation. For instance, prices rose above $6,300 on Saturday, but trading volumes fell to $2.92 billion, the lowest level since November 7, according to CoinMarketCap.

However, the solid move above the 20-day moving average (MA) resistance of $6,400 seen today is backed by a pick-up in trading volume.

As of writing, 24-hour trading volume stands at $4.64 billion – up more than 50 percent from the 36-week lows seen on Saturday. Thus, rally looks sustainable and could be extended further towards $6,838 (inverse head-and-shoulders neckline resistance).

Daily chart

BTC’s recovery from $6,080 (Thursday’s low) and a rally to $6,600 has created a higher low (bullish setup) on the chart.

The relative strength index (RSI) is also biased toward the bulls (above 50.00).

So, prices look set to test the key resistance at $6,838 (inverse head-and-shoulders neckline resistance). Essentially, BTC is now creating the right shoulders of the inverse head-and-shoulders bullish reversal pattern.

Still, there is merit in being cautious as the cryptocurrency looks overbought as per the short duration charts.

4-hour chart

The relative strength index (RSI) is at the highest level since April 24, meaning the cryptocurrency is at its most overbought in nearly three months.

Hence, a  break above $6,838 might remain elusive for another 24-hours or could be short-lived for the time being.

View

  • BTC’s corrective rally has gathered pace and prices could rise to $6,838 (neckline resistance) in the next day or two.
  • A close (as per UTC) above $6,838 would confirm a short-term bearish-to-bullish trend change and would open the doors to $7,920 (target as per the measured height method).
  • Only a daily close (as per UTC) below $6,400 (20-day MA) would kill the odds of BTC rising to $6,838.
  • A break below $5,755 (June 24 low) would revive the bearish view.

Edit (12:00 UTC, July 16, 2018): This article was updated to reflect a sudden rise in prices soon after initial publication.

Disclosure: The author holds no cryptocurrency assets at the time of writing.

Bitcoin logo cryptocurrency via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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Sex Workers Have Serious Issues With a Crypto-Powered ‘Uber for Escorts’

Sex Workers Have Serious Issues With a Crypto-Powered ‘Uber for Escorts’

“Too pimp-like and not safe to use.”

That’s how one sex worker, who spoke on condition of anonymity, described the cryptocurrency platform PinkDate, for which she was invited to test the service but refused.

Describing itself as the “Uber of escorting,” PinkDate is one of several sex industry startups launching a crypto-fueled booking app funded by an initial coin offering (ICO). The platform, currently in a closed beta, aims to match sex workers with clients (just as Uber does for drivers and passengers). Except instead of credit cards, clients would pay for services with bitcoin or monero.

The team has raised more than $1 million through the sale, and a dozen escorts are registered to use the app, according to Sarah Stevens, PinkDate’s former president.

However, experts familiar with the complexities of sex work identified a litany of issues unique to this project, from exploitative fees to a lack of sex worker representation in the project’s leadership.

Not least of all, PinkDate is asking for a lot of trust.

First, the project’s founders are anonymous and their locations are unknown.

A PinkDate spokesman who gave only a first name, Roger, told CoinDesk, “PinkDate is not registered as a legal entity. We are extra-jurisdictional and operate anonymously.”

But while that setup may seem to be in line with the cypherpunk ethos that gave rise to cryptocurrency, PinkDate also requires the escorts using its platform to have active Twitter accounts and hand over copies of their government-issued ID.

This arguably creates an asymmetric relationship – the sex workers, who risk arrest or social ostracism if they were to be outed, are being asked to trust operators whom they know nothing about.

Screening and compliance

Another way in which escorts might have to trust PinkDate’s shadowy founders is with client screening to weed out abusive customers.

While the platform will also ask clients to provide identification, sex workers worry PinkDate isn’t devoting enough resources to cross-reference these IDs with industry blacklist databases.

Roger said all client information will be provided to the escort as well, although escorts felt this assurance was dubious based on a lack of responsiveness related to product launch delays and technical errors.

Another escort, who also requested anonymity, said the team has not been communicative with sex workers who signed up to use the app.

“They clearly don’t care about the girls on the site. None of us got emails explaining what’s going on,” she said, referring to such delays.

Asked about concerns that a blacklisted or abusive client could use the service, Roger said, “We are going to finalize an arrangement with a commercial database that specifically deals with adult-oriented projects.” But he provided no further specifics.

All this might be acceptable to some in the profession if PinkDate still had a sex worker on staff, but Stevens was the only one and PinkDate publicly severed ties with her last month.

In a statement, PinkDate cited SETA/FOSTA, a U.S. law criminalizing internet services or users that “enable” prostitution, as its reason for parting ways with Stevens.

However, Stevens told CoinDesk part of the reason behind the split was her concerns about PinkDate’s business model.

One such concern is compliance with financial regulations. Unlike the utility token offered by SpankChain, which will be used strictly as that platform’s internal currency for tipping erotic performers, PinkDate’s site explicitly says the token it’s selling in the ICO just represents equity in the company, for which holders will receive dividends. (Within the PinkDate ecosystem, clients pay escorts in bitcoin or monero, and the platform takes a cut.)

But while labeling your ICO a share offering is usually considered erring on the side of caution in a regulatory environment where few jurisdictions recognize utility tokens as a legitimate category, PinkDate is unabashedly pushing the envelope.

“They do zero know-your-customer and anti-money laundering [checks],” Stevens said, referring to the screening of token-buyers. “Since they’re not a legal entity, this is not even a security token offering.”

Roger acknowledged that it does not vet token buyers. “Anyone can buy PinkDate Token Shares. There is no screening process,” he told CoinDesk.

He added:

“We are selling unregistered securities for a company that’s building a global escorting platform.”

Even beyond its plans for unlawful operations in North America, PinkDate’s escort onboarding process would fail compliance standards in many jurisdictions around the world where prostitution is legalized since most require routine health screenings and PinkDate does not.

Robin Attig, CEO of the rival crypto startup Lovr, told CoinDesk that escorting platforms which don’t require medical checkups and sufficient client screening are “highly illegal” in jurisdictions where escorting itself is legal, such as Germany, where his firm is based.

Revenue models

Another concern expressed by sex workers is that PinkDate would take a large cut of escorts’ earnings on the platform while offering them little in return in the way of support services.

PinkDate will process bitcoin and monero payments from clients, then charge individual escorts up to 20 percent.

By contrast, Lovr doesn’t charge escorts for sessions booked through its platform, which also processes cryptocurrency payments. Instead, it will earn revenue through advertising and possibly fiat exchange services through a German bank. Escorts will be able to freely cash out crypto if they choose.

“That’s just fair,” Attig said. “We want to make it possible to have peer-to-peer payments. If we take a lot from their [earnings], we’re a middleman again.”

SpankChain charges erotic performers 5 percent of their earnings on its platform, a much lower rate, and it offers legal support and marketing campaigns.

Outside of crypto and blockchain projects, many centralized escorting platforms charge as much as 40 percent of an escort’s earnings. In exchange, these companies often offer marketing opportunities like photo shoots, advertising campaigns to attract new clients, and sometimes even transportation, safe locations to work, or legal support.

PinkDate, by contrast, is currently vague on the incentives it will provide.

“We are always open to ideas on what escorts would like as far as additional benefits or services that adds value to their business,” Roger told CoinDesk. “This could include photo shoots, launch parties or other events, etc; part of an initial marketing ramp-up that will be required.”

But Stevens said she isn’t confident the PinkDate team will be able to deliver on any escort support services. She even went so far as to allege the application itself still doesn’t work properly.

“They just wanted to make money off the backs of escorts … making promises they can’t keep,” Stevens said.

The ICO is set to conclude this month, but it’s unclear when the platform will launch.

“We have already received many applications to start using PinkDate from both Canada and the U.S.,” Roger told CoinDesk.

Sex worker image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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Thailand Is Planning a ‘Bond Coin’ for Faster Securities Settlement

Thailand Is Planning a ‘Bond Coin’ for Faster Securities Settlement

A self-regulatory organization in Thailand is planning to create a custom token aimed to speed up corporate bond settlement in the country.

The Thailand Bond Market Association (TBMA) said it has received the green light from Thailand’s Securities and Exchange Commission to develop a private blockchain that will be only accessible for parties in the bond market, such as registered issuers, investors and depository organizations.

According to a news report from Bangkok Post on Monday, the TBMA said the development process will be divided into three stages and will start next month. The orgnization further explained it will first create a blockchain-based platform for listing and sharing bond information, such as interest rates in a distributed manner.

During the second phase, the platform will add in new features to enable bond deposits, which is estimated to take nine months for completion, the report said. The TBMA indicated it will eventually develop what it calls a “bond coin” on top of the blockchain platform in the next 12 months to tokenize assets for speedier clearing and settlement.

Chaitat Prachuabdee, executive vice president of the TBMA, said the new infrastructure is expected to improve the transparency of corporate bond information and could potentially shorten the transaction time from the current 7–10 days to just 1–3 days.

The effort follows news that Thailand’s national stock exchange has built a blockchain platform it hopes will widen access to capital funds for domestic startups and enhance the efficiency of Thailand’s equity market.

Blockchain is increasingly being eyed and adopted in the securities markets as a solution for improving settlement systems.

As previously reported by CoinDesk, Switzerland’s primary stock exchange also released a plan for building a digital asset exchange in order to tokenize and transact traditional securities.

Meanwhile, a group of industry stakeholders including Nasdaq has developed a blockchain platform to transfer collateral to central counterparties when trading securities.

Perhaps most notably, though, the Australian Securities Exchange (ASX) is planning to replace its CHESS clearing and settlement system with a distributed ledger-based alternative in 2020.

Market index image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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Schnorr Is Looking Poised to Become Bitcoin’s Biggest Change Since SegWit

Schnorr Is Looking Poised to Become Bitcoin’s Biggest Change Since SegWit

Schnorr is coming…

In fact, the bitcoin upgrade arguably took its most significant step yet toward implementation last week when influential developer Pieter Wuille unveiled a draft outlining its technical makeup. With the release, the idea, one that’s been in the works by bitcoin developers for years, is one step closer to improving the scaling and privacy of the world’s most valuable cryptocurrency.

Effectively, this sets up Schnorr as the next big change to bitcoin, meaning it will be the largest code change since Segregated Witness (SegWit), a pivotal bug fix that prompted a drawn-out battle in the bitcoin community last year before ultimately being adopted.

At a technical level, adding support for Schnorr, a digital signature scheme, would give bitcoin users a new way to generate the cryptographic keys they need to used to store and send bitcoin. By doing so, it also paves the way for a number of exciting benefits, including tackling privacy and scalability, arguably two of bitcoin’s most worrisome problems.

“It is a building block for a variety of improvements,” Wuille told CoinDesk, adding there are even some further-out improvements that haven’t gotten a lot of attention quite yet. And while Wuille hopes the change will ultimately be adopted, he added it’s “ultimately up to the users” if they want to adopt it – as was the case with SegWit.

Co-authored by several top bitcoin developers, including the likes of Bitcoin Core contributor Johnson Lau and Gregory Maxwell, the technical, math-ridden proposal outlines the exact signature scheme that could be coded in bitcoin.

And while it’s far from that final goal, it’s a necessary piece.

Blockstream engineer and co-author Jonas Nick told CoinDesk:

“Standardizing Schnorr for bitcoin is a big step towards using it in bitcoin.”

A way forward

For one, the BIP draft helps to avoid future confusion by proposing a standard that ensures that all developers and merchants eventually implement the Schnorr signature code in the same way.

Though the full description can be read in the highly-technical BIP, the main idea is it describes the math necessary to produce Schnorr signatures, offering an alternative to Elliptic Curve Digital Signature Algorithm (ECDSA), the sole algorithm used to produce keys and verify transactions in bitcoin today.

Schnorr will have one thing in common with the signature scheme it seeks to crowd out, though. If plan is accepted, it will use the same mathematical “curve” that ECDSA uses to produce the keys, called “secp256k1.”

It’s a lot of tricky math, so it’s no surprise the release sparked technical discussion on the bitcoin developer mailing list.

But nothing major has come up so far and developers are optimistic, especially since one of Schnorr’s key benefits is that, unlike ECDSA, Schnorr’s security can actually be proved mathematically.

While Schnorr offers a number of improvements on its own, developers are also excited that it will also pave the way for a range of changes that can be built on top of it, such new privacy techniques.

Right now, it’s obvious when users send so-called “multi-sig transactions,” which are a more advanced type of transaction where more than one person is required to sign off on a transaction, because of bitcoin’s public ledger. But Schnorr pave the way for a technique that will make these transactions look the same as every other transaction.

Nick noted Schnorr will also lead these advanced transactions will be cheaper as well, an important improvement since transactions can grow very expensive in times of congestion.

And it seems like new tech built on top of Schnorr are being proposed on a regular basis.

“Due to the wealth of new discoveries lately I believe these technologies should be developed in a step-by-step basis, and my focus for a first step is just Schnorr and Taproot,” Wuille said, referring to the bitcoin improvement “Taproot” proposed earlier this year by another influential bitcoin developer Greg Maxwell to further improve bitcoin’s privacy.

Less detractors?

That said, there’s still a ways to go – Schnorr’s a massive project with many moving pieces.

While this BIP proposes a standard for developers to chime in on, Nick noted there’s also a code implementation that’s been in the works for ages, putting much of what’s in the BIP draft into practice.

Plus, once developers fight it out until they decide there are no longer any outstanding problems, developers need to come up with a way to actually add it to bitcoin, among other things.

“The specifics for how to deploy it in bitcoin are still being actively discussed,” Nick said.

Having been through a few so-called “consensus” changes in his years as a bitcoin developer, Wuille gave a particularly long list of things to do.

“Like any consensus change, it will be a long process involving fully fleshing out a draft for integration, publishing it, gathering comments from the technical community and ecosystem, writing implementations of both consensus rules and integration in wallet software, proposing a deployment plan, and if all goes well, get it activated,” he said.

In the email where he introduced the BIP, he added that if the BIP is “accepted” by the broader bitcoin community “we’ll work on more production-ready reference implementations and tests.”

Not to mention, there’s another potential stumbling block on everyone’s minds.

Schnorr is a particularly big upgrade. Although changes are being made to bitcoin’s most-used client every day, with code contributions coming from a diverse group of contributors stationed around the world, Schnorr is a rarer type of change, since it affects the most important rules in bitcoin.

SegWit was the last code change “consensus” change made to bitcoin, sparking a debate so big, those who disagreed with the change split off and created their own cryptocurrency with SegWit removed.

The most enthusiastic SegWit supporters even made hats to express their support for the code change. Blockchain consultant Francis Pouliot joked that similar advocacy hats should be made in advance of Schnorr, in case a similar vicious debate breaks out.

He’s not the only developer mulling this possibility.

“It looks for now there are less detractors than there was for SegWit,” developer Riccardo Casatta said, though adding he’s not taking any chances:

“You cannot say how things​ will go and as always, it is better to be patient.”

Welding laser image via Shutterstock

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American Express Thinks Blockchains Could Help Prove Payments

American Express Thinks Blockchains Could Help Prove Payments

American Express is on the hunt for better ways of proving when transactions occur and a new patent filing suggests the financial services giant may be looking at blockchain as part of a possible solution.

In a patent application released by the U.S. Patent and Trademark Office last week, American Express Travel Related Services describes using a “blockchain-based system” in order to receive “payment confirmation including a transaction amount and a merchant identifier.”

The concept is aimed at adding to what AmEx calls the “limited” number of options for generating quality evidence that payments happen between merchants and their customers “beyond a receipt or ticket.

AmEx’s patent highlights the tech’s role in retaining “transaction data, contract data, proof-of-payment data, identification data, and/or other information as desired,” with the idea being that a blockchain network – possibly a public one – would serve as an extra layer of proof for transactions that take place on AmEx’s network.

As a result, the potential applications of such a system are quite varied, the company contends.

American Express says that data can be used to “unlock a hotel, rental or shared economy property door using the card (e.g., that was used for the payment) to look up proof of payment on a blockchain.” Moreover, “the system may be leveraged to provide ticketless access to venues (e.g., movie theater, sports event, concert, etc.) to a customer,” and so forth.

While the decision on whether this blockchain system will be hosted on a private, public or consortium network is up for grabs, the application does highlight how “public networks may leverage the cumulative computing power of the network to improve security.”

This patent application by American Express is the latest in a series that have been launched as early as October of last year when the same branch of the company filed for a different patent related to customer rewards.

Fast forward to today and the company has indeed begun initial trials with a custom Membership Rewards program for cardholders, leveraging Hyperledger’s blockchain technology, which it partnered with last January.

Payment terminal image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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​​Market Mania Is Unavoidable, But Crypto Must Get Past It

​​Market Mania Is Unavoidable, But Crypto Must Get Past It

Michael J. Casey is the chairman of CoinDesk’s advisory board and a senior advisor for blockchain research at MIT’s Digital Currency Initiative.

The following article originally appeared in CoinDesk Weekly, a custom-curated newsletter delivered every Sunday exclusively to our subscribers.


The financial bubbles of 17th and 18th century Europe are favorite references for those, among both believers and detractors, who warn of the excesses in crypto-asset markets.

The events of those times long past capture the same problems of information asymmetry and irrational speculation that leave many seasoned observers concerned about this moment. The South Sea Bubble, the Mississippi Bubble, and Tulip Mania were all examples of how, during money-crazed manias, unscrupulous entrepreneurs and early investors exploit their privileged access to information to do great harm to an ill-informed investing public. This, at its essence, describes the risk inherent in initial coin offerings (ICOs).

But the historical context behind those centuries-ago events is also important: they were a direct, almost unavoidable side effect of the invention at that same time of limited liability companies, stock markets and derivatives, some of the most game-changing financial innovations of all time.

On the one hand, these inventions – spearheaded by the Dutch – created vast new opportunities for a growing middle class to engage in wild, ill-conceived speculation. But on the other, they unlocked a giant, previously unavailable pool of collective capital, offering a much more efficient way for entrepreneurs to fund their ventures.

Vast worldwide enterprises were launched on the back of these new money-raising tools. They gave us the global capitalist economy we now take for granted.

This context is important because everything that looks like investor mania in cryptoland today – the 2017 bubble in token prices, the scam coins, the vaporware, the 10-figure ICO raises without a line of code written – might similarly be viewed as the unpleasant but unavoidable side effect of a major technological transformation.

If crypto-assets, smart contracts and blockchain technology fulfill their potential to decentralize the economy, the change they promise could be just as profound, if not more, as that sparked by those inventions during the Dutch renaissance. This technology represents a radical re-imagining of record-keeping, fundraising, organizational design and of money itself.

At times like this, you just can’t stop the unsavory, get-rich-quick types.

Tech lures speculation

As I’ve noted elsewhere, if you examine moments through history when a new, general-purpose technology upended the economic order, they were almost always accompanied by periods of intensified financial speculation.

It was the case with railroads, with electricity and, of course, with the rise of the internet in the late nineties. The Venezuelan economist Carlota Perez has even argued that the social phenomena of bubbles and speculation are necessary elements in how societies fund and build the infrastructure upon which transformative technologies become entrenched in the economy.

But the opposite causal relationship does not necessarily hold true.

Tracing every moment of hype and speculation that has been associated with a new technology will not at all find that it’s always associated with the successful deployment of a powerful new technology. History is rife with supposedly “revolutionary” ideas that captured people’s imaginations but weren’t ultimately deployed in a widespread, society-altering way.

The past 50 years are full of them: the Segway, Google Glass, Betamax, the Concorde, to name a few. Note: all of these were impressive technologies and some have gone on to be important components of subsequent inventions. But for various reasons – the cost of production, marketing, fashion, etc. – they never took off in a way that matched the hype.

Gambling as a service

I was thinking about all this as I read about Augur’s impressive launch of its prediction market. In one day, its ethereum-based decentralized application processed $400,000 in bets on everything from U.S. elections to the World Cup.

The question to me is whether the initial enthusiasm for decentralized prediction markets – in which contracts can be written for payouts between parties on the outcome of any particular event – will go beyond human beings’ natural proclivity to gamble and ultimately deliver on Augur’s real promise to society: a crowd-sourced, market-based forecasting system and an incentive, reputation token model for rewarding honesty.

In this case, the market Augur is developing literally requires speculation to function. Gambling is not just a byproduct; it is integral to its success. But just because people want to bet in this way does not mean that the price discovery around their predictions will be widely used by society at large to process and value information about occurrences that matter. Only time will tell on that one.

You could ask similar questions about other sectors of the crypto industry that attract significant speculation but also represent potentially powerful, cutting-edge ideas. While I’m convinced that the underlying concepts of incentivized consensus, cryptographically secured distributed ledgers, digital assets, and decentralized exchange will succeed in some form, I see no guarantees yet that any of the various manifestations of those ideas – including bitcoin – will necessarily survive and make an impact on the world.

So, let’s ask these questions:

  • Are ICOs just enabling scammers and founders of doomed-to-failure projects to get rich on the greater fool theory of bubble-nomics? Or is this truly the killer app of blockchain technology, the one that emancipates capital from Silicon Valley gatekeepers and creates a global market for ideas?
  • Was the recent enthusiasm for Cryptokitties a fad, a crypto Beanie Babies moment, or will it go down as the vital use case that proves the value of digital scarcity and fosters markets in which producers of unique creative works can monetize them
  • Will bitcoin be forever viewed as a fanatic passion of “To the Moon” HODLers or can it truly be the foundation of a new global reserve asset and payments platform?

These and others like them are vital questions to answer if we are to ensure that blockchain technology’s vast potential plays out to the benefit of matters to society at large.

Value to society

Answering these questions comes down to how the technology itself is integrated into the wider economy.

That notion itself can refer as much to a new type of market as any other kind of technology. (The early Dutch stock markets offer a good analogy here for Augur’s prediction markets – organizational technologies in their own right.) Regardless, there still has to be broad-based value to society if the technology (and the market it supports) is to survive and prosper.

Here the history of Europe’s early capital markets is again valuable. The fallout from the disastrous South Sea Bubble didn’t kill the idea of public capital markets for funding new ventures, but it did bring order and societal interest into play. These came in the form of new rules from governments on who could issue public stock and how. From that evolved the entrenched, regulated stock exchanges and related asset markets that we use today.

This is not at all to say that government regulation must be the answer to crypto’s aspirations to go mainstream – the very concept of a censorship-resistant system tends to run counter to it. But it does mean that those of us involved in developing this technology should encourage protocols, best practices, standards and norms of behavior that have at their core the interests of society at large.

History suggests that naysayers like Nouriel Roubini who scoff at the hype and speculation in crypto communities could be blind to the major transformational moment that underpins it. But it equally offers a warning to crypto enthusiasts: don’t get lost in the hype; create something that lasts; build something that matters to everyone.

South Sea Bubble image via Wikimedia Commons.

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G20 Watchdog Releases Framework for ‘Vigilant’ Crypto Monitoring

G20 Watchdog Releases Framework for ‘Vigilant’ Crypto Monitoring

The Financial Stability Board (FSB), an organization focused on analyzing and making recommendations to the G20 on global financial systems, has presented a framework for monitoring cryptocurrency assets.

It notably lists several metrics that the FSB will use to keep an eye on the developing crypto markets and “should help to identify and mitigate risks to consumer and investor protection, market integrity, and potentially to financial stability.”

The standardized framework was published along with a report on Monday and has been submitted to the G20 nations’ financial ministers and central bank governors.

According to the document, the FSB’s monitoring efforts will focus on crypto assets’ price volatility, the size and growth of initial coin offerings (ICOs), crypto’s wider use in payments and institutional exposure, as well as the market’s volatility when compared to gold, currencies and equities.

The FSB – which is led by Bank of England governor Mark Carney – will also periodically compile qualitative reports to gather intelligence for market confidence, the report says.

The organization further sets out the reasoning behind the framework, saying:

“While the FSB believes that crypto-assets do not pose a material risk to global financial stability at this time it recognizes the need for vigilant monitoring in light of the speed of market developments.”

The report indicated that, apart from the FSB, other international regulatory organizations too are stepping up their efforts in monitoring specific areas of the cryptocurrency industry.

For instance, International Organization of Securities Commissions, a global regulatory body made of securities watchdogs, is developing its own framework in an effort to help member countries better analyze the impacts of domestic and foreign ICOs on investors.

Meanwhile, the Basel Committee on Banking Supervision (BCBS) is gathering data on its member banks’ direct and indirect exposure to cryptocurrency in an effort to quantify the potential impact of the technology.

The FSB report comes as the result of the G20 meeting in March this year, at which there were calls for global regulation of cryptocurrencies. As previously reported by CoinDesk, member countries agreed at the time that initial recommendations were required over what data should be used to monitor the crypto space, and set July as a deadline.

Mark Carney image courtesy to the FSB

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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