Category: Reviews

Review: The Blockchain Code, Part 7: The Hype

This is the final installation of my 7-part review of the book, The Blockchain Code, by Dave Kinsey. To read the previous installation, CLICK THIS LINK. To start at the beginning, CLICK THIS LINK. Thanks for reading!

The Hype

Click book cover to find on Amazon.

In Dave Kinsey’s book, The Blockchain Code, he gets into all the hype that surrounds Bitcoin. And I’m not exaggerating, there really is a lot of hype!

When you go on the internet to search for information about Bitcoin, usually what you find are vague, mysterious explanations accompanied by lofty language extolling the virtue of cryptocurrency. That’s the omnipresent hype that accompanies nearly all explanations of digital money. It’s the bullshit that curious researchers have grown wearily accustomed to.

Kinsey suspects that most of the people who write about or give talks about cryptocurrency have a conflict of interest. He suspects they own cryptocurrency, and that it’s in their interest that the demand for it keeps increasing, so that the price will rise higher and higher. So they’re not likely to provide a clear explanation about how it works. That could give people an idea of its pitfalls, and lead to some uncomfortable questions.

According to Kinsey, when legitimate businesses grow interested in blockchain, they often find someone in their company who already owns cryptocurrency. And that person is usually easy to identify, because they’re the one everyone sees all the time, blabbing on and on about their cryptocurrency investment, using glowing terms.

By virtue of owning it and talking about it a lot, that person is chosen by their employer to be the resident “expert.” And so they’re tasked with conducting a study, or creating a presentation, on how blockchain can be useful to the company.

However, what the corporate heads may not appreciate, is that these “experts” have a vested interest in the success of cryptocurrency. They want everyone to get just as excited about blockchain as they are, because that helps lift the price of the cryptocurrency they own. And this leads them to hyping blockchain up, while ignoring its negative aspects.

It’s true that legitimate businesses can find uses for blockchain. For instance, financial institutions are attracted to its reputation for security, and seek to use it as a way to store sensitive financial data. And medical institutions have toyed with storing medical records on a blockchain-styled system.

However, Kinsey argues that they can accomplish their goals for security in a simpler, less expensive, and probably more secure manner by sticking with a centralized database, rather than using the complex web of peer-to-peer (P2P) networking of blockchain.

Remember, the whole purpose of Bitcoin is to keep participants anonymous, and their transactions untraceable. But a financial or medical institution has identifiable owners. And their customers are also identifiable. And any data storage and data access they perform must be traceable, in order to have accountability.

Plus, much of the data is sensitive, so a P2P network of data records would still require usernames, passwords, and multi-factor authentication. And these things are anathema to blockchain. Also, by storing exact copies of records on a vast, complex, P2P system of nodes, more targets are created for hackers. The protection of the data from hackers would only be as strong as its weakest node.

Blockchain doesn’t worry about hackers viewing transactions, because it displays its data in plain sight, making hacking irrelevant and unnecessary. This is how blockchain can get away with having so many copies of its records scattered throughout the world.

Using a blockchain to store the data of a legitimate business is like trying to mix oil with water. One was not created for the other. At best, it’s a waste of money for most corporations to use blockchain. At worst, it’s a serious security risk.

Government agencies are also trying to get in on the action of blockchain. And if the idiots in charge persist with this, then sensitive government data could become more vulnerable to skilled hackers.

But Kinsey notes that there are some practical governmental uses for blockchain. The idea behind the creation of blockchain is to destroy all governments on Earth. Thus, it makes sense that the Department of Defense and intelligence agencies would take an interest in researching it, in order to defeat it.

Kinsey points out one other practical use for blockchain. He says that a blockchain-style network for whistleblowers would help protect their anonymity. To that I would add that journalists might find it useful when judges order them to reveal the identity of their sources. If their sources are on a whistleblower-style blockchain, their identities would be impossible to reveal.

Blockchain can also be useful for those living under authoritarian regimes, such as in Russia or China. It can allow anonymous and untraceable communication and transactions, and help keep dissidents out of prison.

But in free societies such as the United States, there seems to be little practical use for blockchain, for the average, everyday, law-abiding citizen. Of course, there are many uses for criminals. Especially when it comes to money laundering. But even then, blockchain comes with many hazards. Kinsey advises that you had better be an expert in it, before trying to reap the benefits from the use of this technology.

I agree. If you work for the mafia, you might find yourself wearing cement boots if you lose your boss’s money to scammers. So you’d better be very sure you know what you’re doing.

I like Dave Kinsey’s book, The Blockchain Code. It provides an objective and fairly clear explanation of this technology, and of cryptocurrency. And it’s enough of an explanation to convince me to steer clear of involving myself in it. I give this book a 4 out of 5 stars, and I highly recommend it for anyone who is interested in cryptocurrencies such as Bitcoin.

That concludes this series and book review. I hope you learned a thing or two. And thanks for reading!

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Review: The Blockchain Code, Part 6: Doing Business With Bitcoin

This is Part 6 of a 7-part review of the book, The Blockchain Code, by Dave Kinsey. To read the previous installation, CLICK THIS LINK. For the next installation, CLICK THIS LINK. To start at the beginning, CLICK THIS LINK. Thanks for reading!

Doing Business With Bitcoin

Click book cover to find on Amazon.

Let’s say you have no interest in mining bitcoin. You just like the idea of using Bitcoin to conduct business transactions away from government scrutiny. You could be an honest person, who hates the idea of Big Brother breathing down your neck. Or you could be a criminal. And let’s face it, cryptocurrency is a godsend for criminals. Especially organized crime. It’s great for stuff like drug deals, money laundering, hiring hitmen, and bribing public officials. That’s because it’s anonymous and untraceable.

Transaction fees can be high, and are negotiated through a complex auction process. Also, it takes about an hour (6 blocks in a chain) for a Bitcoin transaction to process to the point where it seems reasonably likely that the transaction went through. Six blocks are necessary, because sometimes more than one miner guesses the nonce at the exact same time. This results in a “soft fork,” where the blockchain develops two or more parallel chains. A process that can take about 6 blocks of transactions eventually results in all but one of the forks being “pruned” away.

As an aside, I’ll note that sometimes a soft fork is not pruned away. Instead, it is preserved to allow the development of a new blockchain, called a “hard fork.” The new blockchain allows for the creation of a new cryptocurrency, and effectively doubles the ownership of cryptocurrency for all who owned digital cash prior to the hard fork. This is how we got Bitcoin Classic, Bitcoin Cash, Bitcoin Gold, and many other spinoff cryptocurrencies.

But back to processing a Bitcoin transaction. One hour is a big difference to process, from the mere seconds that a credit card requires. So, coupled with the high transaction fees, Bitcoin is too expensive and inconvenient to use for routine, small purchases. You would want to reserve it for non-routine, significant transactions.

Most internet sources I have found, claim that only a very small percentage of bitcoin transactions involve illicit activity. Yeah, right. If you believe that, I have some swampland in Florida to sell you. I doubt these claims, and suspect the exact opposite is true. But it seems impossible to determine whether I’m right, or the cryptocurrency boosters on the internet are right. Due to the untraceable nature of bitcoin transactions, nobody on either side of this argument has the ability to prove their case.

But let’s go over to Bitcoin’s dark side for a moment, and have some fun. Let’s assume you’re a drug dealer, and want to use Bitcoin to buy a million dollars worth of crystal meth, from a supplier. One million dollars is about 52 BTC, these days (the price of one bitcoin has fallen from $24,000 to $19,000 since this series of posts began). So this means you have to have 52 BTC safely stashed away on the blockchain. To “safely” stash it away, you store it in something called a digital wallet.

A digital wallet stores your bitcoins at addresses. You can have them all stored at one address or you can distribute them among multiple addresses. The whole world knows your addresses, due to the public nature of the blockchain. But nobody knows that you are the owner of your addresses.

Each address is paired with a private key, and that key is not public on the blockchain. Rather, it is for your eyes only.

Any address that stores your bitcoin is a very long number (160 bits), and the private key that unlocks it is even longer (256 bits). In order to pay someone with bitcoin, you have to match your private key to the address in your wallet that contains the bitcoin. I don’t know the mechanics of how this is done, because I’ve never used Bitcoin software. But hopefully it doesn’t involve manually inputting the private key number. At 256 bits, that number is very long.

Here’s an example of a 256-bit number:

115,792,089,237,316,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000.

That’s 2 to the power of 256.

And here’s an example of a 160-bit number (2 to the power of 160):

1,461,501,637,330,900,000,000,000,000,000,000,000,000,000,000,000.

Now there’s one thing to remember, that is very important. Technically, you don’t own the bitcoin in your wallet. Rather, your private key owns it. And if anybody discovers your private key, through your carelessness, through hacking, through a very lucky guess, or for any other reason, they can take your bitcoin from you. And since everything in blockchain is anonymous and untraceable, you won’t know who took it. And you’ll likely never see it again.

Once you pair your private number to the address that contains your bitcoin, you unlock the bitcoin. Now you can send any amount of it to any address of your choosing. In this example, you are buying a shitload of crystal meth for 52 BTC. Assuming you have at least 52 BTC at your address, you now input the sellers bitcoin address, and direct the 52 BTC to it.

Again, I’m not sure how you do this, because I’ve never paid for anything with bitcoin before. But I’m sure the Bitcoin program provides a way.

After this, it’s between you and the seller. If he wants to honor the deal he’s made with you, then you’ll have to meet with him and pick up your drugs. But if he decides to double-cross you, and gives you no drugs, you have no recourse. You are out 52 BTC, because you have no way to prove that you paid him, or that he received the money.

Not that you could sue him anyway, as this is an illegal drug deal. But even if it was legal, you could not prove your case in a court of law, due to the anonymous and untraceable nature of Bitcoin.

Kinsey doesn’t walk you through the process of buying something with bitcoin, the way I have just done. Which to me is disappointing. I’ve never conducted such a transaction, myself, so I’ve had to infer from bits and pieces of info in Kinsey’s book, how the process works. I think I have the basic idea right, but I’m sure there’s more to it.

And I’m sure anyone who hypes Bitcoin will agree with me, that there’s more to it than I’ve presented. I’ll introduce you to these propaganda artists tomorrow, in our final installment of this series. In that installment, I’ll point out the hype, as well as a few practical uses for blockchain and Bitcoin, that are not hype. So stay tuned. But be careful. Don’t get too hyped up about any of this.

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Review: The Blockchain Code, Part 5: Mining Bitcoin

This is Part 5 of a 7-part review of the book, The Blockchain Code, by Dave Kinsey. To read the previous installation, CLICK THIS LINK. For the next installation, CLICK THIS LINK. To start at the beginning, CLICK THIS LINK. Thanks for reading!

Mining Bitcoin

Click book cover to find on Amazon.

The Bitcoin program is designed to produce a new block in the blockchain approximately every 10 minutes. A new block reflects all the bitcoin transactions that have occurred throughout the world, by anyone doing business with Bitcoin, over the prior 10 minutes. And in an ideal world, the transactions in every new block, on every node throughout the vast network, will exactly match each other.

However, we don’t live in an ideal world. Transactions arrive at nodes at different times. Communications get interrupted. Computers have glitches. And so forth. So the end result, every 10 minutes, is thousands of unmatching new blocks that have been recorded on thousands of different nodes, throughout the world.

With all of these unmatching blocks, how does the Bitcoin program decide which block is the best block to accept as the next block to add to its super-long blockchain?

Bitcoin resolves this dilemma through a method called proof of work. It generates an extremely long, random number, called a nonce, and challenges all the miners at all the thousands of different nodes, to try to guess (or “hash”) the nonce. The miner that guesses correctly receives the honor of its block being the next added to the blockchain. And along with this, the miner is rewarded with bitcoin.

It has been determined that 10 minutes is the ideal time interval for creating new blocks. So the Bitcoin program periodically adjusts the difficulty level of the nonce, so that that the average time it takes to guess it remains about 10 minutes. This adjustment is necessary as miners become more and more numerous, and more advanced in the technology they use, for quickly guessing the nonce.

The more powerful the mining equipment that a miner owns, the more likely that miner is to be the first who correctly guesses the nonce. Mining equipment consists of specialized computers with very powerful central processing units, that draw a very large amount of electricity.

These computers can guess numbers at an extremely rapid pace. Today, a bitcoin mining rig costing about $3,000 will generate over 100 trillion guesses per second. And these days, all of the miners in the world combined, on the estimated 50,000 node Bitcoin network, make about 190 quintillion guesses per second. Spread out over 10 minutes, that’s an average of 6.8 septillion total guesses, in an attempt to be the chosen node with the next blockchain block, and to be the one that wins the bitcoin.

By the way, Kinsey didn’t come up with the above figures. I had to look them up and also do some calculations. This is one criticism I have of his book, The Blockchain Code. Sometimes he didn’t get as specific as I would have liked, when diving into the nuts and bolts of the blockchain.

There’s much more to mining and creating new blocks than this, such as soft forks, hard forks (which create new types of cryptocurrencies), and the formidable Chinese mining company, Bitmain. But I’d have to write a book myself, if I wanted to get into all of that.

When Bitcoin first came out, miners won 50 bitcoin (BTC), per lucky guess. That number cuts in half every four years. So in 2013, it was reduced to 25 BTC. In 2017, it went down to 12.5 BTC. And since 2021, it’s been down to 6.25 BTC. Which in today’s market is worth about $131,250. The number will reduce to zero around the year 2140, at which time 21 million BTC will have been distributed.

This assumes Bitcoin will still be around in 2140. Kinsey characterizes cryptocurrency as the most sophisticated Ponzi scheme in the history of the world. Ponzi schemes have a tendency to suddenly, and unpredictably collapse.

Of course, some crypto-enthusiasts will argue that government-issued currencies are Ponzi schemes. Good point, and maybe so. But remember history. Sometimes they collapse, too.

This series plans to be around for a few more installments, before it collapses. So come on back tomorrow, and I’ll teach you how to do business using Bitcoin. Assuming that is, that Bitcoin is still worth anything, and hasn’t suddenly dropped to zero.

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