Cryptocurrencies are nearly eleven years old now, and an impressive ecosystem has formed around them. The total cryptoassets market cap is well north of $100 billion. Billions of dollars of crypto are traded daily. Millions of users have installed a crypto wallet. Major US financial institutions CME and ICE make markets in crypto derivatives.

Yet, despite the incredible advancements, there remains a lot of work to get where we want to be. As an industry, we’re looking forward to global democratized access to financial products, banking the unbanked (and unbanking the banked), and mainstream applications.

In this post, we’ll take…


The term blockchain carries a lot of hype, but it is sometimes difficult to understand the full meaning. Blockchain, originally block chain, was coined to describe Bitcoin’s data structure after its launch in 2009. The name describes a chain of blocks, while each block includes transactions or updates to a shared ledger. This definition isn’t quite satisfying though and doesn’t differentiate blockchains from what’s been possible long before Bitcoin.

Let’s look at what it really means to be a blockchain and compare how top platforms use a blockchain to store and agree on the shared ledger.

Background

To illustrate why the…


An exotic financial product category meets Bitcoin

When the Chicago Mercantile Exchange (CME) launched the first Bitcoin futures contract in December 2017, it was a big step for the crypto industry. For the first time, a cryptoasset would be available as a commodity that could be traded via futures at the CME.

So what are futures?

A futures contract is a contractual agreement to transact at a later date. You choose the goods, a price, and a future date and agree to settle when that date rolls around. One party agrees to sell the goods at the agreed price to the other party. These agreements allow businesses to lower their uncertainty…


Intro to sharding and cross-shard trust

The challenges of scaling blockchains are well documented. The most successful blockchains in operation today form a linear chain, where each block or update references the previous. Every node on the network stores a complete copy of the ledger history. The singular chain model works extremely well at keeping the entire world in consensus. Unfortunately, it is rather limiting in terms of overall network throughput, since every node needs to receive and validate every transaction that happens globally.

Background

Many approaches have been proposed to help blockchains scale. The most popular approaches today are layer 2 solutions such as Lightning or…


How developers are minimizing overhead

Blockchains keep the entire world on the same page. As each block is minted, a new ledger state supersedes prior states. Consensus mechanisms work to ensure that the state is agreed on by the wider community. In a well designed system, incentives ensure immutability. After enough time has elapsed, the state can’t be tampered with. These blockchains give us programmable money, and have rightfully captured the imagination of so many.

Bitcoin and Ethereum are two of the earliest incarnations of blockchains. These ledgers have proven to be popular and robust, yet it is commonly believed that they do not scale…


A new kind of mixing service on Bitcoin

Fungibility is a key property that we demand from our currency. I’ve written on the relationship between privacy and fungibility before, and believe that it’s critical to get this right to lay the foundation for the future financial system. The developer community has continued to impress with the innovations and potential solutions that they propose.

Background

Currencies like Zcash and Monero have taken major steps forward to improve privacy. However, Bitcoin remains the most popular cryptocurrency with the largest network effect, most adoption and liquidity, and it has the widest audience that could benefit from improved privacy. Despite Bitcoin’s serious privacy…


Getting more from less

A plant with a taproot root system. Photo credit: https://bitcoin.nl/

In early May 2019, Pieter Wuille, a prolific Bitcoin Core contributor from Blockstream, quietly introduced a pair of BIPs (Bitcoin Improvement Proposals) that describe a new address scheme called Taproot. The proposals build on the Schnorr signature and Scriptless Scripts work that I discussed in prior posts and provide the required implementation details for them to become a reality. This unlocks many interesting possibilities for developers and marks an important step forward for Bitcoin.

Taproot not only allows the benefits from the prior concepts: enabling compact multisig and scriptless smart contracts, it goes one step further and allows an additional…


A different kind of smart contract

Photo credit: cryptoradar.com.br

In a recent post, I discussed Schnorr signatures. Schnorr signatures represent a new way to sign and verify transactions that have some surprisingly powerful properties. Schnorr signatures are smaller than ECDSA and can be combined, known as signature aggregation. This allows multiple inputs to share a signature resulting in gains in privacy and scalability.

Exploring the mathematical properties of Schnorr signatures further, Andrew Poelstra from Blockstream, found that the signatures themselves could be constructed and modified in special ways to enforce various agreements between parties. Spending conditions are introduced, yet completely hidden from the blockchain. Only the involved parties know…


Improving Bitcoin’s privacy and scalability

Back in September 2013, an anonymous author wrote a bitcointalk.org post suggesting there may be ways to improve privacy and scalability by aggregating or combining signatures. Multiple inputs can share a signature authorizing the collective movement of the coins. In doing so, people have an economic incentive to combine transactions which results in less precious blockchain space and more ambiguity as to the payer and payee within a transaction, improving privacy.

Since then, the Bitcoin developer community has been abuzz with this idea and a relatively obscure method of cryptographic signatures has been thrust to the forefront of this movement…


The Network Layer

Background

In an earlier post, I discussed what it means to have privacy on the blockchain. Obscuring the sender, recipient and the amounts on the chain with cryptography go a long way in providing much needed privacy to the users.

The blockchain is a very public and permanent record of transactions and events. It is important to make sure that sensitive or revealing information is not stored on the blockchain. It’s better to only store pseudonymous information, and best is to store only anonymous information that cannot be traced back to the user. …

Jordan Clifford

co-founder @scalarcapital, burner, #bitcoin enthusiast, previously growth eng @coinbase

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