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  1. ---
  2. title: "Bitcoin and disruption"
  3. excerpt_separator: <!--more-->
  4. author: eric
  5. ---
  6.  
  7. Like many companies, CKC has been infested with at least one of "those guys" who are way into Bitcoin. _(looking at you Eric)_
  8.  
  9. In this post: what Bitcoin is and how CKC hopes to make innovative, disruptive, and buzz-wordy applications
  10. based on this newfangled digital platform. Eric's appreciation for Bitcoin was magnified by impactful experiences while doing work
  11. for the United Nations.
  12.  
  13. <!--more-->
  14.  
  15.  
  16. ## What is Bitcoin?
  17.  
  18. Bitcoin is a global consensus network, using tokens called Bitcoins distributed by an expensive mining process that proves some significant
  19. effort was exerted. More simply: someone took a lot of electricity and hardware to calculate some random number and won a small lottery,
  20. giving them Bitcoin.
  21.  
  22. This lottery ensures the state of the Bitcoin network. As the network grows, the mining power behind it makes it more secure. As of
  23. right now, it costs about $4k in electricity to make a single Bitcoin. It is impossible to generate a Bitcoin "for free."
  24.  
  25. This process continues without the permission of any organization, a true free market approach to currency. As the article continues, we'll discuss
  26. some of the upsides and downsides of Bitcoin in its current state.
  27.  
  28.  
  29. ## How CKC hopes to make innovative applications
  30.  
  31.  
  32. One of the main applications of Bitcoin _used_ to be microtransactions. In comparison to Paypal, which takes 2% + $0.30 in most cases, Bitcoin
  33. _used_ to only cost pennies. Then, during the huge swing up in transaction fees back in 2017, it cost as much as $100 to publish a Bitcoin
  34. transaction. Although I firmly believe the network suffered a spam attack, it showed a weakness in a _broadcast_ system as opposed to a _unicast_
  35. system.
  36.  
  37. Why is a "broadcast system" weak? A broadcast system means every message is sent to everyone in that network. This system is great for a network
  38. consensus (agreement between nodes in a network), but as people (nodes) in the network increase, the process of sending messages to everyone becomes
  39. extremely expensive. It just doesn't scale well. Space in the blockchain is precious.
  40.  
  41. A unicast system is superior for small transactions because the message is only directed between 2 peers. This means that you lose out consensus
  42. but can scale to infinity.
  43.  
  44. So, since Bitcoin writes _every single transaction_ to the blockchain, how can we get it to scale and defeat a future network spam attack?! Hold
  45. onto your seats, because the next section explains...!
  46.  
  47.  
  48. ## What is ready for disruption?
  49.  
  50. The answer: microtransactions, via the "Lightning Network." Lightning Network combines the best properties of broadcast (strong network consensus) and unicast.
  51.  
  52. This is done by timelocking Bitcoin into the Lightning Network and then spending them peer-to-peer in a unicast way. Boom! We can have transactions
  53. not just for fractions of a penny, but for _free!_ Imagine how much this would benefit Amazon when every transaction it makes has 0 fees.
  54.  
  55. The possibilities for disruption, by using Lightning Network, are immense. It's very possible in the future you are streamed your salary
  56. day and night, instead of having to wait every 2 weeks.
  57.  
  58.  
  59. ## Banking the unbanked?
  60.  
  61. One of the most amazing opportunities in Bitcoin is in the developing world. So many people are left underserved. There are millions of opportunities
  62. being lost in terms of small business ideas, gaining home ownership, acquiring some secondary education, etc.
  63.  
  64. The world would love to give liquidity to these places, often times it is one of the best ways to inject life into communities. Sadly, when donations
  65. are made to an area, they can sometimes have adverse effects on local markets. For example, if you are a goat farmer and someone donates a thousand
  66. goats, the value of your farm and investments may go down. It may even put some small business owners out of business.
  67.  
  68. As soon as the foreign donations are gone, the local businesses aren't there to keep supporting the community.
  69.  
  70.  
  71. One of the things that I believe could help the unbanked is a "charitable
  72. credit system." Why can't I put $50 in some pool with 10,000 other people and
  73. let people in some unbanked place request a small loan? If they default on the
  74. "loan", oh well, it was a donation in the first place. But if they pay it back,
  75. they are injecting even more money into the loan "pool" for other people in the
  76. community to use.
  77.  
  78. Paying back the loan is difficult in Bitcoin because of volatility, but thanks to
  79. some new technologies we can move towards applications like this:
  80.  
  81. * **Submarine Swaps** are a feature of the Lightning Network allowing parties
  82. to exchange different types of tokens instantly.
  83. * **Atomic Multi-path Payments (AMP)** allows low liquidity channels to still make payments,
  84. by splitting payments into tiny amounts that can be carried more easily by the lightning network.
  85. * **Sphinx** enables new use cases by allowing payments without a pregenerated
  86. invoice -- this means you could do something like Patreon by sending someone
  87. money directly, instantly, over the Lightning Network.
  88. * **Neutrino** allows light wallets to validate activity on the Lightning Network
  89. without having to hold the entire blockchain. Currently, you need to download hundreds of gigabytes
  90. of data. It could take weeks to download and process this data normally, but is not necessary
  91. thanks to this technology.
  92. * **So much more!** Lightning Network is the most exciting thing since... Bitcoin!
  93.  
  94.  
  95. ## What is holding Bitcoin back?
  96.  
  97. However great the Lightning Network is right now, Bitcoin still has many weaknesses.
  98.  
  99. ### Hard to develop on
  100.  
  101. Using Bitcoin is hard enough, developing with it can be quite scary at first. Not only can you have an off-by-one error or a simple typo screw you
  102. over, you often have to download huge blockchains and reprocess/refactor as processing methods and interfaces change.
  103.  
  104. ### Very little adoption
  105.  
  106. Since so few people are using Bitcoin now, all of this great Lightning Network potential is rather limited. This may be a blessing in disguise, though,
  107. because during the last wave of adoption Bitcoin was not quite ready to scale yet.
  108.  
  109. With all of that said, every time Bitcoin gains adoption and plummets, it grows in power -- really. Bitcoin has
  110. [antifragile](https://en.wikipedia.org/wiki/Antifragile) properties. Every time it is attacked, a fix is implemented that makes it stronger, faster,
  111. and smarter.
  112.  
  113. ### Not a unit of account, yet
  114.  
  115. Bitcoin is horribly volatile. Until this is, uh, fixed(?) it will be hard to make loans in Bitcoin. However, things like
  116. [Coinbase's Stablecoin USDC](https://www.coinbase.com/usdc) may make this easier in the future. _Especially_ combined with Lightning Network
  117. technology that allows instantly swapping Bitcoin for other tokens, like USDC.
  118.  
  119.  
  120. # We're excited!
  121.  
  122. However weird Eric is for liking Bitcoin so much, we're excited about all of the possibilities. And, if it's not Bitcoin, surely some
  123. cryptocurrency will reduce friction in markets and provide services to the unbanked.
  124.  
  125. Have a Bitcoin app that needs building? [Contact us!](mailto:hello@ckcollab.com)
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