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- title: "Bitcoin and disruption"
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- author: eric
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- Like many companies, CKC has been infested with at least one of "those guys" who are way into Bitcoin. _(looking at you Eric)_
- In this post: what Bitcoin is and how CKC hopes to make innovative, disruptive, and buzz-wordy applications
- based on this newfangled digital platform. Eric's appreciation for Bitcoin was magnified by impactful experiences while doing work
- for the United Nations.
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- ## What is Bitcoin?
- Bitcoin is a global consensus network, using tokens called Bitcoins distributed by an expensive mining process that proves some significant
- effort was exerted. More simply: someone took a lot of electricity and hardware to calculate some random number and won a small lottery,
- giving them Bitcoin.
- This lottery ensures the state of the Bitcoin network. As the network grows, the mining power behind it makes it more secure. As of
- right now, it costs about $4k in electricity to make a single Bitcoin. It is impossible to generate a Bitcoin "for free."
- This process continues without the permission of any organization, a true free market approach to currency. As the article continues, we'll discuss
- some of the upsides and downsides of Bitcoin in its current state.
- ## How CKC hopes to make innovative applications
- One of the main applications of Bitcoin _used_ to be microtransactions. In comparison to Paypal, which takes 2% + $0.30 in most cases, Bitcoin
- _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
- transaction. Although I firmly believe the network suffered a spam attack, it showed a weakness in a _broadcast_ system as opposed to a _unicast_
- system.
- 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
- consensus (agreement between nodes in a network), but as people (nodes) in the network increase, the process of sending messages to everyone becomes
- extremely expensive. It just doesn't scale well. Space in the blockchain is precious.
- A unicast system is superior for small transactions because the message is only directed between 2 peers. This means that you lose out consensus
- but can scale to infinity.
- 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
- onto your seats, because the next section explains...!
- ## What is ready for disruption?
- The answer: microtransactions, via the "Lightning Network." Lightning Network combines the best properties of broadcast (strong network consensus) and unicast.
- 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
- 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.
- The possibilities for disruption, by using Lightning Network, are immense. It's very possible in the future you are streamed your salary
- day and night, instead of having to wait every 2 weeks.
- ## Banking the unbanked?
- One of the most amazing opportunities in Bitcoin is in the developing world. So many people are left underserved. There are millions of opportunities
- being lost in terms of small business ideas, gaining home ownership, acquiring some secondary education, etc.
- 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
- 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
- goats, the value of your farm and investments may go down. It may even put some small business owners out of business.
- As soon as the foreign donations are gone, the local businesses aren't there to keep supporting the community.
- One of the things that I believe could help the unbanked is a "charitable
- credit system." Why can't I put $50 in some pool with 10,000 other people and
- let people in some unbanked place request a small loan? If they default on the
- "loan", oh well, it was a donation in the first place. But if they pay it back,
- they are injecting even more money into the loan "pool" for other people in the
- community to use.
- Paying back the loan is difficult in Bitcoin because of volatility, but thanks to
- some new technologies we can move towards applications like this:
- * **Submarine Swaps** are a feature of the Lightning Network allowing parties
- to exchange different types of tokens instantly.
- * **Atomic Multi-path Payments (AMP)** allows low liquidity channels to still make payments,
- by splitting payments into tiny amounts that can be carried more easily by the lightning network.
- * **Sphinx** enables new use cases by allowing payments without a pregenerated
- invoice -- this means you could do something like Patreon by sending someone
- money directly, instantly, over the Lightning Network.
- * **Neutrino** allows light wallets to validate activity on the Lightning Network
- without having to hold the entire blockchain. Currently, you need to download hundreds of gigabytes
- of data. It could take weeks to download and process this data normally, but is not necessary
- thanks to this technology.
- * **So much more!** Lightning Network is the most exciting thing since... Bitcoin!
- ## What is holding Bitcoin back?
- However great the Lightning Network is right now, Bitcoin still has many weaknesses.
- ### Hard to develop on
- 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
- over, you often have to download huge blockchains and reprocess/refactor as processing methods and interfaces change.
- ### Very little adoption
- 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,
- because during the last wave of adoption Bitcoin was not quite ready to scale yet.
- With all of that said, every time Bitcoin gains adoption and plummets, it grows in power -- really. Bitcoin has
- [antifragile](https://en.wikipedia.org/wiki/Antifragile) properties. Every time it is attacked, a fix is implemented that makes it stronger, faster,
- and smarter.
- ### Not a unit of account, yet
- Bitcoin is horribly volatile. Until this is, uh, fixed(?) it will be hard to make loans in Bitcoin. However, things like
- [Coinbase's Stablecoin USDC](https://www.coinbase.com/usdc) may make this easier in the future. _Especially_ combined with Lightning Network
- technology that allows instantly swapping Bitcoin for other tokens, like USDC.
- # We're excited!
- 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
- cryptocurrency will reduce friction in markets and provide services to the unbanked.
- Have a Bitcoin app that needs building? [Contact us!](mailto:hello@ckcollab.com)
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