This lecture brought bitcoin into the real world space, or meat space as some call it. In that these unspent UTXOs can represent something else.
Questions answered in this Post:
- What characteristics allow calling it “smart property”?
- What does it mean bitcoin has a trace history?
- What is one example of authenticating bank notes?
- What are colored coins?
- What are some applications using Bitcoin? What is Namecoin?
Transfer of Value
Bitcoin is a transfer of value has definitely stuck. The phrase holds weight to many circles. While the real owners may be anonymous, it is possible to track the transactions of bitcoin throughout time. Even more companies like Chainalysis and Ciphertrace because of their ties to exchanges and crypto trading exchanges know the identities of the bitcoin holders. Likely you can track an unspent UTXO all the way back to when it was minted. It’s public and anyone can view.
Trace History
Thus the lecturer brings up the point, bitcoin is actually unique. While value may be fungible current, each unspent transaction output in unique. Though if there is some reason that one history can separate it from another, perhaps they are no longer fungible. This is a negative for anonymity which isn’t new and allows for bitcoin blacklisting. Though this trace history can open up in opportunities for applications. You could make the argument that same thing holds true for certain fiat currency. A U.S. two dollar bill may be worth more than two dollar due to the rarity of the items. Similar remarks can be made for a silver dollar and certain pennies minted in specific years.
The lecturer brings up the point that without limitation or issuance, it is just a novelty which is true. Having a forged signature by a famous actor may hold the same value as real signature, as it is difficult and requires expertise to tell the difference. Having the claim authenticated is how one would add real value ie authenticated metadata for currency.
Using bank notes for baseball tickets
The idea is pretty simple. Venues can mention a specific serial number could give permission to anyone entering an event. In the slides, Bill #L11180916G stands for given entry to a Yankees game in 2014. To add validity, there can be a signature signed with a message and game number. Thus you’re now assigning more value to something that may have had intrinsic value.
Consequences
The consequences are pretty wide. Currency can now represent some thing else. In addition, anti-counterfeit can build upon the protections that fiat currency already has on it. There is still trust in the system in that their is trust in the issuer. Better question, is it possible the issuer, can revoke that they’ve given additional value to currency? Yes. In addition, echoing the phrase, “You can’t teach an old dog new tricks”. Assigning additional value may not be well understood. Which according to the lecturer may not be a bad thing. It’s fine for their to be a temporal weight and then the dollar bill goes back into circulation.
Assign properties to Bitcoin: Colored Coins
So taking the above example, something similar can be done with bitcoin. Colored coins can track a specific color. The definition in the Bitcoin wiki is it’s an example of methods for tracking real world assets on top of the Bitcoin blockchain. Bitcoin still have their value but you’ve added additional meaning withe metadata for these “colored” coins. How it works, is via a single transaction, one can inject additional metadata thereby injecting meaning to the unspent transaction outputs. This metadata essentially issues new colored coins. There is a protocol for using this known as “Open Assets Protocol“. Coins are issued by passing through P2SH address. A special unspendable marker is outputted. Thus you match colored inputs to outputs.
Pros and Cons Breakdown
Pros
- Compatible with bitcoin
- Flexible to represent any asset
- Can be ignore by community, in that doesn’t require work from miners
Cons
- small cost of un-spendable markets
- must check every previous transaction (because miners aren’t really doing anything)
- harder to use this on smaller memory locations like phone, so think SPV would not be applicable
Applications
Then he mentioned certain applications for this. First up was stock certificates. Thus you wouldn’t need centralized exchanges for stock and could actual have that be peer-to-peer. The second was deed for real estate. The third was cars. He discussed something about real world sharing and driving of cars. Lastly was ownership of domain names. Domain names are interesting and he mentions a project known as Namecoin.
Namecoin is known as the basis for a decentralised domain name system. It’s the same code as Bitcoin just forked. This would fight online censorship. NMC (namecoin) seems to have died Dec 19, 2018 according to this article. The article goes on to mention that Namecoin was actually a though creation of Satoshi via the paper, “BitDNS and Generalizing Bitcoin,”. Moving to 2019, I see IPFS and potential ENS as the way forward for decentralized name servies.
IPFS (Interplanetary Filesystem) along with the other protocols allow for the sharing of information on the internet peer-to-peer. ENS (Ethereum Name Service) allows one to host and launch websites linked to an Ethereum address on the Ethereum main network.