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Saturday 27 May 2017
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The New Age and Language of Bitcoin Security

Bitcoin is more secure than any currency on the market but many struggle to understand it, argues the author

Crypto is short for cryptographic, which is now the back bone of IT security. Encryption is used to obfuscate sensitive data. In the age of information, data is extremely valuable and some people are starting to theorize that data is central to future concepts of value itself. In this new age of, non-physical security we need to obscure data to retain our privacy and or value and to avoid law battles stemming from ideas and information not being properly secured. Today, advances in math-based security have transcended limitations on financial friction and are an elemental part of nearly all business. When new forms of value quantification and transfer arise and reach ubiquity the impact on markets is so remarkable that it will be more or less inexplicable relative to old paradigms.

Gone are the days when security could be an afterthought relative to information technology and business development. In our times, it is becoming clear that secure processes and protocols must be an elemental part of data exchange and storage. The most important role at any large company is quickly becoming that of the chief technical officer. Without competent technical security leadership, risk management becomes all but impossible as prima facie indicators of vulnerability are missed. A CEO can badly manage a company into worthlessness but a bad CTO can ruin a company financially along with the lives of those effected by data breaches or systemic vulnerability.

A new language of value called Bitcoin was modeled after a nine page P2P-ECS white paper published in 2008 referencing only eight sources. This document has transcended virtually all previous fault tolerance limitations in computer science. Using this new ultra robust language of value, a currency called Bitcoin was created which has a strongly deflationary rate of production and is default free. Currently a very small group of people globally have a true understanding of the implications that math based security brings to decentralization and risk management. Fewer people still understand the paradigm shattering effect that new forms of language and communication will have on the future. Platitude or not, we live in the most exciting times in history.

Technology changes, as will currency

The first iterations of communication technology were image based and painted on cave walls. Gestures and referencing drawings created a situation where ideas could be communicated like never before. Many people hold the turn of phrase “a picture is worth a thousand words” to be self evident. The ability to exchange ideas in this way was central in bringing about the next iteration which was formal language and writing thereof. Everything that came before we could record proper language is designated as prehistoric.

Eventually through the use of language and ubiquitous communication of our ideas, we were able to create data transmission technologies. These technologies were able to send and receive organized data in layers, including interrogating for missing portions of data which had issues. New forms of communication create a situation where fault tolerance is orders of magnitude higher than it had been with all previous forms of communication.

The newest iteration of communication is one of value and security described by the 2008 white paper. A block chain was created in 2009 which hashes data into obscurity and then hashes previous hashes into new ones in a “linking” fashion. The hardware network that creates these hashes and checks them is widely distributed by the market to ensure that natural disasters or state actions cannot effect more than a portion of this system. The application specific integrated circuits that currently support the Bitcoin system are created in such a way that attempts to damage the network with non ASIC computer power are all but entirely fruitless.

The need for security 

Systems which reduce friction, along with having built in security, operating as a new language sophisticated in that it was built by the fruits of TCP/IP, using the largest conversation and gathering of information in all of history, is mind shatteringly remarkable. Few economists understand the implications of transcending elemental road blocks in computer science. Many computer scientists don’t understand the true nature of economics and the economic benefits of decentralized autonomy. It seems that only a small group of tech savvy entrepreneurs and economists currently have the near polymathic understanding required to comprehend everything this new system of value touches and may change. Computer science and economics are and have been interacting in ways beyond NYSE and NASDAQ high speed trading operations and breakthroughs in global digital arbitrage will carry that trend into unknown territory leading to market benefits the past never would’ve imagined.

Many economists who examine Bitcoin purely as commodity and come to bearish conclusions have illustrated that they cannot understand the implications of a complete transcension of fault tolerance limitations in computer science. Without an understanding of the protocol and the relationship to Bitcoin, along with geopolitical pressure, pretensive speculation is quite hollow and conclusions about Bitcoin data are starkly ill informed. Attempting to quantify the value of Bitcoin without understanding the protocol is akin to attempting to quantify the value of the internet without understanding networking and physical infrastructure. Make no mistake about the fact that the economics of Bitcoin are an absolute niche science and those not familiar with public key security are severely compromised in their ability to criticize Bitcoin in a meanginful way.

Currently the United States government, through the Internal Revenue Service, has classified Bitcoin as property relative to purposes of taxation. Some people, including Cameron and Tyler Winklevoss, predicted that the IRS would behave in this way. However many people feel strongly that classifying an entry on a decentralized ledger as “property” is the height of absurdity. With new tax implications being the biggest hurdle to US small business adoption many people feel that having a firm stance coming from the IRS will instill confidence and drive growth. In addition to having a nod from the state, client ledgers are extremely easy to submit to a CPA or tax attorney to figure out how to be square with the state. Bitcoin currently has a sub 10 billion USD market cap and the impact on currencies and commodities is in a developing stage but more than 300 billion has been reported to be waiting to flow into Bitcoin as soon as a western Bitcoin exchange opens which is compliant with Hedge fund investment risk management strategies.


Blake Anderson

Blake Anderson is an MIT educated cryptographic economist and computer scientist. Having worked in fortune 25 finance as a math based security project manager he now works with Bitcoin derivatives, contracts and financial products. Working full time with BTC behind the scenes for years prior to IRS direction Blake is now happiest when speaking publicly about technology empowering the individual. If you want to support his work, he also takes Bitcoin tips: 1HH1K2oKZRJgJTAjtTEm1mZaRE3EPAxULd. More about Blake at: http://cointelegraph.com/post/blake_anderson

  • Simeon Hagmüller

    Well written, Blake!