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Challenges Associated with Smart Contracts and Its Implications

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Smart contracts

From vending machines to sophisticated algorithms that have driven human beings off the trading floor of NASDAQ, business logic coded as software has been automating and revolutionizing the world around us, long before the materialization of virtual currencies. In essence, smart contracts are here to stay.

Blockchain has a substantial promise of application in executing contractual obligations and undeniably multiple organizations are exploring different use cases for smart contracts. Applying blockchain technology enables the production of smart contracts with full automation in determining and enforcing contractual obligations without the need for third parties.

Bitcoin’s growth and adoption is proof that smart contracts can work in a public environment. Bitcoin’s cryptographic primitives based on simple scripting language allow the currency itself to exist.  It would be sensible then to expect Ethereum and its fully-fledged language—Turing-complete—to open up a whole world of new possibilities.

However, there are fundamental challenges facing smart contracts.  And until these challenges are overcome, it is still premature to presuppose their capabilities in enforcing actual legal contracts that have been concluded by parties.

Hurdles Facing Smart Contracts

Below are at least five hurdles are facing smart contracts.

#1: There is no guarantee of transaction execution

Miners wrap transactions into blocks that are sent around the network for different nodes to confirm and run smart contracts. However, there is no contractual requirement that compels a miner to include the transaction in a block. You can attach a high fee with the transaction but it can still be disregarded by miners because of censorship, collusion, or just plain bad luck.

This means that some business models will not work. For instance, E-Trade provides a “2-second execution guarantee” which is not possible in bitcoin or Ethereum systems where transaction execution is based on game theory instead of service levels.

#2: Smart contracts are still slow

Bitcoin acts as a public ledger for keeping track of balances. The mathematical operation of addition is commutative (i.e., when crediting the balance, x+y=y+x, and when debiting the balance, x+ (-y) = (-y) +x)). Therefore, it does not matter how miners package their transactions in the block since the net result will always be the same.

There could be a dependency chain, but usually transactions will be isolated from one another to allow a node to process transactions immediately as they arrive instead of waiting for the mined block to be received.

However, things are quite different with the Ethereum smart contracts.

Consider a simple calculator that has a balance of 500.

If two incoming transactions tell the calculator to divide the balance by 100 and subtract 3, the result will be 2. However, if the order of transactions were to be reversed, the output will be 4.7. Because a Turing-complete smart contract can theoretically perform anything to the global state, smart contracts can only be executed in chronological order—parallel processing isn’t supported.

The net result is that a node in the Ethereum network must sit idle waiting for a new block to arrive and the exact order of transactions must be known. Otherwise, early processing will produce results that are inconsistent with that of the other nodes. With both Ethereum and bitcoin, if a computer is unable to finish its computations before the next block arrives, that computer will fall behind the rest of the network.

Ethereum’s target of new blocks arriving every 15 seconds is quite ambitious and can raise the risks of a node drowning in the backlog of work.  And the trade-off is clear—smart contracts will yield slow Blockchains.

#3: Scaling is a hurdle

The Ethereum network has been referred to as a “world computer.” Yet its model where every node must execute every smart contract just doesn’t scale.  This is the complete opposite of what the “world computer” should be.  The launch of Cryptokitties and its impact on traffic has raised more controversies about the future of Ethereum protocol.

Decades of research into real-world grid computing and parallel processing teaches us that when there is a lot of work to be processed, it is best to divide it into small tasks which are then distributed amongst the network nodes. This isn’t the case with Ethereum smart contracts.

The Ethereum community is aware of this hurdle and one proposed solution is to shard the computations by namespace i.e. split the network into smaller networks. Other ideas that have been mooted include fee markets for off-chain computations. Bitcoin protocol faces similar scaling hurdles and ideas such as sidechains and lightning, if deployed, can effectively shard the network too.

However, it remains to be seen whether any of the proposed solutions can maintain the key selling points of a public blockchain—decentralized, trustless, and permissionless.

#4: Public blockchains are struggling to remain decentralized

In the recent past, centralization has been the blockchain’s burning issue. End users prefer to execute lightweight software that prunes transactions to focus on their own.  The number of fully-validating computers has been declining and this presents a danger to the security model of the public blockchain.

Ethereum faces the same hurdles as it gains popularity and greater demands are placed on the network, proof of this already being seen in the proposal towards sharding of smart contract execution. So, here’s a question that we should ask ourselves: “If decentralization isn’t a fundamental obligation, why jump through the hoops when we can deploy smart contracts on private blockchains or conventional servers?”

#5: Oracles can break the trust model

The bitcoin protocol can operate as a pure trustless network because its primary function is to help move an internal token around a closed system. However, for smart contracts to be useful they have to execute computations using real-world data such as election results, stock prices, or football score.

Oracles—entities that provide this data—may not be trustworthy. In other words, can we trust oracles? And how will their reputation be determined? Who will record the potentially vast volumes of data to be used by an Oracle so that a particular node can replay the blockchain from the genesis block?

Final Word

Public blockchains are so far transparent but are yet to provide the level of privacy that consumers and businesses are accustomed to with regard to enforcing contractual obligations.  Human involvement is still required to settle the legal disputes that may arise.  Centralized systems provide vastly superior performance in terms of response time.

The absence of a clear use case, compelling business advantage or even social benefits seems to be little reason to deploy an application into production based on smart contracts on a blockchain – a technology that is still in embryonic phase.

Featured image courtesy of Shutterstock. 

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.5 stars on average, based on 9 rated postsHira Saeed is a tech geek girl with a passion to write on latest technology trends. She is the Founder of Tech Geeks community in Pakistan and also runs her copywriting and social media agency, Digital Doers. Follow her on @heerasaeed.




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Articles

Are Crypto News Sites Allowing Freedom Of Thought?

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As the interest in cryptocurrencies has exploded during the past couple years, crypto news sites have been on the rise.  These sites are quickly becoming an invaluable resource for traders who enjoy learning about new crypto projects and trade ideas.  The content distributed through these platforms is typically created by a combination of full-time staff and guest contributors/bloggers.  Many of these writers also have a lot of experience in crypto trading so the articles are extremely beneficial for readers.

One thing that readers should always keep in mind is that the content from these sites normally represents the independent thoughts of the writer.  This is important because writers/traders aren’t infallible.  They can make mistakes like all of us.  So, the best approach for readers is to try to attain a diversity of thought.  A diversity of thought means to gather as much information as possible, from a wide selection of sources.  This is absolutely necessary before reaching a conclusion on a certain topic.

But what happens when a website prevents writers from writing about specific topics?  A colleague of mine recently tried publishing an article at Coinnounce.  The writer wanted to publish an article about the buying opportunity that the Bitcoin crash was affording investors.  Normally an article is rejected for legitimate reasons such as poor grammar, plagiarism, or promotional work.  Unfortunately, Coinnounce cited that the website was bearish on Bitcoin and that they wouldn’t be publishing bullish articles.  Even more troubling is that when Bitcoin rebounded in price, Coinnounce reached out to my colleague and told him they would now be willing to publish the bullish article.

When I found out about the rejection and the reason given, I decided to browse the Coinnounce website (which I had never heard of) to find out what kinds of articles were being published.  And sure enough, the articles were nearly all bearish in some fashion.  The problem with this approach is that nobody knows where Bitcoin is going.  It’s 100% speculation.  What actually matters is the logic presented in the article that helps back up a prediction.  So, while Coinnounce is free to run its business as it sees fit, the website (or the articles published) should have a disclaimer that the information presented represents the thoughts of the website’s owners/editors.  Otherwise, readers may not have a clear understanding of what is being presented.

The point of this article is not to call out Coinnounce.  Rather, the point is to make sure readers are aware that some sites may have different motivations than others.  It’s important to read from a variety of sources to get as much information as possible.  This is true not just for cryptocurrency markets, but for everything in life.  I’m proud to write for Hacked which runs an open and honest platform.  The articles written do represent the thoughts and feelings of the writers.  So, while the editors may not always come to the same conclusions that the articles do, they will never suppress freedom of thought.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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Op-Ed

The Underlying Assets are Getting Squeezed

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An interesting phenomenon has emerged in the last 3 or 4 months. It appears as if many of the core underlying investment assets of the economy are getting steadily killed in the markets. This is observable in FANG stocks (Facebook, Amazon, Netflix, and Google) as well as commodities like crude oil and iron ore.

Additionally, Bitcoin has continued to get hammered during this absolute beat down on the economy. Many pundits have come out and talked about how this is the “end of Bitcoin” or how this is Bitcoin finally finding its true value, but something far more important is at work here.

Deleveraging During the Credit Squeeze

For anyone who hasn’t been reading the news over the last several months, the actions of the Fed (and other central banks) have been under considerable analysis. The previous decade has seen some of the easiest money in the history of our economy. Easy money refers to the cost of borrowing. The lower the cost (interest rate), the easier the money is considered to be.

So as we start to see the credit markets change in a way that makes it a lot harder to borrow money, a credit crunch begins. This is when there is a shortage of credit (lending) and borrowers are forced to pay back parts of their loans, or at least not take out any new ones. And as a direct result, they can’t afford to maintain certain investment positions.

Their inability to maintain these positions means they need to sell off their holdings in the same way a short squeeze causes short sellers to need to buy back the security they were shorting. A credit crunch closes a lot of positions.

The economy-wide effect this is having is both predictable and scary, because we don’t know how far all these underlying assets are going to fall before they stabilize. In the mean time, there will be drastic political effects as a result. The policies of central banks have come under scrutiny in recent months thanks to comments by President Trump, and now that a tighter monetary policy is being put into play, we are going to see much lower dollar liquidity in the future.

Zooming in on Bitcoin

So with all of these assets “puking on themselves”, or deleveraging, we are seeing some interesting dynamics unfold. In Bitcoin, capitulation is occurring on both sides of the asset, which is exactly what is necessary to reverse this trend in the future.

You can see traders instinctively realize that the “dead cat bounce” that normally occurs as shorts get squeezed out in the $4k range is much more muted now. This is because many of the shorts have already closed their position. Longs are doing the same as they bought in at what they thought was the bottom, even as recent times have proven them to be mistaken.

This is going to work out as a good thing for Bitcoin in the long-term, as it could be the end of the massive downmarket it has experienced all year and a new time to shine. At the very least, it could create a good “bottom” for opportunistic buyers to hop in and average their costs down a bit.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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Altcoins

60 Minutes Showcases Potential of DNA and Genetic Genealogy; Opportunity for Crypto Investors

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DNA Storage

Throughout the years, 60 Minutes has been responsible for reporting on some of the biggest stories in the world.  Many of the most memorable episodes have involved world leader interviews, stories on endangered animals, profiles of famous celebrities, and occasionally, segments on promising developments in business and science.  A week ago, 60 Minutes had a very interesting report on how the authorities used Genetic genealogy to solve the case of the Golden State Killer, and how the authorities plan to keep using this new field to solve more cold cases in the future.

On April 25, 2018, authorities in Sacramento announced that they had solved the notorious case of the Golden State Killer.  Authorities were able to use a promising new technique called Genetic genealogy to help identify 72-year-old former police officer, Joseph DeAngelo, as the suspected killer.

Genetic Genealogy

Genetic genealogy is a mixture of high-tech DNA analysis, high speed computer technology, and family genealogy.  The end goal is to determine the level and type of genetic relationship between individuals.

In the case of the Golden State Killer, DNA came into play because the killer had committed at least 12 murders, 50 rapes, and many home burglaries.  Investigators were able to obtain DNA from the killer at one of the reported crime scenes.  After many years of frustrating dead ends, a cold case investigator submitted the obtained DNA sample to GEDmatch.  GEDmatch is the largest public genealogy database in the world.  After uploading the sample, authorities were able to generate a handful of leads which eventually led to the front doors of Joseph DeAngelo.

In addition to the Golden State Killer case, authorities have used Genetic genealogy to make arrests in at least 11 other cold cases.  While the science appears to be sound, there is a legal question that has yet to be answered.  There is no doubt that attorneys for the accused will raise the question of privacy and whether using databases, thought to be private, should be legal.

Opportunity for Crypto Investors

While I’ve invested in equities and crypto for many years with varying degrees of success, I’ve never had the opportunity to invest at the beginning of a new frontier.  Fortunately, the opportunity has come.  Encrypgen (DNA) is a genomic blockchain network that provides customers and partners with best-in-class, next generation, blockchain security for protecting, sharing and re-marketing genomic data.  This creates a fair marketplace for a person’s DNA that can be stored private and sold (if a person wishes to do that).

Over the past few months, Encrypgen has been gaining attention in the mainstream media because of their revolutionary technology as well as the fact that their closest competition is still years away.

In August, Encrypgen released a beta version of its Gene-Chain.  The Gene-Chain allows consumers to upload their genetic profile and for researchers to purchase that genetic data.  Within the next 2 weeks, the company plans to release the full version of the Gene-Chain which will officially make them a new pioneer in the field of genomic blockchain security.

With the DNA token hovering at approximately 5 cents, the time is running out to accumulate at bargain basement prices.  I fully expect the token to achieve utility in the next several months which will cause a rocket-like explosion in the token price.  There is no looking back now, only forward, and I love what I see.

Featured image courtesy of Shutterstock. 

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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