Coin News

Bitcoin’s ongoing scaling debate is reaching fever pitch. Several scaling proposals are scheduled to activate within the next weeks, which may or may not be adopted by miners and users. This could even lead to segments splitting off from the current Bitcoin protocol, resulting in different types of “Bitcoin.”

One reason the several sides in this dispute have trouble agreeing on a single path forward is that all claim support from users on their preferred scaling solution. And this difference, in turn, results from the fact that it’s difficult to reliably gauge user sentiment.

Bitcoin Core and Bitcoin Knots developer Luke Dashjr launched one potential solution to this problem this week: a scaling poll that requires Coinbase identity verification to participate.

“It’s obviously not perfect, because not everyone uses Coinbase,” the developer noted. “But it's one more useful source of data.”

KYCPoll is, of course, not the first poll to gauge user sentiment. Twitter and other social media have been splattered with scaling polls over the past couple of months. Reddit and other forums have hosted fierce public debates for years. And there are even some experimental coin-voting schemes, not to mention miners’ hash power signalling.

But user-focused polls, in particular, are often easily gamed or have other reliability issues. One of several problems is that typical internet polls can be manipulated by users that vote with a number fake identities. These “Sybil attacks” can severely skew the outcomes.

To counter this, Dashjr’s initiative utilizes a programming tool (“API”) offered by Coinbase, the major bitcoin exchange and de-facto wallet service that quite possibly holds the biggest database of users in the Bitcoin industry.

“I used Coinbase's ‘OAuth2 API’, a way for third party websites to interact with other secure sites,” Dashjr said, explaining how he applied the technology for his polling site. “Though I had to use an older version of the API as well as the newer version, which is why users need to login twice.”

Leveraging the API, only users that have proven their identity to the bitcoin exchange are able to vote on KYCPoll. Since Coinbase applies a rigorous Know Your Customer (KYC) process to verify identities, this should exclude any Sybil accounts. As such, anyone should only get a single vote.

With scaling as an overlapping topic, there are several core issues being polled right now. This includes Segregated Witness (SegWit), the protocol upgrade proposed by the Bitcoin Core development team. A closely related topic is BIP148, the user activated soft fork (UASF) scheduled to activate SegWit on August 1. Sentiments on SegWit2x and other proposals to hard fork an increase of the “base block size limit are gauged as well.” Further topics in the poll include questions about soft forks, as well as governance issues and media consumption.

Screenshot of a few results from KYCPoll - 17:00 EST July 12, 2017

Even though KYCPoll is a clever use of the Coinbase API, it is, of course, in no way binding. Additionally, Dashjr acknowledged it’s not even a definite solution for gauging user sentiment. This is most obviously because only Coinbase users can vote and not everyone has a Coinbase account. At the same time, having a Coinbase account does not necessarily mean someone is a bitcoin user (Coinbase also offers other cryptocurrencies), nor does it reveal how “heavy” of a user it is. Plus, KYCPoll is not as anonymous as some would like: while Coinbase does not get to see what users vote, Dashjr does.

Some of these issues may be improved upon, while it could also be possible to extend KYCPoll to include KYC-registered users from other Bitcoin companies — not only Coinbase.

But Dashjr noted that he’s unlikely to implement these improvements himself, and instead hopes that someone else will pick up on the open source project to further develop it.

“This is a kind of a side project I'm doing only because nobody else had done it yet. I'm not a web developer, which also explains why I explicitly don't guarantee the data is secure. I hope someone more into web development will take over the project,” he said.

Vote on your preferred scaling solution, or just view the poll results so far, by clicking this link. You can also find more information on KYCPoll in this Reddit thread.

There has been an interesting turn of events in the case of the alleged India-based Ponzi scheme known as GainBitcoin. Recently, after a Change.org petition from an outraged GainBitcoin investor surfaced, the group behind the scheme launched an Ethereum ICO (initial coin offering) in an effort to keep the probable scam going.

For those who haven’t heard of GainBitcoin, it purports to be a Bitcoin cloud-mining operation; the operation, in turn, is connected to Amit Bhardwaj, founder of Bitcoin mining pool GBMiners. Some Bitcoin companies based in India, such as Zebpay, have warned their customers about schemes like GainBitcoin due to the unrealistic profits for potential investors that are included in their marketing materials.

With the launch of a new token on Ethereum, combined with a marketing campaign that includes support from major Indian newspapers and Bollywood celebrities, it appears this dubious scheme has new life.

According to Bitsonline, GAW Miners Founder Josh Garza used a similar method when inventing Paycoin to continue making payments related to his Ponzi scheme.

The Launch of a New Token

The new token launched by Bhardwaj is known as MCAP, and it was officially launched by the Bitcoin Growth Fund, which is another one of Bhardwaj’s creations. According to the website, the MCAP ICO raised over $19 million at a sale price of $5 per token. The website also claims nearly five million MCAP tokens were sold, some at a discounted rate.

A video posted on the Bitcoin Growth Fund website has similarities to videos associated with the notorious OneCoin scam. For example, the video projects that, according to “various estimates,” the MCAP price could go as high as $100 by May 2018. The video goes as far as to recommend purchasing the token as the price declines as a way to generate even higher returns.

The MCAP token is said to derive its value from investments in cryptocurrency mining, but the connection between the token and cryptocurrency mining profits is never explained.

Although CoinMarketCap indicates MCAP is ranked 35th out of all digital assets by market cap, the cryptocurrency price site indicates a circulating supply of over 30 million tokens. According to Ethplorer, 100 million MCAP tokens exist, but it’s unclear how many of them are in circulation.

The token is currently trading at a little under $4 on cryptocurrency exchange C-CEX. Veteran cryptocurrency trader Jeremy Ross told Bitcoin Magazine that C-CEX is “one of those exchanges you go to to buy the trash.”

At this time, C-CEX and EtherDelta are the only two exchanges where MCAP is listed other than an exchange on the Bitcoin Growth Fund website. It’s unclear how reliable the trading data on the Bitcoin Growth Fund website is since it is also connected to Bhardwaj. OneCoin also hosted an exchange for their own coin at one time, but the exchange, Xcoinx, is currently offline.

A Cryptocurrency Book for Beginners

Like many scams in the Bitcoin space, MCAP is targeted at beginners who do not know the first thing about these sorts of digital assets. Indeed, Amit Bhardwaj has a new book out, titled “Cryptocurrency for Beginners.”

The book is priced at 1,499 Indian rupees (around $23 USD), but those who purchase the book also receive 1,200 Indian rupees’ worth of MCAP for free, as a way to get started with cryptocurrencies.

In addition to peddling his new book to Bitcoin-related news outlets, such as The Cointelegraph and NewsBTC, Bhardwaj was also able to get full, front-page ads for the book in two of India’s largest newspapers: Times of India and Hindustan Times.

Multiple Bollywood celebrities with millions of followers on Twitter have also sent out supportive tweets about the book over the past couple of weeks.

So, with the creation of this new token, GainBitcoin now has the ability to make more payouts to their investors because they can only receive their payouts via MCAP. With the Ethereum ICO, GainBitcoin has effectively created more money out of thin air to keep the scheme going.

Sidechains have been viewed as Bitcoin’s way of dealing the altcoin market since 2014, when a proposal for a two-way peg between two different blockchains was first proposed in a public setting. Three years later, it appears that drivechains, which are a specific way of implementing sidechains, will be the way in which extensions for Bitcoin are rolled out.

Sidechains remove the need for altcoins by allowing bitcoins to be effectively transferred from one blockchain to another. This means the bitcoin token can be used on any type of blockchain that bitcoin holders demand into existence.

Drivechains Should Be Good Enough

Drivechains were designed by Bloq Economist Paul Sztorc, who started working on the idea after the lack of progress on sidechains slowed down his own project, a decentralized prediction market known as Bitcoin Hivemind.

In Sztorc’s view, the security model for drivechains is not much different than that of the main Bitcoin blockchain because the funds on the drivechain are held in escrow by bitcoin miners. Some developers, such as Peter Todd, have shared technical concerns with merge-mined sidechains in the past, but this concept is likely going to be tried out in the wild, whether the contributors to Bitcoin Core like it or not. Sztorc has also attempted to address these technical concerns through the use of blind merged mining.

In terms of the risk of miners stealing the funds held in escrow, Sztorc has pointed out that a similar risk already exists in Bitcoin: A cartel of miners could theoretically defraud a bitcoin exchange by selling bitcoins on the exchange and then later rewriting the chain history in a way obscures or erases the original deposit so that it appears it never took place.

Drivechains can be added to Bitcoin via soft forks, which means they are backward compatible. If there is sufficient demand for a specific type of drivechain, miners should be happy to mine on the additional chain in order to generate more revenue by way of transaction fees.

Features of popular drivechains could theoretically be soft-forked into Bitcoin by way of an extension block or some other measure, but it’s unclear if this would even be necessary.

What Types of Drivechains Are in Development?

The three main niches that have gained interest from altcoin speculators are microtransactions (lower transaction fees), smart contracts and privacy.

Both Ethereum and Litecoin are said to be useful alternatives to Bitcoin because they have lower transaction fees. One of the first intended drivechains is one with bigger blocks which would allow users to transact with lower fees in a manner that does not negatively affect the decentralization of Bitcoin’s main chain.

Although it’s still unclear if there is much substance behind the drastic rise in Ethereum’s market cap, RSK has built a sidechain focused on complex smart contracts that is a hybrid between a drivechain and a federated sidechain. The RSK platform is currently pegged to Bitcoin’s testnet, and it is expected to launch on mainnet later this year.

In terms of privacy, there are intentions to add a MimbleWimble sidechain to Bitcoin, although the mechanism that will be used to peg the sidechain to Bitcoin is unclear at this time. In addition to MimbleWimble, it’s also possible that a Monero, Zcash or other privacy-focused sidechains could be released if there is enough demand.

There is a full list of sidechain projects available on the Drivechain website.

Alternative Tokens May Still Exist

While drivechains are likely to drive out the need for altcoins, it’s still possible that alternative digital assets that are not attempts at creating a new form of money will exist.

Sztorc’s own project creates a new token, votecoin, which is required for the decentralized prediction market to work. With this setup, bitcoin is used as the transactional currency while votecoins are used as a sort of stake in the network to get the incentives to work properly.

To me, it’s unclear how often these sorts of new tokens will be needed, but there should be no reason for competitors to bitcoin as a form of digital money to exist.

A Chain Split Could Still Cause Problems

One last thing to keep in mind is that a chain split in Bitcoin could invalidate the hypothesis laid out in this article. If there is a split, then the network effects around Bitcoin could be weakened, which would open the door for an alternative cryptocurrency to take Bitcoin’s place.

The supporters of the SegWit2x proposal intend to activate a hard-forking increase to Bitcoin’s block size limit later this year, but it is extremely unlikely that this change will be implemented in Bitcoin Core, which means a chain split is a possibility.

The negative effects of such a situation would depend on the severity of the split and how the market reacts.

If a big block drivechain is prepared in time, it may be able to decrease the attraction some in the Bitcoin ecosystem have toward a hard fork.

Thank you to drivechain developer Patrick Murphy for answering a few questions during the writing of this article.

Sidechains have been viewed as Bitcoin’s way of dealing the altcoin market since 2014, when a proposal for a two-way peg between two different blockchains was first proposed in a public setting. Three years later, it appears that drivechains, which are a specific way of implementing sidechains, will be the way in which extensions for Bitcoin are rolled out.

Sidechains remove the need for altcoins by allowing bitcoins to be effectively transferred from one blockchain to another. This means the bitcoin token can be used on any type of blockchain that bitcoin holders demand into existence.

Drivechains Should Be Good Enough

Drivechains were designed by Bloq Economist Paul Sztorc, who started working on the idea after the lack of progress on sidechains slowed down his own project, a decentralized prediction market known as Bitcoin Hivemind.

In Sztorc’s view, the security model for drivechains is not much different than that of the main Bitcoin blockchain because the funds on the drivechain are held in escrow by bitcoin miners. Some developers, such as Peter Todd, have shared technical concerns with merge-mined sidechains in the past, but this concept is likely going to be tried out in the wild, whether the contributors to Bitcoin Core like it or not. Sztorc has also attempted to address these technical concerns through the use of blind merged mining.

In terms of the risk of miners stealing the funds held in escrow, Sztorc has pointed out that a similar risk already exists in Bitcoin: A cartel of miners could theoretically defraud a bitcoin exchange by selling bitcoins on the exchange and then later rewriting the chain history in a way obscures or erases the original deposit so that it appears it never took place.

Drivechains can be added to Bitcoin via soft forks, which means they are backward compatible. If there is sufficient demand for a specific type of drivechain, miners should be happy to mine on the additional chain in order to generate more revenue by way of transaction fees.

Features of popular drivechains could theoretically be soft-forked into Bitcoin by way of an extension block or some other measure, but it’s unclear if this would even be necessary.

What Types of Drivechains Are in Development?

The three main niches that have gained interest from altcoin speculators are microtransactions (lower transaction fees), smart contracts and privacy.

Both Ethereum and Litecoin are said to be useful alternatives to Bitcoin because they have lower transaction fees. One of the first intended drivechains is one with bigger blocks which would allow users to transact with lower fees in a manner that does not negatively affect the decentralization of Bitcoin’s main chain.

Although it’s still unclear if there is much substance behind the drastic rise in Ethereum’s market cap, RSK has built a sidechain focused on complex smart contracts that is a hybrid between a drivechain and a federated sidechain. The RSK platform is currently pegged to Bitcoin’s testnet, and it is expected to launch on mainnet later this year.

In terms of privacy, there are intentions to add a MimbleWimble sidechain to Bitcoin, although the mechanism that will be used to peg the sidechain to Bitcoin is unclear at this time. In addition to MimbleWimble, it’s also possible that a Monero, Zcash or other privacy-focused sidechains could be released if there is enough demand.

There is a full list of sidechain projects available on the Drivechain website.

Alternative Tokens May Still Exist

While drivechains are likely to drive out the need for altcoins, it’s still possible that alternative digital assets that are not attempts at creating a new form of money will exist.

Sztorc’s own project creates a new token, votecoin, which is required for the decentralized prediction market to work. With this setup, bitcoin is used as the transactional currency while votecoins are used as a sort of stake in the network to get the incentives to work properly.

To me, it’s unclear how often these sorts of new tokens will be needed, but there should be no reason for competitors to bitcoin as a form of digital money to exist.

A Chain Split Could Still Cause Problems

One last thing to keep in mind is that a chain split in Bitcoin could invalidate the hypothesis laid out in this article. If there is a split, then the network effects around Bitcoin could be weakened, which would open the door for an alternative cryptocurrency to take Bitcoin’s place.

The supporters of the SegWit2x proposal intend to activate a hard-forking increase to Bitcoin’s block size limit later this year, but it is extremely unlikely that this change will be implemented in Bitcoin Core, which means a chain split is a possibility.

The negative effects of such a situation would depend on the severity of the split and how the market reacts.

If a big block drivechain is prepared in time, it may be able to decrease the attraction some in the Bitcoin ecosystem have toward a hard fork.

Thank you to drivechain developer Patrick Murphy for answering a few questions during the writing of this article.

TumbleBit is one of the most promising privacy-enhancing technologies being built on top of Bitcoin right now. It allows users to mix their coins fully anonymously, without requiring trust in any third party. An advanced version of the technology, which requires Segregated Witness, can even be utilized as a second-layer payment hub to reduce transaction costs and speed up confirmation times.

After TumbleBit was first proposed in an academic paper and subsequently presented at the Scaling Bitcoin workshops in Milan, NBitcoin lead developer Nicolas Dorier built an early version of the technology. Since then, two wallets are being developed to make TumbleBit accessible for everyday use: Breeze and, more recently, HiddenWallet.

HiddenWallet developer Ádám Ficsór, better known online as “nopara73,” also completed Tor integration this week.

“I estimate that TumbleBit will be usable for the general public within a month or two.” -- Ádám Ficsór

Tor Integration

TumbleBit lets users connect to a central server, which in turn allows them to establish payment channels that send coins back and forth in such a way that everyone receives as many coins as they sent. Since multiple users can engage at the same time, this allows them to mix their coins, breaking the trail of ownership on Bitcoin’s blockchain.

The key innovation compared to previous mixing models is that TumbleBit uses a combination of nifty cryptographic tricks to make sure that, first off, no one can steal funds. And second, no one — not even the central server — can link any of the sending addresses to any of the receiving addresses.

Yet, one problem remained, as Ficsór explained:

“Users connect to the central server with their own IP address to provide their sending and receiving addresses,” he said. “But this means that the central server could still match sending and receiving addresses based on the IP address that provided them. If one IP address provides both Bitcoin addresses, it’s trivial to link them.”

In other words, the central server could re-establish the traceable chain of coin ownership, defeating the purpose of using TumbleBit in the first place.

Ficsór therefore built a Tor-integration tool for the existing TumbleBit project. With this tool, the sending and receiving addresses of any user are separately provided to the central server through the anonymity network. This removes any link from a user’s IP address to any specific Bitcoin addresses and — importantly — removes the link between sending and receiving addresses as well.

HiddenWallet

At the same time, Ficsór is developing a new wallet specifically designed for TumbleBit, HiddenWallet, which would even offer increased privacy without TumbleBit.

Essentially all lightweight wallets leak address data to the outside world in some way or another. Most web wallets, mobile clients and some desktop wallets leak this info because they rely on a server that tells them about their balances. This server therefore needs to know all addresses in a wallet and can link them together accordingly.

Alternatively, some SPV clients send out a type of cryptographic “puzzle” (Bloom filters) to the network that requests all data relevant for their balance. But this leaks address data to random nodes on the network … and thus to analytics companies that specifically monitor the network for these puzzles.

“Blockstream’s Jonas Nick claimed in 2015 that if someone were to give him one Bitcoin address, he’d be able to figure out 70 percent of your wallet holdings. This was just one smart guy with limited resources, three years ago. You can imagine what well-funded analytics companies in 2017 are capable of,” Ficsór noted.

This linking of addresses is obviously a problem for TumbleBit users. No matter how much these users mix their bitcoins across their Bitcoin addresses, if all these addresses can be linked together anyway, there’s no point.

The only wallets that avoid this problem, so far, are full-node wallets like Bitcoin Core. These wallets download all transaction data on the network, meaning they don’t need to request specific data that reveals their own addresses. However, full nodes can be a bit resource-intensive, which is a barrier to entry for many casual Bitcoin users.

HiddenWallet therefore introduces a clever model in between the lightweight and full-node wallets, specifically designed to improve privacy.

Like a full node, HiddenWallet connects directly to the Bitcoin network, where it likewise requests all transaction data from random nodes. However, where full nodes verify (and typically store) all of this data, HiddenWallet instead immediately discards any data it doesn’t need. It only verifies and stores transaction data that involve the Bitcoin addresses in the wallet itself and doesn’t care about the rest. This requires far fewer resources than a full node does.

“The privacy benefit is obvious,” said Ficsór. “Since HiddenWallet downloads all transaction data, connected nodes have no idea which data is kept by the wallet and what is discarded. They learn nothing about the addresses in HiddenWallet and can’t link any of them together.”

And Ficsór thinks he may be able to trim resource usage down even further in a next release of HiddenWallet. This upcoming version may cut out all transaction data that would, for analytics companies, obviously not be relevant to the wallet anyway, like old transaction data. Such a modification could potentially make HiddenWallet available even on low-bandwidth mobile connections.

With this progress, it looks like TumbleBit may be usable even before the end of this summer, Ficsór estimates.

“We previously thought we might get the system up and running around this time, but it turned out there was a little bit more to it than we thought. That being said, another big hurdle is now taken: the Japanese company United Bitcoiners is running a tumbling server. Combined with Tor integration and wallets, all pieces of the puzzle are coming together.”

Ádám Ficsór works on TumbleBit without compensation, but accepts donations on 186n7me3QKajQZJnUsVsezVhVrSwyFCCZ