Great+Chain+of+Numbers+A+Guide+to+Smart+Contracts,+Smart+Property+and+Trustless+Asset+Management+-+Tim+Swanson

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Ethereum Another “2.0” project that is gaining traction is Ethereum, announced in January 2014 which brings together both a cryptoledger and a Turing-complete programming language. In short, a Turingcomplete programming language means that the language can be used to simulate any other computer language (not just its own). The original Bitcoin protocol and software implementation released in 2009 included a language called Script that had many limitations (it was intentionally not Turing-complete) and as a consequence has largely been underutilized. As a consequence, developers have had to try and use these duct-taped exoskeleton wrappers to build on top of the protocol to enable new functionality. Many developers, including those with the Ethereum project, recognized this limitation and, rather than building and providing a specific feature set, will instead use a Turing-complete C-like language (CLL) that software developers can then use to build a cornucopia of tools, including any type of smart contract, asset management instrument or even a decentralized autonomous organization (DAO) that can then be automatically executed, controlled, and audited by the Ethereum ledger. 122 While its approach is one of the most holistic thus far, its long-term success still requires a critical mass, mindshare and the network effect. To find out more about Ethereum, I corresponded with Vitalik Buterin, head writer at Bitcoin Magazine and a lead developer on the Ethereum project. 123 Because of the all-encompassing abilities “2.0” projects are slated to have, it could be confusing for developers to determine on which platform to initially build their apps, but that may not be the only hurdle. In his view, “I would say the main challenge in the 2.0 space is going to be (1) building contracts, and (2) building interfaces. These have always been problems, of course, but up until now they have been eclipsed by other, larger, problems, like maintaining server infrastructure and scalability, ensuring security of funds, regulatory compliance and having banking relationships. With decentralized apps, most of those problems are gone, so the only two issues that still remain - contract design and interface design - are now at the forefront. The two problems can easily be handled separately; someone should be able to write a derivatives trading GUI and have that port over automatically to various systems inside of Ethereum, BitsharesX and whatever else people want to trade on.” 124 Several other developers and investors I spoke with had similar sentiments: creating easy-to-use, intuitive interfaces for end-users would quickly set your product apart from the pack. While there have been many advances, especially for merchant plugins, backing up and securing wallets can be quite cumbersome and even a chore to handle at times, stunting wider-spread adoption. 125 Buterin had previously worked on both the Colored Coins and Mastercoin project. While portable, both of these currently utilize the Bitcoin protocol, which has a couple of limitations. In Buterin’s view, “one of the key features of Bitcoin is that it has a concept of "simplified payment verification” (SPV), where a Bitcoin node can verify the validity of a transaction in the blockchain by only downloading the very small subset of data in the blockchain that is relevant to that particular transaction. Given that a "full" Bitcoin node now takes 14 GB of space to run, beyond the reach of many users, this mechanism has become an essential part of Bitcoin security. The problem with on-blockchain meta-protocols, however, is that they do not benefit from this protocol. The underlying Bitcoin layer has no way of knowing whether or not a given transaction is valid in the context of the meta-protocol, so the Bitcoin blockchain will include transactions that are both valid and invalid, and so the validity of a given meta-protocol transaction can only be calculated by recalculating the entire state of the protocol up until that point - requiring the full blockchain. Ethereum solves these issues by not being a meta-protocol, instead relying on an independent blockchain.” 35
SPV is a type of thin client that provides Bitcoin users a lightweight method for sending and confirming transactions without having to carry around the entire database. 126 It does this by downloading only the headers for all the blocks (i.e., the Merkle tree) and not the entire blockchain itself. As a consequence, this flexibility enables Bitcoin clients to be used by point-of-sale registers that may not have enough space or bandwidth to continuously download the entire blockchain. And at this time, as Buterin notes, the only way to completely confirm that a transaction based on Colored Coins or meta-coins like Mastercoin is valid is to re-check the entire blockchain. This presents a significant obstacle to scalability. When describing and defining what a “smart contract” and “DAO” are, it can be confusing at times because a robust smart contract is sometimes used synonymously with a DAO. According to Buterin, “I would say there is no clear-line distinction between the two, but there are some general differences in connotation. To me, a smart contract is something that is single-purpose and ephemeral, so they are created for a specific task and can disappear at the end. A financial contract is a good example there. An autonomous agent is something that is more long-term focused, and includes an internal AI to make decisions. And finally, a decentralized autonomous organization is a long-term contract between many people, perhaps even with the ability for people to join in as signatories or trade their positions away, whose main role is to hold on to assets and use some kind of voting system to manage their distribution. There can be many different types of DAOs; the more basic ones live entirely on the blockchain, but more advanced ones might have some of their data stored on other decentralized networks or across a number of servers.” 127 Throughout this manuscript, several of Mike Hearn’s presentations are referenced, including the Turing 2013 conference. 128 While both Hearn and Vitalik Buterin use the same name, DAO, the definitions for what the term implies, varies. In an email exchange, according to Hearn, “what Vitalik calls DAO’s are not quite the same as what I discussed in the Turing talk. I used to think they were the same, but on closer inspection he called Bitcoin itself a DAO so it's obviously different. Assuming you mean agents, there are so many challenges I doubt it will happen any time soon. Really you need trusted computing for it to work well and that won't work well at least until Intel release CPU's supporting their SGX extensions, which they didn't even announce a date for.” Trusted computing is a term for computers that can be controlled a certain way via encryption. Many governmental agencies such as the US Department of Defense require that computers acquired by vendors have such functionality. In September 2013, Intel released its programming reference manual for Software Guard Extensions (SGX) which could potentially create similar functionality in consumerbased systems. 129 Throughout this guide I describe simple “smart contracts” with the assumption they do not have any sophisticated internal AI components. Similarly I refer to relatively simple DAOs that wholly reside on the blockchain. As programmers become more acquainted with decentralized software and the technology evolves and begins to be used in practical applications, it is likely the specific meaning of each term will be subject to change. BitShares This last point is viewed as a critical issue to other 2.0 project managers as well. I had an email exchange with Daniel Larimer, the creator of BitShares, and the first person to describe Bitcoin as a Decentralized Autonomous Company (DAC). 130 BitShares is a new way to view cryptocurrencies where you view your 36
Page 2 and 3: Great Chain of Numbers: A Guide to
Page 4 and 5: Contents Foreword .................
Page 6 and 7: Cost benefit analysis of decentrali
Page 8 and 9: But then, neither is anybody else.
Page 10 and 11: years ago and the PC did 35 years a
Page 12 and 13: Glossary Because of the dynamic nat
Page 14 and 15: Economists and legal experts have s
Page 16 and 17: Chapter 2: Smart Contracts “Setti
Page 18 and 19: has other potential uses that have
Page 20 and 21: valueless transaction costs all whi
Page 22 and 23: While there are several other proje
Page 24 and 25: Implementation of DACs, however, is
Page 26 and 27: Such a system, if implemented, woul
Page 28 and 29: “In a similar fashion,” Byrne a
Page 30 and 31: While his proposal will likely rece
Page 32 and 33: Chapter 3: Next Generation Platform
Page 34 and 35: ather a Decentralized Autonomous Ap
Page 38 and 39: wallet balance as shares rather tha
Page 40 and 41: and its launch was entirely decentr
Page 42 and 43: Open-Transactions Chris Odom is a c
Page 44 and 45: Yet as noted above, Ripple’s plat
Page 46 and 47: This Euler diagram shows two main s
Page 48 and 49: Chapter 4: Smart Property Since the
Page 50 and 51: e done with existing technology. Ho
Page 52 and 53: vulnerable systems authorized to in
Page 54 and 55: system to the same mechanism mentio
Page 56 and 57: those participating further down th
Page 58 and 59: (DAC). Furthermore, one of our curr
Page 60 and 61: Where the Rubber Meets the Road Cur
Page 62 and 63: several choices. He can immediately
Page 64 and 65: four years has been for one particu
Page 66 and 67: Chapter 6: Fundraising Landscape Ac
Page 68 and 69: Chart 3 illustrates that as a perce
Page 70 and 71: Ultimately he sees significantly gr
Page 72 and 73: What was unique about the conversat
Page 74 and 75: perspective like China and India wi
Page 76 and 77: While many users and commentators h
Page 78 and 79: Remittances, Value-Added Services,
Page 80 and 81: For example, since at least 1991 th
Page 82 and 83: financially was the miners themselv
Page 84 and 85: According to its 2013 report, Lexis
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Sean Percival, a tech-industry vete
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continuously builds the entire netw
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to secure a wallet. As a consequenc
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Chapter 8: Jack-of-All-Trades? Can
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It should be noted that the direct
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etter or easier? Just because you c
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NGO use-cases In an exchange with P
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independently run DAO these same in
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Chapter 9: Conclusions Even with so
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Synthesis If you, the reader, are n
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Instead of having to stand in one l
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Endnotes 1 Guanxi ( 关系 ) is a
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36 This issue can involve entire pa
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with the sole intention of building
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107 Chroma Wallet 108 Losing the pr
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Audit Report: Transparency and Acco
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184 Kevin Mitnick is perhaps the mo
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218 Compliance Program Design Prese
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270 Skype calls now equivalent to o
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315 One of the topics discussed at
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357 BitPay Exceeds $100,000,000 in
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maximum transactions per second fro
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446 Point-of-Sale Terminals Should
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Great+Chain+of+Numbers+A+Guide+to+Smart+Contracts,+Smart+Property+and+Trustless+Asset+Management+-+Tim+Swanson

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