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When Is Decentralization a Good Idea?

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Bitcoin and Cryptocurrency Technologies

Université de Princeton

4.7 (1,998 notes) | 340K étudiants inscrits

To really understand what is special about Bitcoin, we need to understand how it works at a technical level. We’ll address the important questions about Bitcoin, such as: How does Bitcoin work? What makes Bitcoin different? How secure are your Bitcoins? How anonymous are Bitcoin users? What determines the price of Bitcoins? Can cryptocurrencies be regulated? What might the future hold? After this course, you’ll know everything you need to be able to separate fact from fiction when reading claims about Bitcoin and other cryptocurrencies. You’ll have the conceptual foundations you need to engineer secure software that interacts with the Bitcoin network. And you’ll be able to integrate ideas from Bitcoin in your own projects. Course Lecturers: Arvind Narayanan, Princeton University All the features of this course are available for free. It does not offer a certificate upon completion.

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Compétences que vous apprendrez

Bitcoin Network, Blockchains, Cryptocurrency, Bitcoin

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4.7 (1,998 notes)

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LB

Jan 15, 2017

I find this course prepared very well. There are many perspectives and this course does not concentrate on the technology only. I find this course very helpful. The level is more then just beginner.

AG

Feb 08, 2017

Loved this course! It was very thorough. However I think assignments could have been made more clearer as it was often hard to figure out what needed to be done without checking discussion forums.

À partir de la leçon

The Future of Bitcoin?

The use of Bitcoin technology for decentralizing property, markets, and so on has been hailed as a recipe for economic and political disruption. We'll look at the technological underpinnings of these proposals and the potential impact on society.

The Block Chain as a Vehicle for Decentralization14:56

Routes to Blockchain Integration28:24

What Can We Decentralize?24:09

When Is Decentralization a Good Idea?16:15

Enseigné par

Arvind Narayanan
Associate Professor

Transcription

So far in this lecture we've learned about a fascinating set of technologies for

using the block chain for decentralizing, as you've seen a whole spectrum of things.

And occasionally I've hinted at questions about when is this a good idea,

is it economically feasibly, how does it compare to the traditional and

centralized system that it's replacing and so on.

But now let's really get into that question.

And I've deliberately used the word decentralization and

framed it in technical terms and avoided mentioning the political dimension.

But now let's be very explicit about that, so what we're really talking about when we

say decentralization and replacing these traditional systems, is in a sentence

we're talking about technological purely and largely technological alternatives.

To a variety of human institutions, legal and social and financial, banks,

law enforcement, a lot of these centralized service providers for

various things, the court system, ecetera.

And so this set of ideas really takes Bitcoin back to its Cypherpunk roots.

And this was the original dream of the Cypherpunks.

And now given that we have the block chain,

a lot of these seem to be much more closely within reach.

So let's talk about whether or not this is a good idea.

And as usual, let's go back to the car example.

And let's ask the question, what are really the problems with car ownership and

trade, and when I say problems, I don't mean problems like servicing your car or

is your car environmentally friendly,

but problems inherent to the notion of ownership and trade that a Bitcoin based

system could potentially improve or conceivably make worse, right.

And so we can identify two concrete things.

One is security in the sense of theft.

And more generally, we can express this as how to assert and enforce the ownership

of the property, and the other one is dispute about the sales terms.

Did somebody sell you a lemon car or was there a genuine misunderstanding about

what you were getting when you bought the car in terms of the condition of the car?

And as you might see, both of these, what they have in common is not what happens

when everything goes right, but what happens when something goes wrong.

And so the real questions that we wanna ask are on these two dimensions,

how does the new smart property system or

smart property model that we've seen, compare to what it seeks to replace.

Let's think about this in a bit more detail.

Let's talk about the theft problem first.

Theft, whether your talking about theft of cars or

in the traditional banking system, security in general has three components.

And those three components are called preventive, detective, corrective.

Preventive, is when you stop something bad happening before it happens.

Detective is when you realize that something bad has happened.

And corrective is when you take measures to reverse the bad thing that happened,

and maybe to also have some punitive measures.

So our car alarm system is a good example of what would that be,

a detective measure.

A preventive system would be your car lock or your steering wheel lock or

something like that.

And corrective control would be law enforcement and

getting your car back, and so on.

So in the real world security relies heavily on the ladder too, but

only a little bit on the first type of control.

The reason your car is secure is only a small part because of

its locking mechanism and largely because law enforcement exists and

you can get your car back if it's stolen.

And of course there is punishment and in terms of the law for stealing a car.

And this is what makes the whole system tick.

If you lived in a completely lawless environment, the idea of parking your car

overnight would simply be ridiculous, because it would immediately get stolen.

So that's the model that we started from, and, of course, the real world solution

relies pretty heavily on law enforcement for a number of these things.

And we want to move to this smart property based model.

Where if you think about it,

most of the focus is going to be on preventive measures, right?

Because the notion of ownership becomes almost identical to the notion of, who has

the right private key to control the car as it's expressed in the block chain?

So it becomes quite hard to imagine how any of these systems would work,

at least in the way that we describe things.

And this seems like a bit of a problem.

We're taking this complex notion of security that relies on several different

factors and putting most of the onus on preventive measures.

It's actually a bit worse than that,

because now we've also introduced the software security problem.

The problem of actually keeping your Bitcoin wallet or your Bitcoin key or

the key that controls ownership of the car, secret and protected.

So what we have is that we have to live with the fact that Bitcoin security is

going to be an unsolved problem for the foreseeable future.

Why?

In part because it's partly a human problem.

Software security is partly a human problem because

writing bug free code is something that we've endeavored to get to for

a decades, but made very little progress.

And it's also partly a human problem because it relies on

users being very careful about security.

And what this boils down to is introducing a new problem of software security

to the traditional security problem of physical theft of the car.

And so, if you rely on this excessively, of course it can cause serious problems.

You might end up in a situation where a loss of your key that protects ownership

of your car, now results in your car tuning into a brick.

Of course, there are solutions to that.

Of course, you can have fall back mechanisms.

But inevitably, these fall back mechanisms seem to take us to toward intermediate

areas, toward the centralized systems and thereby chipping away,

add the putative benefits of this decentralized model that we've moved to.

So let's go to the other aspect,

which is what happens when there's a dispute about the sale of terps.

So, as we saw earlier, in the real world, this is resolved through the court system,

and this is not only complex, but fundamentally a human problem,

not just partly a human problem, but it's fundamentally a human problem.

And the court system has evolved over a long time and it's really good at this and

I wanted to tell you a personal story and I found this out for myself in a very

practical way one day many years ago when I went to pay a parking ticket.

And after I paid the ticket I noticed a sign that said,

court is in progress keep your voice down and I was curious about that.

I asked the clerk what was going on and if I could go and

sit in on the court session.

See, she seemed a bit amused by the request, but she said, sure,

it's open to the public, go on in.

So I went in, and funnily enough, the court was in session, and

it was a case about a lemon car that had been sold.

And only the two parties who were litigating the case were in the room, and

of course the judge, and I was sitting in the back.

Nobody paid me any attention.

I sat there over the course of the next hour or so, and

it was just a fascinating learning experience.

And the judge went through the details of every single email

that the two parties had sent to each other.

Probed them for the meaning of what they had had in mind when they said something

and how the other person interpreted it, and so on.

And come to a very nuanced understanding and

a ruling of whether or not that sale was legitimate.

And I realized at that moment, that even legal contract terms

as verbose as they might seem, don't even come close to capturing the complexity

of what goes on in a real, physical transaction between human beings.

And ultimately, you need a very highly evolved dispute mediation process,

with real experts, like a judge, who are trained to look for these things and

study these things, to be able to render decisions that everybody is going to

accept and be satisfied with.

And so in this model we're proposing that we're gonna

dispute mediation in very different ways.

And certainly this new model has certain advantages.

You can choose your own mediator and so on.

But you have to ask, what are we giving up here and

how big a problem is that going to be?

Let me give you one more example of what I mean when I say that security and

dispute mediation are human problems.

We looked at crowd funding earlier.

And the security property that we wanted was that

if a variety of people send money to the entrepreneur,

the entrepreneur should not be able to cash in on that, unless the sum

total that has been contributed exceeds the prespecified output amount.

Well that's all well and good, but if the entrepreneur does meet that amount

then they can still take the money and run.

Ultimately if you don't trust them to deliver on their promise, then the system

doesn't work and you can't technologically enforce that they will actually

provide the public good or whatever it is that they promise to give you.

And so that seems like a problem and so the technology only seems to be solving

a small part of the problem here, and not even the interesting part of the problem.

So let's recap a little bit what we've seen so far.

In the smart property way of doing things

it looks like the interesting problems are social problems.

Things that are triggered when something goes wrong, and

technology doesn't seem to solve that aspect of the problem.

It's really good at taking what happens when everything's going according to plan

and maybe making that more efficient.

In fact, it seems to have made some of these hard problems even harder to solve

by moving to an automated model, where it's quite hard to even layer on dispute

mediation and other human processes that we might want to have in the picture.

And even worse it seems to have introduced new problems, for

example, software security in addition to the physical security of your car.

Now let me be very clear, I deliberately picked this card security and

car sale example as sort of an extreme way of

illustrating why we really need these human institutions.

I'm not saying that anyone in the Bitcoin community is suggesting that we should

sell our cars this way,

although the technical idea has certainly been discussed a lot.

And I also want to be clear that this model certainly does have some advantages.

Let's look at what some of those advantages are, and

in what kind of context it might apply.

So here are some possible benefits of smart property.

The first one is certainly efficiency.

And this might be particularly useful for small transactions.

If you're selling, for example, your smartphone, your laptop, or

something like that, not something as valuable as a car.

Then if there is a dispute, you're very unlikely to actually litigate that.

And so if you have a purely technological enforcement mechanism that gives you

something that is a stronger since of security than simply

shipping goods to someone over the internet and hoping for

payment back, then that's a little bit of a win.

You also get anonymity and privacy.

Maybe it's important for

you to ship something to someone without actually knowing their identity, and

that's not really possible to do in the centralized intermediated model,

because for any sort of mediation, you need to have people's identities.

And third, this is something we discussed earlier.

The freedom to choose a mediator.

Now, I contrasted with the court system, which is this very sophisticated and

very trusted process that we've all agreed upon, and judges go through very

rigorous evaluation, they have conflict of interest rules to abide by and so on.

So maybe that's not the right comparison.

There are other contexts today, in which, for example, PayPal acts as your mediator.

And they're a private company.

And they have a near monopoly over certain types of payment processing.

And so you're stuck with this mediator that's a private company.

That’s not subject to public oversight or scrutiny, but

at the same time, you’re forced to accept a result of that mediation.

Maybe if we take that situation and introduce this notion of

competition between mediators, then maybe that’s a win.

So these are some possible benefits.

Let's now take a step back, and

let's look at this idea of crypto in the state and what I mean is, the traditional

way of doing things through human institutions and this new technology

mediated cryptographically enforced block chain based way of doing things.

So one way in which people have explained the emergence of the modern state,

really, is that it's a way to scale society

past these small groups where everybody knows and trusts each other.

The curious thing about that is that it's very similar to

the benefits that are touted for the cryptographic way of doing things.

In that you can have these transactions over the internet

where you don't necessarily trust the other person.

So the state and crypto really are delivering a very similar

benefit at the end of the day even though through very,very different mechanisms.

The thing to realize is that dismantling this data is not an option.

And a lot of the discussion around it frames the technological way of

doing things necessarily in opposition with the traditional way of doing things.

A good example of this is, the now it's my property discussion.

Let's say you redefine ownership to be cryptographic control

of activating the car.

Now what happens if you sell your car to someone under these new rules?

And that person, now after having completed the sale,

is still holding onto the title because the buyer doesn't care about this old

fashioned way of doing things.

Now it goes to the court and claims that their car has been stolen.

So unless you have some way of inter operating with the state,

you've not made any progress, because in a democratically elected society people

want these human institutions and they're not okay with dismantling them and

moving to this new model, regardless of what the benefits and disadvantages are.

And so what we should try to do, is to try to make the two work together.

And that, I want to leave you with as the final thought, is where I think is

the really big opportunity for these Bitcoin based decentralization solutions.

First of all, we want to find compelling use-cases for decentralization.

It's simple to say that something will get decentralized simply because

the technology exists.

But that's not how it happens in practice.

You have to have a compelling economic case for it, and in particular,

from a political perspective, there are certain use-cases that one might look for

when a state regulation of some market is particularly inefficient, for

example, or when there is a state abuse of power in certain contexts, or

too much inefficiency.

A good example of something like this actually happening today is in various

countries in Africa, cell phone minutes acting as a replacement for currency.

And this happens because the state mediated system

simply became too laborious to use for most people.

And so a disintermediated, decentralized system can really act as

a hedge against abuses of power in this sort of context.

So we want to look for these compelling use-cases for decentralization.

We want to see how these new, automated cryptographic ways of doing things

can integrate into existing systems, instead of trying to replace them.

And finally, we want to co-opt legal and regulatory practices and

these traditional defenses that we have in society,

instead of saying we're offering an alternative to those things.

And, in fact, if you look at the recent history of Bitcoin itself,

I would argue that the new friendliness of the Bitcoin community with regulators,

is partly a reason for their success, and

from their commercial success that it's enjoyed recently.

So, we've covered a lot of ground in this lecture series.

We started with the cryptographic building blocks and

then some basic underlying concepts of cryptocurrencies and

then built up the technical complexity all the way to the cutting edge.

And we also look at how Bitcoin is a platform for

enabling a variety of other things.

We looked at the community regulation politics, ethical aspects, and so on.

I, for one, am very optimistic about Bitcoin as a technology.

And I think I can say this for the other lecturers as well.

We've all spent a lot of our time studying and researching and

teaching Bitcoin crypto currencies.

I feel that Bitcoin is going to be more and more powerful, the more and

more it gets integrated into society.

And that's what I'm hoping is going to happen in the next years and decades.

In the online accompanying notes to this lecture series we have

a variety of information for you.

We have where to find assignments.

How to get more involved in the community, in development, in research, and so

on, and I hope you make use of these.

Thank you.

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