The New Stellar Consensus Protocol Could Permit Faster and Cheaper Transactions

Stanford professor David Mazières thinks he has a faster, more flexible and more secure alternative to Bitcoin, MIT Technology Review reports.

Two independent reviewers, from Stanford and Cornell universities, agree that the new technology could make digital payments and other transactions cheaper, safer and easier.

Alternative blockchains are often dismissed as worthless “me-too” copycats or scamcoins, which, unfortunately, has some element of truth. But Mazières’ approach deserves a place among the serious alternatives to Bitcoin that have been proposed, alongside Ethereum and Ripple.

Public digital currency ledgers rely on distributed consensus protocols to propagate valid transactions. In the Bitcoin network, independent nodes (miners) work together without preferential trust relations. In other words, each node implicitly trusts every other node.

In the new protocol, called Stellar Consensus Protocol (SCP), each node explicitly selects a set of publicly trusted peers, and forwards only the transactions that have been validated by a certain majority of its trusted partners.

If correctly implemented with a critical mass of nodes with overlapping trust circles, valid transactions propagate in ripples through the network and eventually achieve systemwide consensus.

“Bitcoin is good, but we wanted to start from scratch,” says Mazières. He is persuaded that the SCP can overcome important limitations of Bitcoin, such as the long confirmation delays and the fact that mining is now a very energy-intensive process. The new system would be able to reliably verify transactions much more quickly and with less energy, and provide enhanced scalability.

Mazières’ protocol has been adopted by Stellar (hence the name SCP), an open-source protocol for value exchange, launched in 2014 by Ripple Labs founder Jed McCaleb (who also founded the infamous Mt.Gox exchange), and backed, among others, by payment processor Stripe. Besides bitcoin payments, Stellar supports fiat currency payments, for example in euros or U.S. dollars, via Stellar exchanges and gateways.

Initially, Stellar used the Ripple protocol, which also requires nodes to identify a set of trusted nodes to achieve a rippling effect across overlapping trust circles. But problems with the original Ripple protocol prompted Stellar to take steps to build a new consensus protocol, which resulted in the SCP.

Mazières is taking leave from Stanford to work four days a week on the project as Stellar’s chief scientist.

The SCP whitepaper, titled “The Stellar Consensus Protocol: A Federated Model for Internet-Level Consensus,” is available online on the Stellar website. The whitepaper is a technical paper not easy to understand for casual readers, and therefore Stellar has provided a readable summary.

The SCP implements “Federated Byzantine Agreement,” a new approach to achieving consensus in a real-world network that includes faulty “Byzantine” nodes with technical errors or malicious intent. To tolerate Byzantine failures, SCP is designed not to require unanimous consent from the complete set of nodes for the system to reach agreement, and to tolerate nodes that lie or send incorrect messages.

In the SCP, individual nodes decide which other participants they trust for information, and partially validate transactions based on individual “quorum slices.” The systemwide quorums for valid transactions result from the individual quorum decisions by individual nodes.

According to Stellar, the SCP is the first provably safe consensus mechanism that simultaneously enjoys four key properties: decentralized control, low latency, flexible trust and asymptotic security. The SCP achieves optimal resilience against ill-behaved participants, allowing an organic growth model similar to that of the Internet for the Stellar network.

Image via stellar.org.

April 17, 2015 at 04:56PM

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Newly Declared European Microstate Liberland Plans to Create Its Own Digital Currency

A group of Czech citizens has declared a new state, the Free Republic of Liberland, in a tiny 6-square-kilometer territory along the Danube River between Croatia and the Republic of Serbia. The Liberland territory is not claimed by either of these two states, which according to the group permits it to declare a new “microstate” in compliance with international law.

After the Yugoslav Wars, some borderland territories have been disputed, but this area has remained unclaimed. Liberland was created entirely in accordance with international law because it is based on the no man’s land which was claimed neither by Serbia or Croatia in the process of demarcation, InSerbia News reports.

On April 13, 2015 a Preparatory Committee declared the new state on the spot and raised a flag to claim the land. Vít Jedlička, who was elected by the committee as president of the republic, is preparing a constitution as well as diplomatic notes, to be sent to the two neighboring states and to the United Nations, and later to other countries, to inform them about the establishment of the new state of Liberland.

Creating a new micronation and getting it formally recognized is a daunting task, but Jedlička is persuaded that the initiative will succeed.

“The only thing that could stop us is an army,” he told Bitcoin Magazine. He added that the process to claim sovereign nation status recognized by the international community has started.

Jedlička is associated with the Czech Party of Free Citizens, a libertarian political party in the Czech Republic. The party is against too much government intervention in the economy and in the personal lives of citizens. Its members are free-market advocates and oppose the centralization of political power. In accordance with libertarian politics, the motto of Liberland is “To Live and Let Live.”

While BBC News questions whether Liberland is actually just a publicity stunt, the microstate is accepting applications for citizenship from people everywhere – provided they don’t have a “communist, Nazi or other extremist past.”

“The objective of the founders of the new state is to build a country where honest people can prosper without being oppressed by governments making their lives unpleasant through the burden of unnecessary restrictions and taxes,” states the Liberland website. “One of the reasons for founding Liberland is the ever expanding influence of interest groups on the functioning of existing states and the consequent worsening of living conditions of people. The founders are inspired by countries such as Monaco, Liechtenstein or Hong Kong.”

This sounds very appealing to libertarians everywhere, but the challenge is big. It seems likely that the powers that be could easily crush the new microstate as soon as they notice it. Perhaps the only thing that could protect tiny Liberland in its delicate launch phase is a massive display of popular interest. And, in fact, it appears that Liberland is going viral on the Internet, with tens of thousands of signups on its Forum and Facebook page and a lot of applications for citizenship from all over the world in only a couple of days. It appears that many people are ready to try alternatives to traditional politics.

The idea that Liberland could adopt a cryptocurrency, and make it official, is trending on the Liberland Forum and Reddit. Jedlička briefly discussed the idea with the Czech press, and a participant in the Reddit discussion provided a translation. Jedlička answered the question “So do you want to create your own currency?” by stating that Liberland is planning to create its own cryptocurrency (a digital currency like Bitcoin), but on the territory of Liberland it will be possible to use any currency.

Jedlička confirmed to Bitcoin Magazine that Liberland will not have an official currency, but accept all currencies, including bitcoin and other digital currencies. There are plans to establish a Liberland banking system and, according to Jedlička, some banks have already expressed interest.

Perhaps the tiny libertarian dreamland in the Balkans doesn’t have much of a chance in the harsh reality of real politics, but the adoption of bitcoin as one of the currencies accepted by a sovereign state could have a huge impact.

Image via liberland.org.

April 16, 2015 at 05:24PM

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MIT Launches Digital Currency Policy and Standards Research Initiative

MIT Media Lab has announced the launch of Digital Currency Initiative, a three-pronged program aimed at increasing awareness of the technology on campus and abroad while providing research to promote policy and standards initiatives.

The news was first detailed in a post penned by former White House senior advisor and Digital Currency Initiative director Brian Forde, who today officially joined the university-run research laboratory.

Forde previously worked with the administration of current US president Barack Obama to help the government leverage emerging technologies.

Media Lab director Joi Ito, who earlier this week suggested an imminent announcement regarding the future of bitcoin at MIT, expressed his enthusiasm at the appointment while praising digital currencies for their disruptive potential.

Ito said:

“Brian’s experience mainstreaming emerging technologies from the rural mountains of Nicaragua to the White House will be invaluable as he tackles the challenges of digital currency – one of the most promising emerging technologies for the next 10 years.”

In a separate Medium post, Forde went on to detail how the Digital Currency Initiative will seek to address questions regarding the technology's security, scalability and privacy, while convening governments and nonprofits "to research and test concepts" related to its use.

MITMIT Bitcoin Project

April 15, 2015 at 07:23PM

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