Blockchains Could be Vital to National Security

Last year Tokyo hosted a meeting of the International Standards Organization, including a session on blockchain technology to examine ideas around standards for blockchain and distributed ledgers.

A member of the Russian delegation, who is part of their intelligence apparatus at the FSB, apparently said “the Internet belonged to the US, the Blockchain will belong to Russia.” In fact three of the four Russian delegates were FSB agents!

By contrast, Chinese attendees were from the Finance Ministry, and American attendees were representing major technology companies, reportedly IBM and Microsoft among others.

Let’s unpack this a bit. The Internet grew out of a US military funded program, Arpanet, and the US has been the dominant player in Internet technology due to the strength of its research community and its technology companies in particular.

As we wrote in our most recent blog (, blockchain has the potential to significantly impact the Internet’s development, as a key Web 3.0 technology.

Blockchain and the first cryptocurrency, Bitcoin, were developed by an unknown person or persons, with pen name Satoshi Nakamoto. Based on email timestamps, the location may have been New York or London, so American or British citizenship for Bitcoin’s inventor seem likely, but that is speculation.

More to the point, the US is the center of blockchain funding and development activity, while China in particular has been playing a major role in mining and cryptocurrency development.

There are many Russian and Eastern European developers and ICO promoters in the community as well. The Baltic nations bordering Russia and the Russian diaspora community have been particularly active.

The second most valuable cryptocurrency after Bitcoin is Ethereum, which was invented by a Russian-Canadian, Vitalik Buterin. Buterin famously met with Russian President Vladimir Butin in 2017. Putin is himself of course a former intelligence agent.

The Russians reportedly want to influence the cryptographic standards around blockchain. This immediately raises fears of a backdoor accessible to Russian intelligence. Russia is also considering the idea of a cryptocurrency as a way to get around sanctions imposed by the American and European governments.

The Russian government has a number of blockchain projects. The government-run Sberbank had initial implementation of a document storage blockchain late last year. There is draft regulation around cryptocurrency working its way through the Russian parliament. President Putin has said that Russia cannot afford to fall behind in blockchain technology.

Given the broad array of applications being developed for cryptocurrencies, including money transfer, asset registration, identity, voting, data security, and supply chain management among others, national governments have critical interests in the technology.

China has been cracking down on ICOs and mining, but it is clear they think blockchain is important and they want to be in control. Most of their government concerns and interest appear to be centered around the potential in finance, such as examining the possibility of a national cryptocurrency (cryptoYuan).

China would like to wriggle free from the dollar standard that dominates trade and their currency reserves. They have joined the SDR (foreign reserve assets of the IMF) and have been building their stocks of gold as two alternatives to the dollar.

China’s biggest international initiative is around a new ‘Silk Road’, the One Belt, One Road initiative for infrastructure development across EurAsia and into the Middle East and Africa. One could imagine a trading currency in conjunction with this, a “SilkRoadCoin”. In fact, the government-run Belt and Development Center has just announced an agreement with Matrix AI as blockchain partner. Matrix AI is developing a blockchain that will support AI-based consensus mechanisms and intelligent contracts.

China’s One Belt One Road Initiative, actually has six land corridors and a maritime corridor. (Image credit: CC 4.0, author: Lommes)

The American military is taking interest in blockchain technology. DARPA believes that blockchain may be useful as a cybersecurity shield. The US Navy has a manufacturing related application around the concept of Digital Thread for secure registration of data across the supply chain.

In fact the latest National Defense Authorization Act requires the Pentagon to assess the potential of blockchain for military deployment and to report to Congress their findings, beginning this month for an initial report.

What is clear, is that blockchain and distributed ledger technology have the potential to be of major significance in national security and development for the world’s leading nations.

We encourage the US government to increase engagement with blockchain and distributed ledger technology. This can include funding research in universities, pilot projects with industry across various government agencies including the military and intelligence communities, the Federal Reserve, and the Department of Energy, NOAA and NASA, in particular.

Also the federal government should pursue standards development under the auspices of the NIST and together with ISO. Individual state governments are also promising laboratories for projects around identity, voting, and title registration.

Information has always been key to warfare. But there is little doubt that warfare is increasingly moving toward a battlefield within the information sphere itself. These are wars directed against the civilian population; these are wars for peoples’ minds. Blockchain technologies could play a significant role in these present and future battles, both defensively and offensively.

References :


US Navy

2018 National Defense Authorization Act



Why Buffett Doesn’t “Get” Bitcoin”

(Republishing this post from late last year, since Buffett just called Bitcoin ‘rat poison squared’)

Warren Buffett is the most famous name in stock investing, the second richest person in the world, and a leading expert in valuing companies and securities. He also is a big investor in banks, including Wells Fargo, Goldman Sachs, and Bank of America. So he has a lot of vested interest in the current monetary and financial system.

He recently said that bitcoin is in a bubble, which may well be true. He also said “You can’t value bitcoin because it’s not a value-producing asset”. This is not correct. Bitcoin can be valued, but not like a security or a company, which is what Buffet does so well.

As we have written elsewhere, bitcoin is a currency, money, a cryptocurrency. Some will say it is a digital asset, like a digital gold. We say it is Money 3.0 (fiat is Money 2.0, gold and silver coins were Money 1.0).

Do these have value? They are just paper with symbols, special printing and special threads and even holograms.

$$ €€ ££ ¥¥

Yes, money is intended to be a store of value, a medium of exchange, a unit of account.

Bitcoin is a unit of account in a secure, distributed ledger. It has been a much better store of value than fiat currency in recent years.

In fact in 2014, Buffet said “It’s a mirage”. The value of a single bitcoin has increased 16 times since late October, 2014 to about $5800 today. (currently $9300)

Money is valued by what you can exchange it for, its utility. It is valued against other currencies. Bitcoin is valued the same way, and by the vitality of the bitcoin economy.

Within the cryptocurrency world, bitcoin is the reference benchmark, just as the US dollar is globally. Bitcoin gets valued every day, every minute against all major fiat currencies and against hundreds of cryptocurrencies. Like those currencies it has an economy and a turnover (or velocity) of the currency.

One thing we don’t normally think of with respect to cryptocurrencies is interest, or dividends. It is possible to lend out bitcoin for interest, as one can do with dollars, euros, or even gold. But bitcoin has effectively thrown off two special dividens this year, in the form of forks of the bitcoin blockchain. These are known as Bitcoin Cash (forked in August) and Bitcoin Gold (forked in October). Collectively, those two are worth close to $500, representing over 8% dividend rate to date during 2017, based on the current bitcoin price.

And for someone who bought at the beginning of the year, when bitcoin was under $1000, the dividend is around 50%. Not shabby, and a reasonable reward for the volatility.

Bitcoin is a technology for internet money, network money independent of any government, and can be a bit hard to fathom for the newcomer. Buffett has always said he does not understand technology.

Bitcoin’s future value? It all depends on how the economy around bitcoin develops, but it will be quite an adventure.

Is Blockchain the Key to Web 3.0?

Web 3.0 has been around as a meme since early in the century. This writer was formerly with the Sun Microsystems Education business and recalls meetings we sponsored over a decade ago, that were attended by academic computer scientists promoting the concept.

And yet it has been slow to take off, and it remains a somewhat fuzzy catch-all concept. So much so that there is no Wikipedia entry! Some people claim Wikipedia has deliberately censored the term “Web 3.0”.

Wikipedia does have a section within the Semantic Web article. And this notes: “Web 3.0 has started to emerge as a movement away from the centralization of services like search, social media and chat applications that are dependent on a single organization to function.”

To my ear, this matches the desires of many in the cryptocurrency community for decentralized services built on blockchain that challenge the centralization of Facebook and others.

Web 3.0 was initially discussed in conjunction with Semantic Web and with agents. John Markoff of the New York Times supposedly coined the phrase.

Tim Berners-Lee has promoted the Semantic Web, where context and meaning are attached to data, and data structures have rich linkages in support of better data integration.

Cambridge Analytica has famously exploited these kinds of linkages in the Facebook environment to influence the U.S. presidential election and the Brexit referendum.

The general idea around Web 3.0 has been the semantic web, along with data mining, AI, and natural language providing a more productive web environment for users, with greater inferencing and intelligence.

Here’s a very simple view of how it relates to Web 1.0 and 2.0:

Web 1.0:  Read-oriented, static

Web 2.0:  Read and write, dynamic, interactive

Web 3.0: Read and write and execute, composite services, integration, meaning and agency, and greater decentralization

Now we see that blockchain and cryptocurrency are beginning to have an impact on the definition of Web 3.0.

Why? Well let us consider some major issues:

  • Net neutrality is dead in the U.S. thanks to the state-corporatist position of the FCC
  • The web is increasingly centralized on platforms such as Facebook, Google, Twitter who derive almost all of the financial benefit from data that users provide
  • Cryptocurrencies and blockchain are proving that decentralization can work in a secure fashion, at least for some significant applications

Cryptocurrencies and blockchains provide the opportunity to restore the Web toward its original vision of a decentralized resource. They provide the opportunity to return control and monetization of data to users, instead of it being concentrated in relatively few large corporations.


Note that the Semantic Web stack shown at right includes trust and cryptography. Well blockchains and cryptocurrencies are built on cryptography and are all about distributed trust. (Sometimes they are called ‘trustless’ but in fact trust resides in the protocols and in the network of blockchain miners, and the developer and user communities more generally).

You can find a presentation here by Ben Gardner on Semantic Blockchains:

Blockchains add trust and proof of work to the Semantic Web’s unambiguous data with connections. Ricardian contracts or smart contracts can be implemented.

The Semantic Web template is linked data plus directed graphs built with RDF triples.

And, I ran across this interesting paper:

“A more pragmatic Web 3.0: Linked Blockchain Data”, Hector E. Ugarte R., 2017.

The author writes “Linked Data is proclaimed as the Semantic Web done right…an incomplete dream so far, but a homogeneous revolutionary platform as a network of Blockchains could be the solution..designed to interconnect data and meaning, thus allow (sic) reasoning.”

The Semantic Web is all about linked data with defined attributes and relationships, e.g. graph structures such as with RDF triples as the data model. One can adapt blockchains, including linked blockchains, to this purpose and add smart contracts to provide reasoning.

A Semantic Blockchain is defined in his paper as “the use of Semantic web standards on Blockchain-based systems. The standards promote common data formats and exchange protocols on the Blockchain…Semantic Blockchain is the representation of data stored on the distributed ledger using Linked Data.”

More broadly, Blockchains allow the ability to build a new Web from the ground up, with name services more fully decentralized and file and compute services layered on top. Identity and services can also be fully decentralized. Security is inherently provided by the blockchain’s peer-to-peer decentralized mechanism.

We believe that blockchain and cryptocurrencies will accelerate the development of Web 3.0 while also helping to refine its definition.

Bitcoin Forks are So 2017

“Let a Hundred Flowers Bloom” Mao Tse Tung 百花齐放

Well there are 20 flowers in the Bitcoin ecosystem. And over 1400 in the cryptocurrency ecosystem at present.

Salad forks, dinner forks, shrimp forks, dessert forks, tuning forks, pitchforks… so many kinds of forks..


Image credit: Ellen Levy Finch, CC BY-SA 4.0

Why fork a new cryptocoin? One can fork for technological improvements, one can fork to make money, and one can fork for ego, for the pride of “ownership”.

There were several software forks that occurred mainly in the 2015-2016 timeframe and known as XT, Classic, and Unlimited. Including Unlimited, they have had limited impact to say the least.

But let us look at hard forks, or coin splits, that have been so prevalent since August of last year.

Technology enhancements promoted in these forks are across several main categories:

  • Bigger blocks for scaling, shorter block times
  • Off chain or side chain transactions (Segwit for signature, more generally Lightning, etc.) for scaling
  • Different hashing algorithms for easier mining
  • More anonymity, security
  • Enhanced programmability, smart contracts
  • Increased money supply

How many hard forks and coin splits has Bitcoin had so far? In total there have been 20 such forks to date.

  • August 2017 – 2
  • October – 1
  • November – 1 and Segwit2x proposed, withdrawn
  • December – 14
  • January 2018 – 2 so far

This Cambrian Explosion of bitcoin forks is in large part a result of the increased transaction costs and delayed confirmation times with original BTC, Bitcoin Core. But it is also a sign of a healthy and growing blockchain universe. If cryptocurrencies were not seeing increased success, the rate of innovation, and the number of forks, would be smaller.

Here is a list of the most significant ones, all in the second half of 2017, and with current pricing, key features, and URL:

August – Bitcoin Cash, BCH, $2413, 8 MB blocks,

October – Bitcoin Gold, BTG, $323, equihash,

November – Bitcoin Diamond, BTCD, $22, 10 times number coins , X13 hash,

December – Super Bitcoin, SBTP, $108, lightning and zero knowledge proofs and smart contracts,

If you owned bitcoin prior to block 478558, you in principle own all 20 of the forked coins, including the most valuable one Bitcoin Cash, and mostly in a one-one ratio. Putting your hands on them is trickier.

That is a question as to what support particular private wallets or public exchanges provide. There are guides on the internet and YouTube as to how to retrieve although it seems more trouble and risk than justified in most cases. (This writer has managed to get some BCH and BTG separated out, but it is a somewhat nerve-wracking experience.)

For now it seems we have reached a point of exhaustion for the principal good ideas and the newest forks are more likely to be dodgy, or frauds, or duplicating others, or of limited potential.

Here is an important consideration: while increasing the transaction rate and lowering fees will bring greater utility to users, this does not contribute to the store of value or digital gold aspect. Bitcoin, the original Bitcoin core, is most valuable today for its store of value attribute, much more so than for its medium of exchange attribute.

Now it will be a race between development teams and marketing teams to see which of these forks/coins other than BCH and maybe BTG will have relevance and value going forward, and what value any of them can sustain.

Information Economy 2.0

Bitcoin is a Trillion $ Economy

We often hear that we live in an Information Economy. We have an information-based economy, but we don’t have a pure form of “money as information”. Instead we have a hybrid of digital money and paper money with encoded information such as denomination and serial numbers and engraving details.

Money (Money 2.0, ‘paper’ fiat money) today is mostly information, but the modern monetary system was designed long before the Information Economy. Even so, money is mostly held in digital form, on the ledgers of banks, and as monetary reserves at central banks. Physical currency in circulation is a small fraction of the money supply. So today it is a hybrid. One can argue it is not fully suited to our rapidly evolving information economy.

Steven Mnuchin, Louise Linton, Leonard Olijar

Steven Mnuchin, Treasury Secretary, and Wife Posing as Bond Villains, while Enjoying Dollar Bills at the Bureau of Engraving, While Dreaming of Tax Cuts for Multimillionaires

Bitcoin and cryptocurrencies collectively are Money 3.0, a form of money that is entirely digital, entirely information. Even if you have a physical bitcoin wallet or paper wallet, the money does not reside in the wallet, only the keys! The keys release bitcoin money held on the blockchain.

Trying to separate the blockchain from bitcoin or cryptocurrency is like trying to separate the economy from information in the information economy. The blockchain holds the ledger information, the cryptocurrency powers the economy. The term ‘blockchain’ does not appear even once in Satoshi Nakamoto’s seminal paper for bitcoin and cryptocurrency.  See this podcast discussing Nakamoto’s vision and the Nakamoto consensus algorithm:

Today, market participants mostly look at the market cap of bitcoin and other cryptocurrencies, as if they were some sort of equity shares. But actually, they are currencies, or perhaps digital gold, and what is somewhat strangely called ‘market cap’ is actually the money supply for that currency. It is simply the price of bitcoin, times the aggregate number of bitcoins in circulation. Here, in circulation means securely committed to the blockchain through a cryptographic hashing algorithm.

The size of the economy for bitcoin is related not only to the money supply, but also how rapidly that turns over. In macroeconomics this is called monetary velocity. In fact GDP = M2*V where the GDP is equal to the M2 money supply and V is the velocity of that money. It reflects how fast money moves through the system per year.

In the US the GDP is about $19.5 Trillion, the M2 money supply is about $13.7 Trillion and the velocity is about V = 1.42. That is, on average, the money supply turns over 1.42 times per year. In fact the Federal Reserve has been worried that the velocity is too low. It has been dropping steadily, which is a symptom of stagnation.


Velocity of M2 Money: Federal Reserve of St. Louis

For bitcoin the velocity is much higher. It turns over about 9 times a year, V = 9. Today the money supply or market cap for bitcoin is about $121 billion. With a velocity of 9, that translates to a bitcoin economy that is over $1 trillion. It amounts to around 5% of US GDP and more than the GDP of the United Kingdom. Bitcoin is not usually described in such terms, but this is a measure of the vibrancy of the economy for the cryptocurrency.

Many cryptocurrencies have even higher velocities. Bitcoin Cash, which has only been in existence a few months, has a velocity of 26 and a total economy of over $500 billion, similar to the GDP of Sweden. The world economy of cryptocurrencies exceeds $2 trillion. This is more than the GDP of Italy.

Bitcoin and other cryptocurrencies are enabling the Information Economy 2.0, where whole new forms of efficient exchange of value can be implemented with fewer or even no middlemen and at lower cost.

Bitcoin: Like Gold or Like a Currency?

Valuing the various bitcoin forks

Breaking News: Segwit2x fork has been postponed indefinitely


Some say bitcoin acts more as digital gold then as a currency, more as a store of value than as a medium of exchange. It is very interesting to look at the various bitcoin forks with this question in mind.

Everything in life and in finance is a tradeoff. Gold works well as a long term store of value, but not so well as a medium of exchange. The US dollar works very well as a medium of exchange, but not well as a store of value in the long term. Even the Federal Reserve and other central banks hold gold as a reserve asset. It represents the bottom of the inverted money pyramid.

Now bitcoin is from its beginning more like gold in the sense that it is an asset with limited, predetermined supply. Dollars and other fiat currencies are debt-based since they come into existence when new loans are made, and their continual supply growth is rather assured; usually inflation occurs to varying degrees. See the Money 3.0 article for a longer discussion of this point.

Image: Silver ice cream fork, De Young Museum

There are 4 versions of bitcoin, 3 currently, and one possible fork. That was scheduled later this month as Bitcoin 2x (or B2X) a possible fork due to partial adoption of Segwit 2x, but it has now been indefinitely postponed due to lack of support.

As of today, approximate values for the 3 existing forks are:

Bitcoin BTC $7200

Bitcoin Cash BCH $630

Bitcoin Gold BTG $140

And Bitcoin 2x B2X had future values around $1600 before plunging on the announcement that it is now postponed.

All these cryptocurrencies have a supply of around 16.6 million accounting units, and all are limited to 21 million as the ultimate supply. And yet their prices are very different. Bitcoin has a first mover advantage but is that the whole story? How does one value BCH and BTG relative to BTC? In principle the various versions have both asset and currency characteristics.

Each of the alternatives to the original bitcoin is designed to facilitate faster, less expensive transactions. And this makes it more like a currency than a reserve asset.

BTC can be looked at like a large denomination bill, not as easily spent, although it is much easier to break into change than large bills are. Bitcoin Cash differs from BTC because it has a much larger blocksize, 8 MB. Bitcoin Gold differs in adopting a GPU-friendly mining algorithm, Equihash, rather than SHA-256 used by the others, which requires custom ASICs.

Bitcoin 2x adopts Segwit2x with a larger 2 MB block size.

Each of these three alternative coins is designed so that the system can process transactions more quickly and at lower cost, and so, along the spectrum of digital gold to currency, each is closer to a currency than the original BTC.

And that, somewhat counter-intuitively, is why original BTC retains a higher value.

In particular, the Bitcoin Gold is actually least like gold of all of these, since it will have the most accessible and thus fastest mining algorithm, and presumably could end up with the lowest transaction fees.


Image credit:

The respective values of the 3 or 4 types of bitcoin reflect this view. Bitcoin is the “slowest” and has the lowest velocity (slowest turnover) and highest value. Bitcoin Gold appears to be the most rapid and with lowest transaction fees, and thus has the lowest value.

Bitcoin Cash and a possible future Bitcoin 2x are between the two extremes. Since Bitcoin Cash has much larger blocks it has substantial miner support. Bitcoin 2x is favored by the user community that wants to facilitate more efficient transactions.

If you have a gold coin and some fiat currency, which do you spend first? You bought the gold coin in expectation that it would preserve its value and increase in terms of the number of currency units per coin.

So HODL (hold on for dear life) BTC, and spend or convert BTG and BCH seems the way to go for now. As always one should monitor how the different cryptocurrencies are developing in comparison to each other, in this very dynamic and volatile marketplace.

Evolutionary Forks and Dividends

What is a fork?

It is early days in evolutionary terms for cryptocurrency. Bitcoin has not been around even a decade. Ethereum has only been here for a few years. The respective economies of these and other cryptocurrencies have been growing at triple digit percentage rates.

A given blockchain can be thought of as a continuing line of a particular species. A new blockchain, e.g. Ethereum with new attributes is a new species of cryptocurrency. A fork in a blockchain, such as the recent Bitcoin Cash, is also a new species, but perhaps one can say that it belongs to the same genus.

Mayr’s concept of species is that of representatives of the same breeding population. They are in some sense on the same continual chain.

A fork is an evolutionary branch in response to environmental pressure. The pressure arises due to the developing needs of the ecosystem for cryptocurrencies overall and for individual cryptocurrencies.



The pressure that gives rise to evolution in the cryptocurrency ecosystem arises from the need to scale cryptocurrency to higher transaction rates and to more diverse use cases. For example, there is the very general use case of smart contracts, that led to the creation of Ethereum.

How new currencies are created or are forked results from the technological requirements and how those are interpreted and implemented by particular members of the development community. This is a political arena since miners, developers, exchanges, merchants, and other groups have different interests.

We have just had the Bitcoin Cash fork and are now facing possible forks for Bitcoin Gold and Segwit2x (Segwit was adopted without a fork in August).

It is difficult to determine which fork or species will be the most successful in the long run; but the original or main branch can have an advantage. Overall forks can be seen as strengthening the ecosystem as a whole since total value seems to rise after forks. After the Bitcoin Cash (BCH) fork the original Bitcoin (BTC) increased in value, and one could also collect the BCH on a one per one BTC held basis as a dividend. 

More generally, this has been borne out by the continually increasing market capitalization of the set of cryptocurrencies, currently having reached around $160 billion (roughly a Buffet plus a Gates).

For investors in cryptocurrency one can view forks as special dividends. Those who held Bitcoin through the Bitcoin Cash fork received a dividend of several hundred dollars per BTC. Sometimes numbered prints or copies are valuable as well.


Above is not our view, but that of @BitcoinWrld

What you do (hold, sell all, sell half) with your dividends is up to you and your views on individual forks; we make no recommendations here. But the dividends are there to receive, along with possible capital appreciation as the cryptocurrency economy continues to grow rapidly.