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04/29/14 | Uncategorized

#TechTuesday: The Fifth Protocol

This week we explore cryptocurrencies.

“Wait a minute… Make up your mind. This Snow Crash thing—is it a virus, a drug, or a religion?”

Juanita shrugs. “What’s the difference?”

– Snow Crash

Cryptocurrencies will create a fifth protocol layer powering the next generation of the Internet.

Humans don’t *need* math-based cryptocurrencies when dealing with other humans. We walk slowly, talk slowly, and buy big things. Credit cards, cash, wires, checks – the world seems fine.

Machines, on the other hand, are far chattier and quicker to exchange information. The Four Layers of the Internet Protocol Suite are constantly communicating. The Link Layer puts packets on a wire. The Internet Layer routes them across networks. The Transport Layer persists communication across a given conversation. And the Application Layer delivers entire documents and applications.

This chatty, anonymous network treats resources as “too cheap to meter.” It’s a giant grid that transfers data but doesn’t transfer value. DDoS attacks, email spam, and flooded VPNs result. Names and identities are controlled by overlords – ICANN, DNS Servers, Facebook, Twitter, and Certificate “Authorities.”

Where’s the protocol layer for exchanging value, not just data? Where’s the distributed, anonymous, permission-less system for chatty machines to allocate their scarce resources? Where is the “virtual money” to create this “virtual economy?”

Cryptocurrencies

Cryptocurrencies like Bitcoin are already trustless – any machine can accept it from any other, securely. They are (nearly) free. They are global – no central bank required, and any machine can speak the language. And they’re one to two steps from being quick, anonymous, and capable of authentication.

Suppose we had a QuickCoin, which cleared transactions nearly instantly, anonymously, and for infinitesimal mining fees. It could use the Bitcoin blockchain for security or for easy trading in and out. SMTP would demand QuickCoin to weed out spam. Routers would exchange QuickCoin to shut down DDoS attacks. Tor Gateways would demand Quickcoin to anonymously route traffic. Machines would bypass centralized DNS and OAuth servers, using Coins to establish ownership.

Why stop at one Coin? Let’s posit a dozen new Appcoins. Using application-specific coins rewards the open-source developers with a pre-mined quantity. A TorCoin can be paid to its developers and gateways and by Tor users, achieving consensus via proof-of-bandwidth. We can allocate any scarce network resource this way – i.e., BoxCoin for Storage, CacheCoin for Caching, etc.

Lets move on to other networks. Can a completely distributed grid of small generators trade power with each other, using a decentralized and trustless cryptocurrency? Can a traffic jam of self-driving cars clear itself as the computerized vehicles bid for right of way? Can a mass of people crossing a street take priority over a single car waiting at the traffic light, as their phones vote, trustlessly and reliably, for their presence? Can we efficiently route networks of assets like water and power, and liabilities like pollutants and sewage, across a distributed grid? Can we trade stocks and financial assets with no brokers, custodians, or agents?

Cryptocurrencies are electronic cash, and as such, will be used by electronic agents to exchange value, verify contracts, and track identity and reputation. All of a sudden, the computing resources spent by the Bitcoin miners doesn’t seem wasted – it seems efficient, given that it can be used for congestion control and routing of other network resources.

A Fifth Protocol

Cryptocurrencies are an emergent property of the Internet – almost a fifth protocol in the Internet suite. If Satoshi Nakomoto did not exist, it would still be necessary to invent them. Someday, they will be used by the machines in our network, on our desk, in our garage, and in our pocket to exchange value and achieve consensus at blinding speeds, anonymously, and at minimal cost.

When that day arrives, large distributed networks that we rely upon will change. Starting with the Internet, they will become de-centralized market economies, far more intelligent than they are today. Just as human brains co-evolved with our ability to trade and exchange goods with people who weren’t related to us, so the network will become more intelligent as it learns to trade currency and contracts with unrelated nodes.

Eventually, there will be no functioning Internet or Internet of Things at the protocol layer without deep cryptocurrency integration. Turning off this fifth protocol will be impossible. Cryptocurrencies also remain mediums of exchange and stores of value. Nation states that are used to imposing capital controls will face a quandary – ban cryptocurrencies, and live in the technology dustbin. Enable them, and this virus, this religion, this protocol – will enable the free flow of money and language, along with packets, around the globe.

This post originally appeared on StartupBoy.

 

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