As The Blockchain Revolution Moves Offshore, What Are The Challenges?


Blockchain has been widely touted as the most significant technology of the last 20 years, with the potential to revolutionise the financial services industry across a range of applications, from crypto-currencies to smart contracts, to fully automated clearing and settlements systems for payments.

Crucially, blockchain networks can operate securely without the need for any central administrator, and the technology can work for almost every type of transaction. The technology is particularly appealing as a possible replacement for existing processes, which are largely manual, labour-intensive and paper-based but require sensitive information to be transferred and stored in a secure manner, for example, know-your-customer (KYC) processes for identifying new clients. Its potential uses are almost limitless.

Offshore financial centres have a large stake here and are well placed to become attractive destinations for technology entrepreneurs looking for a neutral jurisdiction for their global operations. As the Cayman Islands, Bermuda, the BVI and other offshore jurisdictions position themselves as financial technology (FinTech) hubs, there are certain regulatory risks and challenges that each jurisdiction must overcome as the new era of blockchain-based financial services gains traction.

Risks and Challenges

Financial and banking stability alongside consumer protection are the key objectives for all regulatory authorities, but, to date, many offshore authorities have issued little in the way of regulatory guidance or control principles around blockchain. Some of the main challenges facing offshore centres are:

1) Responsibility

Blockchain technology is, by its nature, a shared system, which leads to questions about which activities should be regulated, how activities should be regulated and by whom they should be regulated. As a result, organisations that make use of it will have to pay careful attention to allocating responsibilities appropriately given the absence of a central point of authority.

There are also implications where organisations engage third party service providers. Sufficient oversight of the providers’ activities will be required to fulfil regulatory obligations.

These concerns can be allayed in part by using a ‘permissioned ledger’ and putting in place a governance structure among participants to deliver proper notification to customers through an agreed mechanism. The blockchain platform could also agree a set of rules and policies to be followed by all participants and then share these with customers and regulators.

2) Security Resilience 

The strength of the security afforded by a particular form of encryption is continually under challenge. Blockchain networks will need to establish mechanisms to ensure that appropriate levels of encryption are maintained and that these include responsibilities for the safe custody of encryption keys.

Blockchain technology does, however, bring unrivalled security benefits. Hacking attacks that commonly impact large centralised intermediaries are almost impossible on the blockchain. If someone wanted to hack into a particular block, a hacker would not only need to hack into that specific block, but all of the preceding blocks going back the entire history of that chain, and they would need to do it on every ledger in the network, simultaneously.

3)   Data Protection

One of the major benefits of blockchain technology is its immutability, meaning that data stored on the chain cannot be altered or deleted. This could also create a problem, because in theory there could be no ‘right to be forgotten’ in the context of blockchain. However, personal data can be kept off blockchain ledgers altogether by replacing the data with an encrypted reference to the data a ‘hash’. These hashes or digital fingerprints prove that data did exist at a certain date, without the data itself appearing on the chain.

Encryption controls, limiting the accessibility of personal data hashed in the blockchain, is a viable solution for data protection compliance. While encrypted personal data may still qualify as ‘personal data’ under new data protection laws, as long as the holder of the data possesses the encryption key and those keys are only  made available in circumstances dictated by the individual data subject, then it is difficult to see the objection from a data protection perspective.

4)    AML Compliance

Blockchain’s ability to replace paper trails with easily auditable digital trails offers many possibilities in the reduction of financial crime. Anti-money laundering (AML) regulations generally require organisations to keep easily accessible records of customer identities and transactions. To be effective, a blockchain solution would require network adoption by a number of organisations. However, this represents one of the biggest challenges to implementing a blockchain solution in the AML space, as regulated entities are often reluctant to outsource or share their AML responsibilities with third parties, even other regulated entities. How and whether blockchain solutions will change this approach remains to be seen. The potential global economic benefits from added efficiencies inherent in blockchain-based AML solutions would be immeasurable, but at this stage it is unclear to what extent international AML standards will be adapted to embrace the opportunity for change.

A Leading Offshore Role

Given the challenges above, one way for offshore financial centres to take a leading role in the fast moving FinTech sector would be to demonstrate success with an initial, modestly aimed blockchain proposal, perhaps between a number of local banks, in a regulatory “sandbox” or similar structure under the supervision of the regulator. This would provide an opportunity to gain experience and learn from a close evaluation of blockchain technology as a business tool and secure an offshore advantage in what is an increasingly competitive field.

Appleby has a global team of lawyers with experience in this area, monitoring developments not only in the jurisdictions in which we operate, but more widely. This is a global industry and one that is here to stay. If you have any questions regarding the above, or are interested in hearing more about how we can assist, please contact a member of the Technology and Innovation Team.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Mastercard Latest Crypto Patent: Anonymous Third Party Transactions

Did Mastercard invent the blockchain? Interesting patent appears to say that though from a quick read appear to be referring to fiat transactions.

Will there next move be a lawsuit against Satoshi for patent infringement? 

Mastercard Granted Still More Crypto Patents

In its latest crypto patent filings, Mastercard stresses “a need for a technical solution whereby an entity may participate in a transaction where transaction details may be posted publicly to ensure accountability and trust in the data, while still providing anonymity and inability of others to track individual transactions or volume information by transaction party identifying information of both parties of a transaction to satisfy the confidentiality needs of each entity involved in the transaction.”

The more than half-a-century old legacy payments institution based in the United States is a world leader. Tens of thousands of employees. Nearly $13 billion in yearly revenue. It is a staple of Standard & Poor’s component indices. Its principal global business is as an intermediary, trusted third party, between merchant banks, and their derivations, along with credit, prepaid, and debit cards.

Mastercard Latest Crypto Patent: Anonymous Third Party Transactions

United States Patent Application 20180181953, granted yesterday after having been filed back in late December of 2016, reads in abstract

“A method for posting of anonymous directed transaction includes: storing a plurality of entity profiles, each including an entity identifier and a secret value; receiving a transaction request from a first entity, the request including transaction data and a specific entity identifier associated with a second entity; identifying a specific entity profile that includes the specific entity identifier; generating a first hash value via application of one or more hashing algorithms to the transaction data; generating a second hash value via application of one of more hashing algorithms to a combination of the first hash value and the secret value included in the identified specific entity profile; and posting the first hash value and second hash value to a publicly accessible data source.”

Loosely translated, a public blockchain transaction, as it exists in its popular forms with regard to bitcoin core (BTC), just might be a key in holding back more crypto acceptance on a broader scale. Of its many ironies, BTC’s open ledger provides a wealth of information for both consumers and businesses, and aspects of industrial espionage are sure to follow, something giants like Mastercard are keen to avoid at all cost.

Privacy for Mastercard is Different than Privacy in the Crypto World

The cryptocurrency world has continued to tackle the issue of private, cash-like transacting since its inception. Alternatives abound among tokens and alternative coins, and their numbers and intensity are growing at record paces.

Mastercard Latest Crypto Patent: Anonymous Third Party Transactions

For traditional payments companies, avoiding a public distributed ledger is equally growing in importance. They’ve several masters to please, including lawmakers and regulators who wish to grant such transaction access to police. Eliminating peer-to-peer features is also very important, and so third party processors are vital to the company’s plans. A lucrative side business is to sell such information to other companies hoping to exploit its proprietary data for advertising purposes, for example.

Crypto-related patents recently granted to the company include travel and even coupons. They’re yet another ironic turn for a company with well-known hostilities toward the crypto community.

What You Need To Know About Cryptocurrency Wallets

“At their core, cryptocurrencies are built around the principle of a universal, inviolable ledger, one that is made fully public and is constantly being verified by these high-powered computers, each essentially acting independently of the others.” – Paul Vigna

Cryptocurrency Wallets:

The place where you store your coins is called a cryptocurrency wallet. That simply means that you have a software address where coins are stored with a secret key to access them.

The address and key may be stored electronically or via paper as long as you save it and remember where you put it.

A wallet can be online or offline. Online wallets can one of two types – first is a wallet that is accessible at various locations, second is a wallet stored on your PC. The offline wallet can be an equipment- based wallet. This is much the same as a memory card or garbage drive that can be accessed using a USB port.

As cryptocurrency depends on code, the most secure method to protect your wallet is the paper-based option.

Without cryptographic money wallets, coins would be nothing as it’s the main way people embrace advanced currency standards. Cryptocurrency wallets are similar to the wallets that most of us have to carry cash and credit cards. Essentially, these wallets enable people to own cryptocurrency.

What Are The Best Cryptocurrency Wallets?

Just like banks have account names and numbers; cryptographic currencies have addresses to each wallet on the blockchain. That wallet has a public address and a private address.

The public address is where you acquire tokens or altcoins. The private address gives you access to your wallet to send tokens or altcoins.

Types Of Wallets:

*Hardware wallets: Holds your “private keys” offline in what’s called “cold storage”. This mean there is no linkage to the web. This secures your wallet against malignant programmers/programming.

A hardware wallet is set up with what’s known as a “seed expression“. This is a series of words (which are unique to you) that help you regain access to a wallet should you lose or damage it. Setting up a hardware wallet is simple, just connect it to a USB port then download the related programming.

*Desktop wallets: Downloaded and kept on a computer. This type of wallet can often offer high levels of security. That said, if your PC is hacked or infected with a virus it’s highly probable that you will lose your currency.

*Online wallets: Run on the cloud and are accessible from any device. in any location. Online wallets store your private keys on the web and are controlled by a third party. This, unfortunately, makes them defenseless against hackers and theft.

*Paper wallets: Easy to use and have a high level of security. One can also refer to a piece of software that is used to securely generate a pair of keys that you need to print. If you want to withdraw or spend currency you simply exchange your coins from your paper wallet to your product wallet.

Do You Need a Wallet For Each Cryptocurrency?

Yes, it is absolutely necessary.

Each specific Cryptocurrency requires it’s own digital wallet where coins can be stored. There are many types of digital wallets such as desktop wallets, mobile wallets, web-based wallets, etc.

At first, wallets can certainly be difficult to keep track of if you invested in multiple currencies. Why? You require a different wallet for each coin, which is time consuming and requires space.

With the huge demand and awareness now of cryptocurrencies, the wallet process has been refined and simplified. Extensive time and effort has been invested to make the system more effective and efficient.

Factors To Consider When Choosing a Cryptocurrency Wallet

*Compatibility: The wallet should be compatible with different operating systems.

*Security features: Security features are the prominent issue when choosing a cryptocurrency wallet. Therefore, it’s best to seed backup keys and pin codes first.

*Regulate private keys: A cryptocurrency wallet is where you can store and secure your private keys.

There is no such thing as a single wallet that stores every kind of coin. You will have to determine which wallets you need based on which coins you own.

It is extremely important that crypto holders never share their wallet password or private key with anyone.

To emphasize, when you send or receive coins you only need to share your public cryptocurrency wallet address.

PayPal Is Seeking Faster Crypto Payments Tech – CoinDesk

Looks like PayPal wants to move crypto faster. 

An application for an “Expedited Virtual Currency Transaction System” published on March 1 by the U.S. Patent and Trademark Office (USPTO) details a method by which private keys – the strings of numbers and letters used to transact or otherwise control one’s cryptocurrency holdings – are swapped from a buyer to a seller behind the scenes.

The aim of the concept is to narrow the amount of time it takes for payments to go through between a consumer and a merchant, avoiding the process of sending a transaction and waiting for it to be included in the next block on the network. To do this, PayPal proposed a way to create secondary wallets with their own unique private keys for buyers and sellers. The system would transfer private keys corresponding to an exact amount of any given cryptocurrency.

As the filing explains:

“The systems and methods of the present disclosure practically eliminate the amount of time the payee must wait to be sure they will receive a virtual currency payment in a virtual currency transaction by transferring to the payee private keys that are included in virtual currency wallets that are associated with predefined amounts of virtual currency that equal a payment amount identified in the virtual currency transaction.”

The submission is a notable one, coming years after PayPal announced partnerships with several bitcoin payment processors that allowed merchants to accept the cryptocurrency through the company’s Payments Hub starting in 2014.


A company from Japan will pay its employess in Bitcoin

I met with a man doing business around the world and paying his team of virtual assistants in bitcoin. 

He told me that once he required each employee to set up a wallet and get paid that way, they found it easier and much cheaper than getting paid in his fiat currency and converting that to the local currency in their country. 

Crypto need not skyrocket in value to improve future economies. It’s the power of faster global transactions that will be the real revolution.

A Japanese internet company with the bitcoin bug will soon allow its employees to receive some of their salaries in the form of cryptocurrency.

According to, Tokyo-based GMO Internet Group announced the new payment option will launch in February 2018. GMO said the option will gradually be opened to all of its more than 4,000 full-time employees.

Those opting in to the new scheme will be able select what portion of their monthly salary to receive in bitcoin between a minimum of 10,000 yen (around $88) and a maximum of 100,000 yen ($882), according to coindesk.

GMO is even reportedly offering an incentive for those who join the new payroll system—a bonus of 10 percent of the selected bitcoin amount.

While Japanese labor laws stipulate paying salaries in yen, GMO told Kyodo News that it was not breaking any regulations since the bitcoin payment would be optional, based on mutual agreement and deducted from an employee’s monthly paycheck.

The tech company, which registers domain names and offers web hosting and other services, joined the bitcoin spree this past May with the opening of an exchange, Coin, which was later rebranded as GMO Coin. In September, GMO announced it would invest $3 million in mining bitcoin — the process of obtaining the coin through powerful computers — starting in the first half of 2018.

The firm says it believes cryptocurrencies like bitcoin will evolve into “universal currencies” available to anyone globally, leading to a “new borderless economic zone.”

But not everyone is so optimistic about the rise of digital currencies. A mounting number of experts have warned of a potential bubble effect.

Earlier this week, Nobel Prize-winning economist Robert Shiller compared bitcoin to a “contagion” with rapid price fluctuations reflecting the “intensity of the epidemic”.

According to Japanese bitcoin monitoring site, in November, yen-denominated bitcoin trades reached a record 4.51 million bitcoins, or nearly half of the world’s major exchanges of 9.29 million bitcoin.

Cats are taking over the blockchain

CryptoKitties is the newest craze in cryptocurrency. So many people are buying, selling, and breeding CryptoKitties that the Ethereum blockchain is struggling to keep up with all the activity.

The average cat is trading for $100 in ether and users have spent over $3M total on breeding, buying and selling the in-game items (up from $1M yesterday).

Two days ago, a true believer of cat-based technologies bought the genesis cat (the first cat) for 250 ETH, which is over $100,000. Today, CryptoKitties is the most active smart contract on the Ethereum network, accounting for over 16% of all Ethereum transactions.

CryptoKitties launched on Product Hunt six days ago, where maker Mack Flavelle explained the idea behind it:

“Blockchain technology could be the biggest revolution since the internet, but the majority of projects in this space are unapproachable to muggles. That’s something we wanted to change with CryptoKitties. We figured- if you want to speak to regular people speak in regular language. And cats are the regular language of the internet.”

 And went on to explain the dynamics of CryptoKitty:

“In CryptoKitties, users collect and breed digital cats. Through breeding, unique cattributes can be unlocked. Each CryptoKitty has a 256-bit genome that dictates its appearance and hidden traits, with 4-billion possible combinations. And we have Fancy Cats – kitties with custom art, including a little treat for Product Hunt fans.”

Right now the best way to try out CryptoKitties is by downloading MetaMask, a chrome extension that makes it easy to interact with the Ethereum blockchain directly from your browser. You’re also going to need a little Ether, which you can buy from exchanges like Coinbase.

By leveraging the power of cats on the internet, CryptoKitties is introducing the public to cryptocurrencies and blockchain based technologies. If you want to learn a bit more about how the game mechanics work you can check out Fitz Tepper’s excellent post on TechCrunch.

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ICO Tokens: A Serious Barrier to User Acquisition?

Anyone even moderately following tech right now knows that ICOs are exploding in popularity as entrepreneurs seek to raise large sum of non-dilutive capital for their company — while they can.

I have spent the year advising several tech companies, many of which have raised capital in the ICO market. Through this process, I have stood side-by-side with CEOs while they think through the challenges that inevitably come up during an ICO. I recently wrote about the conflicting legal advice around token sales and provided a framework that may be compliant within US law.

Today, I turn my focus towards another issue that blockchain companies don’t even realize they’re facing yet. Here it is…

Utility tokens, which customers must purchase in order to use the services of a blockchain platform, may be an insurmountable barrier to user acquisition.

Understanding the “holy” conversion funnel

An optimized conversion funnel is vital to successful online marketing, and blockchain companies are no exception. This practice of funnel optimization focuses on finding and removing “leaks” at various points through a visitor’s journey across a website in order increase the likelihood of the visitor taking a desired action.

Companies that ICO will ultimately be under pressure from their token holders to increase their token’s value, which over the long run must come from legitimate demand of the underlying platform. Unfortunately, there are substantial user acquisition problems that emerge when a token is added to the conversion funnel.

Let’s dive into this further with an example.

The fight is on: Airbnb vs. CryptoBNB

Imagine that you are a vacationer searching for a place to stay. You start by Googling “rent a vacation home” and see various results, including Airbnb, VRBO, HomeAway and the other usual players. You also find a couple of new names, which happen to be well-funded ICO projects, including Zangll and CryptoBNB, which is a company I made up in order to not spend this article trashing Zangll.


You take the next step and visit Airbnb’s and CryptoBNB’s websites to compare their offerings.

On Airbnb, you find a refined site with tons of listings and the ability to pay by credit card.

On CryptoBNB, you find a site that uses decentralization and blockchain terminology, with few listings and the ability to pay only in CBNB tokens.

It is clear that one of these companies has an advantage for converting the average consumer… Airbnb. Over the course of years, their company has had time to grow its listings and optimize its user acquisition funnel down to a science.

Lost customer at the last minute, again!

Ignoring the fact that Airbnb has a multi-year operating advantage over CryptoBNB — which this is NOT an insignificant issue — let’s focus on the role that payment options play in user acquisition.

E-commerce companies spend considerable time reducing friction in the checkout process. Here are a few points that digital marketers focus on related to payments:

  • Reducing the information required from the customer
  • Optimizing the site for mobile visitors
  • Taking advantage of AutoFill
  • Accepting many types of payment options

Requiring payment in the form of CBNB tokens will present CryptoBNB with problems on all of these points. The checkout process for a typical user would go something like this… Visit site > select listing > go to checkout > be asked for CBNB tokens > don’t have any CBNB tokens? no problem! purchase them from a third-party foreign exchange > customer gets confused > customer goes to Airbnb.


Guy must be thinking through user acquisition of a tokenized blockchain platform.

Let’s not forget that cryptocurrency is challenging to obtain and use for the average consumer, and it is certainly not as easy to use as a credit card. Consequently, every consumer-oriented blockchain company with a token has a conversion problem lying ahead.

Decisions, decisions…

For companies whose token acts a means of payment (very common), there are two primary approaches that I currently see companies taking:

  1. Decentralized approach. Customers will pay the network directly using the token. While this option is more in line with the goal of decentralization, the need for users to acquire tokens via a third party website is a critical point of failure for conversion. There are additional costs to the consumer too, including exchange fees, which is a situation that is clearly inferior to the status quo where they earn points with their credit card.
  2. Centralized approach. In this method, customers will pay the company by credit card, and the company will in turn pay the network with tokens behind the scenes. This approach cuts out the barrier to conversion, but the company will assume several costs that Airbnb will never have, including exchange fees, implied cost of the bid/ask spread, order book slippage, Ethereum network fees and more.

It seems that companies are unnecessarily putting themselves in a disadvantaged competitive position in order to raise capital through an ICO. This is one reason why I am bearish on utility tokens whose primary purpose is as a payment method. I don’t believe that the advantage of “blockchain” will add enough value in most consumer applications to compete with lower cost competitors.


Why do you even have a token, broh?

In e-commerce, it is hard to see how a tokenized blockchain company could ever compete against an equity-backed tech company on a “per unit” cost basis, unless the existence of a blockchain…

  1. Is mandatory.
  2. Adds value that consumers care about.
  3. Creates significant cost reductions elsewhere.

Offering tangible value over competitors on the order of a magnitude is critical for blockchain companies. Over the long run, the value of every utility token will rely on the existence of real demand for an underlying platform, which may never materialize if a company has tokenized barriers to user acquisition.

In most cases I have seen, companies whose ICOs revolve around a payment token have not found a strong enough purpose for issuing a token or using blockchain. One rule of thumb I commonly ask companies is: “Why can’t your platform just accept ETH and charge on a typical SaaS model basis?” The answer to this question will generally shine light on whether the platform‘s token is useful, or if the company is simply creating the token as an excuse to raise capital through an ICO.

Payment tokens will be the first to fail

In the second half of 2018, investors will begin focusing on the adoption metrics of tokenized blockchain platforms in order to make newly informed investment decisions. In this process, blockchain platforms that don’t provide meaningful value over competing technologies will be discovered and “punished” by the market through their token price.

Companies who have created a token solely as a means of raising funds through an ICO have not set themselves up for long term success once the market becomes less speculative. Because payment tokens have an inherent disadvantage on conversion and platform adoption, I believe they will be the first type of utility token to fail.

There will still be a few success stories, of course, but most entrepreneurs won’t be able to create enough tangible value for their customers to overcome their user acquisition hurdles.

In search of tokens with merit…

ICO investors looking for longer term viability in their investment should look to tokens whose existence won’t be a barrier to user acquisition. This means that the token’s purpose within the platform is likely “inventive” in some way, plays an operational role and is abstracted so as to be user friendly.

One example of a token that fits these qualifications is that being created by AQUA, whose company is building an IP rights platform with a primary focus on pharmaceutical R&D. Their token enables the assignment of fractional Intellectual Property (IP) rights, which could create an ecosystem for global collaboration in R&D. AQUA’s token has two characteristics that I find particularly interesting. The first is its flexible architecture that allows one group’s IP to be combined into another group’s IP later on, which allows research to build on top of prior research. The second is its fundamental token value structure, which gives token holders a stake in the success of all IP on the AQUA platform.


Within the next 12 months, asset fundamentals will begin eclipsing speculation to drive token valuations. Investors in ICOs should therefore assess each token’s impact on the underlying platform’s long term viability. Tokens whose primary purpose is to serve as a payment mechanism seem to have an inherent disadvantage on this point. Voting rights, power, operations and other areas where traditional equity funding does not exist are use cases where tokens are more likely to retain long term value.

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Gold Mining Company’s Shares Jump 1,300% After Switch to Bitcoin – Bitcoin News


Gold Mining Company's Shares Jump 1,300% After Switch to Bitcoin

Gold Mining Company's Shares Jump 1,300% After Switch to Bitcoin

Natural Resource Holdings is a little-known company whose investments so far consist mostly of land and mineral assets of gold, silver, zinc, and lead deposits.

The company’s shares, which are publicly traded on the Tel Aviv Stock Exchange, have jumped about 1,300% in price since the company announced it is refocusing on blockchain and cryptocurrencies just a month and a half ago.

Now it appears that the company actually has a plan how to diversity into bitcoin mining and it is not just all hype. According to reports today in the Israeli financial media, Natural Resource has revealed its first step towards entering the market: acquiring a Canadian bitcoin mining farm.

Mining Is Booming

The company has announced that it is in negotiations with BACKBONE Hosting Solutions, operating under the commercial brand Bitfarms, to buy 75% of its shares in exchange for 75% its own stocks. In response to the report, investors have poured in, making the relatively small company the tenth most traded on the TASE by volume.

Gold Mining Company's Shares Jump 1,300% After Switch to Bitcoin

The Canadian company is said to have 4 server farms in the province of Quebec, providing services for mining bitcoin, ethereum, bitcoin cash and litecoin. It is also said to have two more server farms under construction that will come online early next year. The company supposedly brings in over $8.3 million a month, at an operational cost of just 12%.

According to its own website, BACKBONE started operating in 2016 with a primary focus to offer cost effective mining hardware hosting solutions for cryptocurrency hobbyists and professionals. Boasting an ‘eco-friendly’ operation, the company says its power is generated from an hydro-electrical plant located close to the facility and that it benefits from being in a Tundra Climate where cooling is not an issue 10 months a year.

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World Computer? New Protocol Could Supercharge Ethereum Blockchain

With scaling the center of attention in the public blockchain sector, an older but lesser known attempt to overcome the restrictions inherent in ethereum is getting a refresh.

Revealed in an exclusive interview with CoinDesk, a new TrueBit protocol is being released this December, one that removes the ethereum “gas limit,” which today puts an upper-bound on the number of computations the network can achieve, bringing the second largest blockchain by market capitalization closer to its oft-touted goal of becoming a “world computer.”

While TrueBit is one of many in-progress scaling solutions being engineered for the ethereum platform – working alongside mechanisms such as sharding, state channels and Raiden – it distinguishes itself by focusing on the computational power of the network at large, instead of just transaction speed.

Geared specifically towards heavy computations, such as those video broadcasting and machine learning would require, TrueBit could resolve the fact that ethereum is still about as fast as a “smartphone from 1999,” as ethereum creator Vitalik Buterin joked last year.

“In short, the new scheme would be a vast simplification of the current TrueBit protocol,” said Zack Lawrence, the co-founder of 1protocol, who developed the technology.

And these gains all came about after speculation that someone could exploit the protocol, after an amendment to its white paper was released last month.

Jason Teutsch, a mathematician and co-founder of TrueBit, framed the speculation, and the process for patching the vulnerability, with a silver lining:

“When so many people have eyes on the papers, over time, you get more and more confident that it’s correct, but it’s always an ongoing process for these things that are living systems… Now, we go another layer down the protocol rabbit hole, it’s this iterative process of getting deeper and deeper into this.”

Hit the jackpot?

And going deeper led the devs to the incentive mechanism used in the protocol.

TrueBit aims to remove the gas limit on ethereum by moving computations off-chain – outsourcing them to an external marketplace that rewards participants for solving and verifying the computations. Within the marketplace “task givers” pay “verifiers” to solve computations in exchange for rewards, while “validators” check that the computations are correct.

To make sure everyone runs effectively, Truebit relies on an incentive scheme dubbed the “forced errors jackpot,” which ensures validators are actively checking for correctness by requiring verifiers to occasionally submit incorrect information. If a validator finds these forced errors, they’re rewarded with a substantial payout: the “jackpot.”

But according to Lawrence, that process can be a lot less complicated.

Within the new protocol, instead of limiting the participants’ tasks, everyone can participate openly.

Those that verify correct computations still get paid, but if another participant finds an error, they can submit what they believe the computation should be and enter that into the verification game. All the potential answers are then pooled together until a consensus is reached.

Because that verification pool is costly to participants, the protocol incentivizes them to work together honestly so disputes do not occur, since the reaching consensus within that verification pool would be costly for everyone.

Not only does this iteration eliminate the security flaws pointed out when the amendment was released, but it’s also easier to implement and could increase the number of computations participants are willing to perform since it eliminates the once-every-so-often jackpot, Lawrence told CoinDesk.

Security challenge

Still, the new protocol may not be the last step in evolving TrueBit to achieve optimum efficiency.

Teutsch explained that both versions of the protocol will still hit against eventual limits when it comes to massive computations. If, for example, verification takes too long or gets too expensive, those who notice errors might be inclined to keep quiet, and just let them go.

“Remember that the verification game is really slow compared to native computation, so my concern expressed here is more than just theoretical,” he said.

Plus, because TrueBit is a protocol built on game theory (rather than relying on more familiar security auditing processes), Teutsch said, its “security is an observational science,” in which devs try to put themselves in every position an attacker might be in.

Because of this, Teutsch said the developers may decide to run both the original protocol (now internally nicknamed TrueBit Classic) and the new protocol in parallel for better security.

But nodding to the fact that digital security is an immensely challenging prospect that takes continual work, Teutsch told CoinDesk:

“Full confidence happens once you have all the money in the world behind it, and it’s sat there for a few years.”

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Coming Soon: Get Your Undergrad in Cryptocurrency at NYU

NYU is ahead of the collegiate game when it comes to financial education. It was the first major US academic institution to offer a cryptocurrency course back in 2014, and now, it plans to offer a new option for undergraduates, as NYU professor David Yermack shared with the Financial Times.

The course is becoming something of a bullish offering already, with 300 grad students expected to apply next year. 

Challenges include keeping up with rapid developments and finding knowledgeable faculty. 

Professor Yermack says they will be ready to adapt: “Year over year we’ll change well over half the course material. It keeps you young to be reading half the night just to keep up with the test innovations.”

But you don’t necessarily have to attend NYU to become well-versed. Much of the material is found freely online, and if you want an Ivy League school credit, search out Princeton’s ‘Bitcoin and Cryptocurrency Technologies’ course on Coursera.