Sunday, July 23, 2017

No Governance for Old Men: Coordinating Protocol Upgrades in the Future

By Jon Matonis
Bitcoin Magazine
Friday, July 21, 2017

Let’s not deploy the nuclear option for every protocol upgrade.

Make no mistake. We are witnessing a high-stakes protocol standards battle play out in real time. And it is just as important as last century’s battle for the internet’s TCP standard.

Current capacity constraints on the Bitcoin blockchain have brought us to this impasse.

The Bitcoin protocol, as the dominant value transfer “network effect” leader, battles against upstart cryptocurrency protocols like Ethereum and Monero. But it also battles with itself as divergent forces push for either on-chain scaling or off-chain scaling, hard fork or soft fork, SegWit transaction format or original transaction format.

The so-called nuclear option is a prolonged, contested hard fork of the Bitcoin blockchain because it risks splitting the network into two competing chains, which is to no one’s benefit. Therefore, it should be reserved as a planned formality or a last resort for extreme situations rather than a perpetual form of “live” dispute resolution.

With so much individual and institutional wealth essentially stored on the Bitcoin blockchain, it can be extremely disconcerting when others try to “fork” around with your money. Chronic forking is not synonymous with wealth management and prudent capital accumulation, which require stability and predictability. Importantly, smart contracts and non-monetary applications will also rely upon relative stability since the same native digital token also facilitates the proof-of-work security model.

This article will examine how open-source governance was designed to work within the Bitcoin protocol and how users, miners and developers are locked in a symbiotic dance when it comes to potential forks to the immutable consensus. Solutions will be proposed and analyzed that maintain the decentralized nature of the resulting code and the blockchain consensus, while still permitting sensible protocol upgrades. Governance is not only about the particular method of change-control management, but also about how the very method itself is subject to change.

Open-Source Protocols and Bitcoin

Generally referred to as FOSS, or free and open-source software, this source code is openly shared so that people are encouraged to use the software and to voluntarily improve its design, resulting in decreasing software costs; increasing security and stability, and flexibility over hardware choice; and better privacy protection.

Open-source governance models, such as Linux and BitTorrent, are not new and they existed prior to the emergence of Bitcoin in early 2009; however, they have never before been so tightly intertwined with money itself. Indeed, as the largest distributed computing project in the world with self-adjusting computational power, Bitcoin may be the first crude instance of A.I. on the internet.

In “Who Controls the Blockchain?” Patrick Murck confirms that Bitcoin is functioning as designed:
As a blockchain community grows, it becomes increasingly more difficult for stakeholders to reach a consensus on changing network rules. This is by design, and reinforces the original principles of the blockchain’s creators. To change the rules is to split the network, creating a new blockchain and a new community. Blockchain networks resist political governance because they are governed by everyone who [participates] in them, and by no one in particular.
Murck continues:
Bitcoin’s ability to resist such populist campaigns demonstrates the success of the blockchain’s governance structure and shows that the ‘governance crisis’ is a false narrative.
Of course it’s a false narrative, and Murck is correct on this point. Bitcoin’s lack of political governance is Bitcoin’s governance model, and forking is a natural intended component of that. “Governance” may be the wrong word for it because we are actually talking about minimizing potential disruption.

Where Bitcoin differs from other open-source protocols is that two levels of forking exist. One level forks the open-source code (code fork), and another level forks the blockchain consensus (chain fork). Since there can only be one consensus per native digital token, chain splits are the natural result of this. The only way to avoid potential chain splits in the future is to restrict the change-control process to a single implementation, which is not very safe nor realistic.

“Collaborate or fork” has become the rallying cry for Bitcoin Core supporters. L.M. Goodman, author of “Tezos: A Self-Amending Crypto-Ledger Position Paper,” writes:
Core development teams are a potentially dangerous source of centralization.
When it comes to Bitcoin Core, the publicly shared code repository hosts the current reference implementation, and a small group of code committers (or maintainers) regulate any merges to the code. Even though other projects may be more open to criticism and newcomers, this general structure reminds me of a presiding council of elders.

Making hazy claims of a peer-review process or saying that committers are just passive maintainers merely creates the facade of decentralized code. The real peer-review process takes place on multiple community and technical forums, some of which are not even frequented by the developers and Bitcoin Core committers.

The BIP (Bitcoin Improvement Proposal) process is sufficient and it’s working for those who choose to collaborate on Bitcoin Core. Similar to the RFC (Request for Comments) process at the IETF, BIP debates about a proposed implementation can provide technical documentation useful to developers. However, it is not working for many involved in Bitcoin protocol development due to the advantages of incumbency and the false appeal to authority with core developers. If Bitcoin Core no longer maintains the leading reference implementation for the Bitcoin protocol, it will be 100 percent due to this intransigence.

Sensitive to the criticisms of glorifying Bitcoin Core, Adam Back of Blockstream recently proposed an option to freeze the base-layer protocol, but at the moment that will only move all of the politics and game-playing to what exactly the base-layer freeze should look like. It is a nice idea for separating the protocol standard from a single reference implementation and for transitioning the Bitcoin protocol to an IETF-like structure, although it’s extremely premature for now.

Therefore, by default, that leaves us with several alternative Bitcoin implementations in an environment of continual forking.

Even Satoshi Nakamoto was critical of multiple consensus implementations in 2010:
I don’t believe a second, compatible implementation of Bitcoin will ever be a good idea. So much of the design depends on all nodes getting exactly identical results in lockstep that a second implementation would be a menace to the network.
That prevailing standpoint, however, may be changing, which Aaron van Wirdum addresses in “The Long History and Disputed Desirability of Alternative Bitcoin Implementations.” Wirdum cites Eric Voskuil of libbitcoin, who argues that there should not be one particular implementation to define the Bitcoin protocol:
“All code that impacts consensus is part of consensus,” Voskuil told Bitcoin Magazine. “But when part of this code stops the network or does something not nice, it’s called a bug needing a fix, but that fix is a change to consensus. Since bugs are consensus, fixes are forks. As such, a single implementation gives far too much power to its developers. Shutting down the network while some star chamber works out a new consensus is downright authoritarian.”
Multiple alternative implementations of the Bitcoin protocol strengthen the network and help to prevent code centralization.

Politics of Blockchain Forking (or How UASF BIP 148 Will Fail)

Contentious hard forks and soft forks all come down to hashing power. You can phrase it differently and you can make believe that two-day zero-balance nodes have a fundamental say in the outcome, but you cannot alter that basic reality.

BIP 148 fork will undoubtedly need mining hash power to succeed or even to result in a minority chain. However, if Segregated Witness (SegWit) had sufficient miner support in the first place, the BIP 148 UASF itself would be unnecessary. So, in that respect, it will now proceed like a game of chicken waiting to see if miners support the fork attempt.

Mirroring aspects of mob rule, if the UASF approach works as a way to bring miners around to adopting SegWit, then the emboldened mob will deploy the tactic for numerous other protocol upgrades in the future. Consensus rules should not be easy to change and they should not be able to change through simple majority rule on nodes, economic or not. Eventually, these attempts will run headfirst into the wall of Nakamoto consensus.

As far as the network is concerned, it’s like turning off the power to your node.

UASF BIP148 Nodes (1st August 2017)

There is no room for majority rule in Bitcoin. Those who endorse the UASF approach and cleverly insert UASF tags in their social media handles are endorsing majority rule in Bitcoin. They are providing a stage for any random user group to push their warped agenda via tyranny of the nodes.

The prolific Jimmy Song says that having real skin in the game is what matters:
Bitcoin doesn’t care if you post arguments on Reddit. Bitcoin doesn’t care if you put something clever in your Twitter name. Bitcoin doesn’t care if you educate people, write articles, or make clever Twitter insults. Bitcoin doesn’t care about your wishes, your feelings or your arguments.
Let’s keep “majority rule” antics out of Bitcoin. There is no protocol condition that activates “if we are all united” and that is a good thing.

With enough hashing power, the mob-induced UASF BIP 148 will lead to a temporary chain split. However, the probability of a Bitcoin minority chain surviving for very long is extremely low due to the lengthy difficulty re-targeting period of 2,016 blocks. Unlike the Ethereum/Ethereum Classic fork, that is a long time for miners to invest in a chain of uncertainty.

Responding to a Reddit post for newbies who are scared of losing money around the 1st of August due to UASF, ArmchairCryptologist explains:
Your advice is sound, but realistically, the most likely scenario is that the UASF either wins or dies. If it gets less than ~12% of the hashrate, it will not be able to activate Segwit in time, and it will almost certainly die. If it gets less than ~20% I also wouldn’t be surprised to see active interference with orphaning to prevent transactions from being processed.
If on the other hand it gets more than ~40% of the hashrate, the chance for a reorg on the other chain is large enough that most miners will likely jump ship, and it will almost certainly win. At over ~20% block orphaning attacks won’t be effective, as it would split the majority chain hashrate and risk tipping the scale. Which means that the only situation where you will realistically have two working chains for an extended period is if you get between ~20% and ~40% of the hashrate for the UASF.
The collectivist UASF BIP 148 strategy will ultimately fail and that’s a good thing. It is driven primarily by those with very little at stake expecting the miners to stake everything by supporting a minority chain. Pretty soon, you run out of other people’s money. This commenter on Reddit understands:
The entire premise was that it was very cheap to switch, but very expensive to stay. That’s when I realized the folly of it all; [it’s] only cheap because they’re not staking anything. But someone has to stake something.
And that’s what is going to cause it to fail. That and the lack of replay protection. People like this guy flip it around and genuinely believe the mining problem will be solved by massively increased value. If they do somehow put enough pressure on exchanges that list UASF, despite the lack of replay protection, and if we take his logic a step further, UASFers are going to be pushing everyone to “buy, buy, buy” UASF and “sell, sell, sell” Legacy Coin. But without replay protection, they’re going to be obliterated by a few smart people who realize there are huge gains to be had.

Alphonse Pace has an excellent paper describing chain splits and their resolution. He walks us through compatible, incompatible and semi-compatible hard forks, arguing that users do have power if they truly reject a soft-fork rule change:
… users do have power — by invoking an incompatible hard fork. In this case, users will force the chain to split by introducing a new ruleset (which may include a proof-of-work change, but does not require one). This ensures users always have an escape from a miner-imposed ruleset that they reject. This way, if the economy and users truly reject a soft fork rule change, they always have the power to break away and reclaim the rules they wish. It may be inconvenient, but the same is true by any attack by the miners on users.

The Future of Coordinating Protocol Upgrades

What group determines the big decisions in Bitcoin’s direction? Ilogy doubts that it is the developers:
Theymos almost completely foresaw what is happening today. Why? Because Theymos has a deep understanding of Bitcoin and he was able to connect the dots and recognize that the logic of the system leads inevitably to this conclusion. Once we add to the equation the fact that restricting on-chain scaling was always going to be perceived by the ‘generators’ as something that ‘reduces profit,’ it should be clear that the logic of the system was intrinsically going to bring us to the point we find ourselves today.
Years later these two juggernauts of Bitcoin would find themselves on opposite ends of the debate. But what is interesting, what they both recognized, was that ultimately big decisions in Bitcoin’s direction would be determined by the powerful actors in the space, not by the average user and, more importantly, not by the developers. 

The developer role can be thought of as proposing a variety of software menu choices for the users, merchants and miners to accept and run. If a software upgrade or patch is deemed unacceptable, then developers must go back to work and adjust the BIP menu offering. Otherwise, mutiny becomes the only option for dissatisfied miners.

In “Who Controls Bitcoin?” Daniel Krawisz says that the investors wield the most power, and because of that, miners follow investors. Therefore, the protocol upgrades likely to get adopted will be the ones that increase Bitcoin’s value as an investment, such as anonymity improvements being favored over attempts at making Bitcoin easier to regulate.

In the future, miner coordination via a Bitcoin DAO (decentralized autonomous organization) on the blockchain could be the key to smooth and uneventful forking. Self-governing ratification would allow diverse stakeholders to coordinate protocol upgrades on-chain, reducing the likelihood of software propagation battles that perpetually fork the codebase.

Attorney Adam Vaziri of Diacle supports a system of DAO voting by Bitcoin miners to remove the uncertainty around protocol upgrades. He readily admits that he has been inspired by Tezos and Decred.

Prediction markets have also been proposed as a method to gauge user and miner preferences through public forecasting, the theory being that these prediction markets would yield the fairest overall consensus for protocol upgrades prior to the actual fork.

The question remains: Is coin-based voting based on allocated hash power superior to the informal signaling method utilized today? Are prediction markets or futures markets a viable method to gauge consensus and determine critical protocol upgrades?

I’m not optimistic. On-chain voting and “intent” signaling are both non-binding expressions while prediction and futures markets can be easily gamed. Therefore, while Tezos and Decred represent admirable efforts in the quest for complete resilient decentralization, I do not think Bitcoin protocol upgrades of the future will be managed in this way.

The Bitcoin ecosystem doesn’t need to achieve a social consensus prior to making changes to the protocol. What has clearly emerged from the events of this summer is that Bitcoin has demonstrated an even stronger degree of immutability.

There is no failure of governance and there is no failure of the market. The non-authoritarian forces at play here are functioning exactly as they should. Protocol upgrades in a decentralized environment are an evolutionary process, and that process has matured to the current six stages of Bitcoin protocol upgrading, with some optional variances for BIP 91:

(a) BIP menu choices competing for mindshare, strategic appropriateness and technical rigor;

(b) Informal intent signaling based on miners inserting text into the coinbase for each block mined;

(c) Block signaling period where miners formally signal a designated “bit” trigger for BIP lock-in, based on “x” percent over a “y” number of blocks period;

(d) Block activation period after BIP lock-in, which sets a secondary period of “x” percent over a “y” number of blocks for activation;

(e) Primary difficulty adjustment period (2,016 blocks) where “x” percent of miners must signal for the upgrade to lock in;

(f) Secondary difficulty adjustment period (2,016 blocks) required for the protocol upgrade to activate on the network.


This would not be the first fork in Bitcoin and it won’t be the last. If we believe in the power of Nakamoto consensus and probabilistic security, then the secret to uneventful protocol upgrades is smoother and more reliable signaling by miners.

July has been a tough month for Bitcoin, but it has also been pivotal. Even though I doubt the probability of success for UASF BIP 148, some may say that the threat of the reckless UASF on August 1 played a role in the rapid timeline for SegWit2x/BIP 91, and I agree with that. Game theory is alive and well in Bitcoin.

The design of Nakamoto consensus provides the ultimate method for decentralized dispute resolution by placing that decision with the hashing power and the built-in incentives against 51 percent attacks. In fact, Tom Harding considers miners to be the only failsafe in Bitcoin:

Nakamoto consensus for the win. See you in November.

This article was originally published by Bitcoin Magazine.

Tuesday, July 11, 2017

Finally, a Bitcoin Exchange by Traders for Traders

By Jon Matonis
Tuesday, July 11, 2017

I first met my co-founders Liza Aizupiete and Andris Kaneps at an inspired café in central Copenhagen during early 2015. Their mantra has always been that Globitex is a trading platform built by traders for traders. Unsurprisingly, that guiding philosophy has permeated every design choice since inception.

As my background is in foreign currency and derivatives trading, I have always aimed to launch a cryptocurrency exchange. In fact, I worked on putting together a Gibraltar-based investment group to purchase the original Mt. Gox from Jed McCaleb in early 2011, however the market proved too immature to finalise the reluctant investor commitments.

Since that time, bitcoin and other cryptocurrency exchanges have matured greatly, expanding into multiple trading pairs, margin trading, and even derivatives trading. All of this innovation has led to increasing liquidity and market depth for bitcoin trading as well ushering in the sophisticated hedging and risk management strategies desired by corporate treasurers.

So, where does the bitcoin exchange industry go from here? It already boasts one of the most predictable revenue streams in the Bitcoin ecosystem with steadily increasing volumes that generate commissions in both up and down markets. And liquidity is “sticky” giving incumbents a distinct advantage. But, traders also have a multitude of choices with at least 400 different exchanges and brokers around the world.

Three clear mega-trends are emerging in the bitcoin exchange industry: (1) an explicit distinction between global exchanges and local, or regional, exchanges; (2) a tendency towards the introduction of clearing members to diffuse the counterparty risk away from the exchange operator; and (3) increased use of margin trading and futures and options contracts.

Globitex is uniquely structured to benefit from all three mega-trends.

A global exchange aims to be a provider of maximum liquidity at the most attractive spreads. It accomplishes this by facilitating ease of trading for the greatest number of clients around the world, typically by providing the most common international transfer capabilities and trading pairs against the leading world reserve currencies.

Conversely, local exchanges will focus on a specific jurisdiction and most likely localise the language and the payment APIs for that audience specifically. Local exchanges do not facilitate global price discovery and they vary by operating model. In a broker model, the company buys and sells cryptocurrency with customers by maintaining their own inventory book and setting a bid/offer spread. Cryptocurrency brokers also do not hold customer balances like they would under a commission-based, order-matching exchange model.

The Globitex exchange provides premier banking relationships, documented trade reporting, and also supports the market standard FIX protocol for automated electronic trading, in use by professional institutional traders, brokers/dealers, mutual funds, investment banks, and stock exchanges.

With bitcoin, a clearing house can be thought of as a wholesale liquidity provider clearing transactions in an over-the-counter (OTC) market or a futures exchange. The clearing house reduces the settlement risks by netting offsetting transactions between multiple member clearing firms and by providing independent valuation of trades and collateral accounts.

Today’s bitcoin exchanges do not employ clearing members thereby consolidating the counterparty risk into a single entity rather than diffusing it among multiple clearing firms.

Globitex will eventually introduce a program for member clearing firms to process transactions on the exchange platform with Globitex monitoring the credit worthiness of member clearing firms and, ideally, establishing and maintaining a guarantee fund (for leveraged trading) that can be used to cover losses that exceed deposited collateral from a defaulting clearing firm.

In the not-too-distant future, an exchange will have to provide adequate margin trading on both the long and short side to be considered a viable exchange contender. The market demands and pressures for leverage will be too great for any exchange that wants to remain a liquidity leader.

Therefore, to facilitate margin trading, Globitex will introduce a two-way borrowing facility for bitcoin and fiat currency. Today, the most robust bitcoin lending facility is offered through the Bitfinex exchange with statistical data provided by BFXdata.

The development of a true Bitcoin economy requires the formation of capital markets with a corresponding interest rate duration curve across 1-day, 30-day, 90-day, and 1-year borrowing rates. Globitex will make a market in fiat-to-XBT swaps and XBT-to-fiat swaps for purposes of margin trading.

Additionally, Globitex will aggregate the leading interest rate markets for bitcoin to form a tradeable interest rate product on its exchange. Similar to LIBOR, the aggregated reference rate will be referred to as BIBOR [Bitcoin Inter-Broker Offered Rate], which is a term first coined in CoinTelegraph, “Bitcoin Needs Its Own Version of LIBOR.”

Globitex also intends to expand into standardised futures and options products that allow risk managers and speculators to trade the bitcoin exchange rate in the same way that they currently trade precious metals, equity indices, bonds, grains, foods, livestock, and crude oil.

Inevitably, we will see new decentralised trading methods, trustless security models and multi-signature techniques, such as threshold signatures, increasingly deployed to prevent against exchange hacks and exit scams. However, the larger trend is still towards gaining multiple entry points onto the exchange platform, because liquidity begets more liquidity.

Above all else, an exchange is ultimately defined by its integrity and the integrity of its principals over a demonstrated period of time.

Disclosure: Author is a shareholder and chairman of Globitex.

Monday, July 10, 2017

Globitex Bitcoin Exchange in BETA Release

Press Release
via Newswire
Monday, July 10, 2017

London, United Kingdom July 10, 2017 ( - A European Bitcoin exchange platform Globitex has rolled out its beta release. Presently running in a limited beta, Globitex is accepting global customers on invitations only. The team includes the former executive director of The Bitcoin Foundation Jon Matonis, serving now as a Chairman at Globitex.

"Globitex is a genuine breakthrough for professional and institutional traders with full support for the FIX protocol and a slick UI. Traders will appreciate a platform designed by traders and the Globitex team has decided to start with the Euro-Bitcoin trading pair to be followed by other currency pairs and margin trading", states Jon Matonis.

Globitex has begun operations by offering a Euro-Bitcoin exchange product (XBTEUR), with an aim to expand fiat and cryptocurrency offering in the near future. Algorithmic trading is fully supported by FIX and REST API interfaces.

The team has been developing the product for the past three years with the goal of providing a more professional trading environment for institutional traders. As a startup, since early 2014 the project was self-seeded by the founders and in 2015 raised the first venture capital funding. The round was carried out by a group of private investors lead by an entrepreneur and venture capitalist Viesturs Tamužs. The company has raised more than EUR 900,000 to date.

“The Globitex team have built a solid exchange product, which is set to prove itself as a reliable service provider in this exciting and fast-paced cryptocurrency industry”, admits Viesturs Tamuzs.

The current Beta release offers to trade at 0% commission and is expected to run with this pricing until public launch. Deposits and withdrawals are available via SEPA and SWIFT.


Thursday, May 11, 2017

Bittunes is the Future for Creators

By Jon Matonis
Thursday, May 11, 2017

We now have Blockchain concepts surfacing for almost everything so of course music was always going to be an attractive and obvious area to target. There are many players in this space now and it has become very fashionable.

But there is one Company who’s founder has been actively exploring what the future of music might look like for over 10 years, and since 2006 that vision always hinged on the need for a global digital currency to underpin a new model for music distribution. This vision was first articulated several years before Bitcoin was invented. I’m talking about Simon Edhouse the Managing Director of Bittunes.

Unlike most other startups in this field, Bittunes is not basing their business case solely on a technology like Blockchain, or by creating a new alt-coin or token, (to their credit they rejected lucrative offers to do so). Strategies like that are easy to duplicate so tend to occur in clusters, as can easily be seen by the plethora of ICO’s and Blockchain focussed startups around.

What separates Bittunes from other startups that utilise blockchains in some way, and why they are particularly interesting to me as an economist, is that their core vision is based on a simple yet quite audacious economic model, and the more I look at that model, the more it makes sense.

The Bittunes model expressly tries to do one thing. It attempts to define the simplest mechanism for music to be traded as directly as possible between Artist and fan, while at the same time re-configuring the reward structures that have been the basis of the music industry for over a hundred years.

Startups come and go, but good economic models tend to transcend changing fashions.

Historically it has been the providers of physical and then digital music recordings that have made money in the music business, and as a rule these have been the intermediaries in music’s supply chain, Record Labels, Rights organisations, Apple etc. It has never been the receivers of music that made money. That just wouldn’t make sense, would it? Read on..

In music’s value chain there have always been ‘rent seekers’, manoeuvring to increase their share of the pie. Occasionally, disintermediation occurs as layers are removed, creating new value, but more often than not other layers are inserted as new entrants nudge their way in with new services.

The accepted view is that these entrants provide new value so of course become part of the music industry ecosystem. However, there are now so many heads in the trough, and the largest have been around for so long that, collectively, their right to harvest more than 75% of music’s overall pie has remained largely unchallenged.

The big names in music, Justin Bieber, Rihanna, One Direction etc reap the lion’s share of what remains, and the massive long tail of aspiring Artists are left with the crumbs. Non main-stream artists do it for love, not money, and music’s consumers devour heavily subsidised (free, ad supported) streaming playlists thereby maintaining this status quo.

Artists produce, consumers consume, corporations get rich

So, how can this cycle be broken, without business processes to drive any commercial activity? So that consumers get much more variety and a multitude of currently invisible artists get a more equitable deal.

The power and appropriateness of the Bittunes model to help solve music’s entrenched problems, is that firstly, it correctly identifies which party can provide sufficient value to Artists to turn this inequitable system on it’s head, and then, secondly, it meticulously deals with the contingencies related to delivering that value via it’s business logic.

That party in music’s value chain is of course the music fans themselves, because music fans are not only the purchasers of music, (be it by subscription to a streaming music service or downloads), they are also the highly interconnected network that Artists need. They hold the keys to some of the most valued processes on the internet, and drive the value of companies like Google, Facebook etc, and in the Bittunes model, they are the new recipients in, plausibly, music’s final disintermediation.

The novel aspect of the Bittunes model is that they have worked out a sensible way to allow fans to earn money in partnership with the artists they follow. Further, the process has been designed to distribute revenue with as little cognitive cost for users as possible. In other words, it’s not just the economic model that is simple and neat, the logic around it has been carefully designed with a view to making it nearly friction-less for all parties.

The crux of the model is based on revenue sharing with meaningful clusters of users. To explain exactly how that ‘meaningfulness’ is defined, and how selection is determined, would be to give away too much, but let’s just say there is an abundance of options available to both supply and demand to self sort into appropriate groups, to generate remarkable value to both.

Why was this inventive step not already completely obvious to all of us?

To explain that, might require a bit of historic analysis. There is a pervasive narrative with regard to music that is continually reinforced in the media that the only music worth mentioning is that which is owned and controlled by the music industry. For example:
“Today, three major Record labels own well over half of the Western World’s Music” ~ The Economist [1]
It’s not hard to see how this situation has developed. The Recording Industry as we know it grew out of the combination of sheet music publishing of the music played at live music events, followed by the technological breakthroughs of the 1880’s and 90’s that produced actual recording devices, (cylinders of tin, wax, celluloid leading to the12 inch record in 1903 [2]). Gradually big business saw the opportunity for large profits by the mass production of vinyl records, and the rest as they say is history.

So, throughout most of the late 20th Century, were it not for this industry, popular music simply could not be easily heard or obtained. So in a very real sense we have all perhaps been conditioned to see the music industry and the music we listen to as inseparable, but does this still even make sense?

It should come as no surprise that with the advent of the Web and internet, that some profound macro changes have been occurring that have direct relevance to the empowerment of ordinary people in this new global marketplace.

A better understanding of the rights of the ‘Primary Publisher’ and how Bittunes also sidesteps the copyright industry

One of the tenets of the Bittunes team’s philosophy as they have endeavoured to explain this model has been to stress the significance of the role of the Artist as ‘Primary Publisher’. In the context of how Bittunes operates, this alone has very significant implications for the size of the total addressable market for the company’s services.

Legally, when an Artist writes a song, two rights are created; the right to the recording (a.k.a. the master) and the right to the underlying song itself (a.k.a. the publishing) [3]. Until an Artist signs away these rights to a Publishing House or Record Company, they are the publisher.

Music distributed by Bittunes is in fact ‘self published’ by Artists on the platform using an inherent provision within the legal deed of Creative Commons and applying that to the ‘Attribution-NonCommercial-NoDerivs CC BY-NC-ND’ License whereby any of its conditions can be waived if permission is gained from the copyright holder. In effect, this simple caveat allows this license to be used for commercial purposes.

So, what does this boil down to? It means that, whereas companies like Spotify can only operate in a strictly defined set of territories, Bittunes is free to sell music anywhere in the world, effectively opening up a global market of billions of music consumers in territories like China, India, Russia and Africa that services linked to the main stream music industry are not able to access.

It is interesting to note that Spotify’s recent purchase of Music/blockchain startup ‘mediachain,’ after a bit of analysis, seems to be less about innovation and more about the enormous difficulty Spotify has had in keeping track of the myriad complex rights agreements that apply to the music they stream. If anything it provides more evidence that a new simpler approach to music publication is overdue.

As Simon pointed out in his recent article ‘What is the ideal Music Stack?’ most music blockchain startups are focusing on integrating with the existing music industry in some way. The Bittunes thesis and strategy is a purist approach that projects a future ideal reality and sets a course toward that goal.

Needless to say, most entrepreneurs avoid challenges like this

The mission that Simon and his team have embarked on is a David and Goliath type quest, with one implied aim; to render the music industry as we know it, irrelevant. To be able to deliver on a promise like this is incredibly difficult, and requires skills, knowledge and intuition in a number of areas.

However, in this instance we have an entrepreneur who has significant domain knowledge as an award winning songwriter and film music composer himself, with a Master’s degree in science and technology commercialisation and an obsession with disruptive innovation theory. He has plenty of his own skin in the game, investing around $150k into the business, and after several years of operation Bittunes now has users in more than 90 Countries.

What chance does it have of succeeding? In its favour, the technical and market conditions have probably never been better, and certainly it is widely understood that there is a pressing need to improve the fortunes of Artists around the world.

However, as is now also widely accepted, good entrepreneurs see realities that other’s do not, and great entrepreneurs have the courage to pursue opportunities that average entrepreneurs would never contemplate. My money is on them succeeding.

Incidentally, they are raising funds at the moment at a relatively low valuation, and not as an ICO, but for real equity. A savvy hedge against the prevailing orthodoxy with regard to the future of music IMO.

Disclosure: I am on the Bittunes board of directors and a shareholder in the company.

[1] ’The music industry and the digital revolution’
[2] ‘A brief history of the music industry’
[3] ‘Licensing for Cover Songs’

Wednesday, May 3, 2017

Craig Wright's New Company is Building a Bitcoin Core Competitor

By Pete Rizzo
Tuesday, May 2, 2017

Former Bitcoin Foundation director Jon Matonis doesn't waste any time asserting that his new employer is seeking to disrupt bitcoin's established development process.

Matonis, who joined the secretive startup nChain today, is quick to state that this is the ambition of the London and Vancouver-based operation he now claims has 60 full-time employees, including infamous developer Craig Wright.

As reported by Reuters, nChain was started by Wright, the 46-year-old computer scientist who claims to be bitcoin's pseudonymous creator Satoshi Nakamoto (though he hasn't offered much evidence). To date, nChain hasn't offered much to support its assertions that it's now the industry's best-funded startup either, hinting only that it has received more than $100m from Malta-based high-tech private equity fund SICAV plc as part of an acquisition.

Yet, it's a different company that Matonis has in mind in conversation – San Francisco-based blockchain services firm Blockstream.

Long the subject of criticism for the significant financial support it provides to developers working on bitcoin's open-source protocol and its primary implementation Bitcoin Core, Blockstream has been villainized for that group's roadmap for scaling bitcoin, specifically its decision to prioritize innovations that don't alter a hard-coded limit on block size.

Matonis told CoinDesk:
"I immediately recognized nChain would be an effective challenger to Blockstream, which is definitely needed in the space."
In conversation, Matonis echoes a familiar refrain, that Blockstream and Bitcoin Core are too intertwined, and that Core's roadmap doesn't have broad community support.

Tuesday, May 2, 2017

Jon Matonis Joins Blockchain Pioneer nChain as Vice President of Corporate Strategy

Press Release
via PR Newswire
Tuesday, May 2, 2017

London, United Kingdom May 2, 2017 – Blockchain pioneer nChain announces the appointment of Bitcoin Foundation Executive Director Jon Matonis as its new Vice President of Corporate Strategy.  In this position, Matonis will support nChain’s business growth by developing commercial relationships, and evaluating opportunities for strategic investments and acquisitions.

Jon Matonis is widely recognised as a leading Bitcoin researcher and is a non-executive board director for several notable companies in the space. Since 2012, his technology and security writings have appeared in publications such as Forbes, CoinDesk, Bitcoin Magazine, American Banker, and PaymentsSource.

Jon is also a founding director for the Bitcoin Foundation which served as the industry’s first nonprofit trade association originally chartered to provide financial compensation for voluntary protocol code developers and to promote the vision of Bitcoin worldwide. His career has also included senior roles with Sumitomo Bank, VISA International, VeriSign, and Hushmail.

Additionally, Matonis created the first and leading general price index for Bitcoin known as the Bitcoin Price Index (BPI), hosted the largest ever Bitcoin/blockchain conference to date in Amsterdam during 2014, and enlisted seven regional chapter offices to the Bitcoin Foundation from countries such as France, Germany, and Bangladesh.

Arthur Davis, Director of nChain Holdings Limited, comments:  
“Jon was immediately attractive to nChain. During his notable career, he has consistently led the integration of financial services and cryptography. His work has included foreign currency trading for Visa International, financial platform sales for RSA’s VeriSign – securing its first $5 million in revenue – and end-to-end encrypted messaging for Hush Communications where as CEO he recruited PGP’s Phil Zimmermann as Hushmail’s Chief Cryptographer.
“Jon’s philosophy for the Bitcoin protocol and network is fully in line with nChain’s vision of on-chain scalability with decentralisation, advanced native scripting for the construction of smart contracts, and a dedicated move away from monolithic software.
“We are excited to have Jon’s deep industry experience on our team, and look forward to working with him to achieve our vision for the Bitcoin blockchain.

Bitcoin is the dominant value transfer protocol. The collective computing power directed to its network is now 3.7 exahashes-per-second and growing, making the Bitcoin blockchain best suited to directly enable and facilitate nChain’s transformative vision.

In accepting the new management team position, Matonis comments:
“The resources and funding in place at nChain provide a unique opportunity to reshape the existing landscape of Bitcoin protocol influencers. It is imperative that we move towards a status quo where the actual protocol standard is separated from its primary reference implementation, similar to the existing architecture of the Linux kernel and its low-level abstraction layer.”
 In line with this view, nChain advocates for the formation of a neutral standards organisation to coordinate and manage the Bitcoin protocol and technical standards which in the long-term will result in a more robust software design and a flourishing of compatible implementations.

Matonis adds:
“The gradual elimination of trusted third parties from our economic and legal infrastructures belies a serious and unprecedented reorganisation of many legacy social structures. The winners will be those select individuals and entities that finally liberate themselves from the current centralising, rent-seeking chokepoints.  I am excited to work with nChain to support growth of the blockchain ecosystem for everyone’s benefit.”

The quality and breadth of relationships that Matonis brings to nChain allow the company to quickly ascertain and exploit available market opportunities, and to assist its business partners to get up to speed rapidly on the design and implementation of disruptive solutions that challenge the traditional gatekeepers.

In his role with nChain, Matonis will also continue providing thought leadership on blockchain technology.  In 2011, Matonis was named Person of the Year by Digital Gold Currency Magazine and in 2015 he was appointed to the Editorial Board for cryptocurrency and blockchain technology journal Ledger. Currently, he is noted on the lists for both the Top 100 Fintech Influencers and the Top 100 Blockchain Insiders in the Crypto Sphere. For more information on Matonis, listen to his recent Virgin Podcast.


For media enquiries, please email
or contact Infinite Global at:
Jamie Diaferia (Infinite Global, US/ASIA)
Matthew Gilleard (Infinite Global, EMEA)
+44 (0)207 269 1430

ABOUT NCHAIN: nChain is the global leader in research and development of blockchain technologies – a distributed, decentralised ledger that chronologically records transactions in an immutable way. The nChain group of companies has grown to a team of in excess of 60 world-class scientific research, engineering and other professionals primarily based in London, United Kingdom and Vancouver, Canada.

For further reading:
"Jon Matonis Accepts Executive Position at Blockchain Firm nChain", myBTCcoin, July 1, 2017