All posts in " bitcoin "

Bitcoin Analysis. Short-Mid Term Price Action, Feb 2021.

By Olley / February 16, 2021

Looking at this formation here with three potential scenarios. In my eyes, this is an ascending triangle breakout, the same one that Shawn and many other members in the Grove have posted about recently.

I am looking for upwards continuation based on other indicators all in agreement on multiple time frames (I am talking about the higher time frames like the 2D, 3D, 4D & Weekly here). Volatility has been really low on many time frames and is starting to expand now, which means we will probably see the resolution of this formation up or down in the next 1-3 days at most.

I have a target of at least 53k from the measured move of the formation, but I would aim for 58-60k based on other Fibonacci extension levels.

If BTC loses this blue horizontal zone between $48700-49000 I think a move to at least that rising trend line and likely back down to purple box ($46600-47000). BTC would probably continue some ranging between these zones.

Break below purple support box will change my bullish bias, to more medium-term ‘bearish’. But would look for the marked levels around ($43,000 – 44,000) to bounce, which would likely line up with the Daily 21EMA as well.

[Link]

I also like to look for confluence with CMEs (BTC1!) which look a lot more like an ascending triangle than spot price action. (Chart below).
As long as it holds the 4hr 21EMA or Dynamic for that matter the trend is still up and I lean for continuation higher.

The Mango Dynamic on CMEs 4hr chart has been really accurate for the past couple of months, and this recently flipped green and is continuing to climb & use the blue dots as great opportunities alongside the 10SMA. I look at this as a way to determine the overall trend, as long as it keeps supporting price, naturally, it will continue higher.

  • I want to see momentum oscillators like RSI, Stochs & MACD all gaining positive momentum, start to get stronger as price moves higher.
  • A high volume node will be a useful indicator for confirmation as well.

[Link]

Overall, this is looking like a bullish continuation formation, and we are highly likely going to see resolution very soon. I am leaning bullish from my own view of the indicators I see on the lower time frames, but also because the Weekly looks really strong. However, the support levels I have defined need to be held for this to happen.

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The Animal Spirits in Crypto – Irrational Exuberance & Crypto Bubbles

Three times.

Three times this week I was asked the following question:

“Why are the prices still low when the fundamentals seem so strong?”

Fortunately, there’s a two-worded answer:  Animal Spirits 

It’s not a simple answer – not by a long shot. But it is, indeed, a short answer that encompasses the intricacies of greed, fear and human behaviour.

To understand this, let’s first question if prices are really low? Or are we simply benchmarking prices at their all time high  –  prices that were guided by the animal spirits of crypto investors.

John Maynard Keynes, a famous economist, used the term “Animal Spirits” to describe the irrational decisions investors make in an uncertain environment.

But today the phrase “Animal Spirits” seems to be used primarily in environments of high confidence.  Confidence & optimism, however, aren’t the only byproducts of Animal Spirits. Fear & pessimism play an equal share in the phenomenon.

Irrational Exuberrance. Irrational Anxiety

Should it not then make sense that irrational confidence be followed by equally irrational fear? Optimism that drove prices to exuberant highs should follow with a similar anxiety that would drive prices to irrational lows. For if it does not follow, eventually at least, then perhaps the optimism was not irrational after all. In a way, this explains the driving mechanism of “bubbles” (and also why it’s claimed impossible to forecast)

Nobel Laureate winner Robert Shiller defines a ‘speculative bubble’ in his book ‘Irrational Exuberance’ as follows:

 I define a speculative bubble as a situation in which news of price increases spurs investor enthusiasm, which spreads by psychological contagion from person to person, and, in the process, amplifies stories that might justify the price increase…”

Shiller akins a bubble to that of an epidemic virus – something that can “catch” and get out of control very easily. Similar to their virus counterparts, speculative epidemics can result in massive losses when culminated with doubt, fear and anxiety.

But the key question here is: Are we already past the irrational anxiety?  Or is it yet to play out?

Recurrence of Epidemics . Reflating of Bubbles.

Interestingly, Robert Shiller makes sure to emphasise that “speculative bubbles” don’t simply burst and disappear. Rather, they tend to inflate and deflate in accordance to the accepted narrative.

A viral epidemic can reappear if a new environmental factor reignites the contagion rate.

Similarly, a deflated speculative bubble can “re-inflate” if a new narrative is strong enough to ignite the animal spirits of investors.

Ah, but this poses yet another tricky question for the crypto space.  Have we already “re-inflated”? After all, prices did surge to an all-time-high of $1000 before deflating to $200.

Have we already re-inflated?!

Is it possible that we see another epidemic spark the animal spirits to a point irrational confidence?

A Great Time To Be Alive

A strong argument can be made in favour of another speculative bubble – a larger one. In his definition of a “speculative bubble”, Shiller goes on to explain what follows the price increase in a speculative bubble:

...The price increase brings in a larger and larger class of investors, who, despite doubts about the real value of the investment, are drawn to it partly through envy of others’ successes and partly through a gambler’s excitement”

The crypto market allowed for a new class of investors to be first entrants. They consisted mostly of people who were young & technologically sophisticated. But they were by no means the “large class of investors”. Those are yet to come in mass.

Already we hear  reports of new & larger entrants into the market. Will their success draw the envy of other institutions? And will that, in turn, lead to an environment of overconfident gambling and exuberance that we have seen in the past?

Only time will tell. But one thing is certain, never before have we seen events play out at this rapid of a pace. Ahh, what a time to be alive.

Related Readings:

The Myth Of The Rational Market - A history of risk, reward & delusion by Justin Fox

Irrational Exuberance by Robert J Shiller

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Bitcoin ETF Explained Simply – What Does This Mean For Bitcoin

By Shawn Dexter / August 28, 2018

There has been a lot of talk about Bitcoin ETFs recently - So let’s explore the basics of what a Bitcoin ETF really is, and the implications of it. 

What Is An ETF?

Put as simply as possible, an ETF (Exchange Traded Fund) is traded on the stock market just like a stock, but instead of being a share in a public company such as Amazon, it tracks the price of an asset instead. 

There are many types of ETF's that track different things, but for simplicity lets use Gold as an example:

If you think gold is going to rise in price, you could go to a stock exchange and buy shares of a Gold ETF, which can be shares in a Trust which stockpiles physical gold. If gold goes up, the ETF shares will go up similarly. This way, you don’t have to go to a futures market or hold any gold yourself. 

What Is a Bitcoin ETF?

A bitcoin ETF would be similar to the above example: an easily tradable asset that ultimately tracks the Bitcoin price. Traders and investors could go Long (buying in anticipation of increasing price) or Short (selling in anticipation of decline).

Bitcoin ETF - ​​Why Does It Matter For Bitcoin?

It may not matter much at all. We got this far without an ETF after all. However the clearest benefit to a Bitcoin ETF is in opening the market to many more participants and significantly more capital. 

In much the same way as you don’t want barrels of crude oil in your living room, many individuals and institutions don’t fancy getting their hands dirty on the unregulated, uninsured, hackable, dodgy overseas crypto exchanges such as Bitfinex.

Wait, Wasn’t The Bitcoin ETF Recently Rejected?

Many ETFs have been proposed to the SEC (US Securities Exchange Commision). However, all but one of these were all recently denied by the SEC, killing most of the dreams and leaving one last man standing: The VanEck SolidX ETF.

This is the ETF you have probably heard most about, brought to the SEC by a partnership of Investment firm VanEck and financial services company SolidX. This proposal is also endorsed by the CBOE (Chicago Board Options Exchange), known for launching their Bitcoin futures in December), and if approved it would trade on the CBOE exchange.  

Buying this proposed ETF would basically represent shares in a Trust, and the Trust’s assets would be securely-stored Bitcoin (insured against loss or theft). Therefore as bitcoin rises in price, the assets of this Trust appreciate and make money.

Why So Many Bitcoin ETF's?

You can’t just simply start an ETF and get it traded on a stock exchange. 

Before launching in the USA, any potential ETF has to get special permission from the SEC. This is because original securities laws never allowed for ETFs, so each new ETF has to be specially exempted and allowed to trade by the regulators. 

Therefore, any party wanting to start an ETF must apply for their own individual exemptive order. The SEC deals with them on a case-by-case basis, rather than simply allowing or denying all Bitcoin ETFs.

Getting An ETF Approved - The Process

ETF Hopefuls file a “Proposed Rule Change” to the SEC. When received, the SEC posts a “Notice of Filing” and then has 45 days to approve or deny (or delay decision on) the proposed ETF. 

Here is the Notice of Filing for the most hyped up ETF of the year, the VanEck/SolidX ETF (mentioned above):

Notice of Filing of Proposed Rule Change to List and Trade Shares of SolidX Bitcoin Shares Issued by the VanEck SolidX Bitcoin Trust”

VanEck/SolidX ETF Approval - When Will We Know?

The SEC delayed the decision on the VanEck/SolidX ETF to September. They are able to delay further 2 more times, and very likely to do so. This gives the deadlines of:

  1. September 30

  2. December 29

  3. And finally, February 27 

Bitcoin ETF's & The SEC - What Does It All Mean?

The SEC is not friendly to these proposals, and their reasons are clear.

The Bitcoin market is unregulated, easy to manipulate, and not liquid enough (not enough trading volume occurs). The SEC are concerned that Bitcoin trading almost exclusively 

occurs on unregulated venues overseas that are relatively new and that generally appear to trade only digital assets.

Given these problems, the VanEck/SolidX ETF is also in trouble, as currently it does not appear to solve any of them. There is a low likelihood that it will be accepted, at least before the Crypto markets have matured a whole lot.

While an ETF would be great for adoption and more widespread trading of Bitcoin, it is certainly not a necessity, and many other projects are in the works, such as those listed in our article:

Bitcoin’s Arrival In The Institutional Market – What It Means In The Long Run

Ever since Bitcoin was created in 2009 by Satoshi Nakamoto, it has largely been pushed aside by the traditional financial[...]

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Bitcoin’s Arrival In The Institutional Market – What It Means In The Long Run

Ever since Bitcoin was created in 2009 by Satoshi Nakamoto, it has largely been pushed aside by the traditional financial services industry and the institutional space. A similar attitude has been displayed towards most cryptocurrencies and digital assets, based on fear and the fact that very little was known about these new “actors” in the industry. Now that they are gaining traction and have received the attention of millions of investors, lawmakers and governments are beginning to address the question of regulation for these virtual currencies.

This war between the institution and the new wave of digital assets has been going on for years. However, it seems like we are noticing a shift in mentality and approach from the institutional space towards bitcoin. More and more financial organizations are changing their opinion about the first-ever virtual peer-to-peer currency and have developed interest in these new forms of potentially lucrative investments for their loyal customers.

In this brief overview, we will see how the tide is turning for bitcoin and how it is becoming one of the most sought-after assets by large and reputable financial firms all across the globe. In turn, we will demonstrate how this could eventually lead to the crypto markets regaining their strengths and how we might be on the cusp of one of the largest bitcoin bull runs in history.

Bitcoin & Institutional Investors - The SEC, ETF's and More

Some recent events and news have been very positive for bitcoin and its slow but steady breakthrough within the institutional space. Institutional investors refer to large entities such as banks, hedge funds, insurance companies, investment groups and more. The first major news that has been affecting the space as of recently and that showcases bitcoin’s growing position within the institutional markets is the upcoming (and recently delayed) decision by the U.S. Securities and Exchange Commission (SEC) regarding the approval of a bitcoin exchange-traded fund (ETF).

An ETF is a fund that represents an asset’s value and that is traded directly on the stock market. They are considered passive investments.

In the recent weeks, the cryptocurrency community, as well as actors in the institutional space and even some members of the SEC, have been strongly advocating for the creation of a bitcoin ETF. This truly shows that there is a heavy desire from financial firms and large investors to join the cryptocurrency trend.

Another recent report by Forbes has stated that the Northern Trust, a financial services firm that has close to $10.7 trillion in assets under custody, has opened their doors to companies involved in the crypto space. In addition, the firm is supporting multiple blockchain-based projects. Moreover, Northern Trust’s President, Pete Cherecwich says he believes in a tokenized economy and future.

The Launch Of 'Bakkt' - A Global ecosystem for digital assets

The Intercontinental Exchange (ICE), parent company of the New York Stock Exchange, has announced that it will be launching a new company called Bakkt which aims “to create an open and regulated, global ecosystem for digital assets”. It will enable big organizations to purchase, sell, and safely store virtual currencies and other decentralized assets. With large companies such as Microsoft and BCG involved in the project, this shows how blockchain-based applications and crypto-assets are gaining in popularity and are making their way through various industries. The ICE also plans to initiate a one-day physical bitcoin futures contract when Bakkt launches.

NBER Analysis - Cryptocurrency Forecasts

Furthermore, the National Bureau of Economic Research (NBER) recently published a 70-page-long report on the “Risks and Returns of Cryptocurrency”, analyzing three major coins: bitcoin, ripple, and ethereum. The fact that this paper is being published already shows that cryptocurrencies are actively being discussed by institutional investors. The NBER explains a “strong time-series momentum effect and that proxies for investor attention strongly forecast cryptocurrency returns”. The report even goes as far as recommending investing in digital currencies with “1 or 4 or 6 percent in bitcoin”.

First Cryptocurrency Index Fund?

Lastly, popular cryptocurrency exchange Coinbase has recently announced the launch of the Coinbase Index Fund. It allows institutional investors, with a minimum investment of $250,000, to place money and bet on the performance of the Coinbase Index. The Coinbase Index is composed of all the coins listed on the American giant’s platform. We clearly see that the desire to invest in cryptocurrencies is not strictly one-sided, but that the crypto space is also eagerly waiting for these institutional investors.

Long Term Upward Trend

As many have said over the last months, institutional money is on its way and it could be extremely positive for bitcoin and its value. Although the markets have been experiencing bearish trends and severe downturns in the past months, bitcoin and other major cryptocurrencies such as ethereum, litecoin, or ripple still show a lot of potential for growth and progress. With all the new excitement and innovations in the crypto space, in addition to the institutional investors finally joining the movement, the market has a lot to look forward to. Banks, financial organizations, hedge funds, and large investors are now less hostile towards these new digital assets, which are nothing short of programmable money. Coins and tokens have become more attractive and offer incredible potential, and institutional investors are aware of it.

Bitcoin & The Institutional Market - Summing It Up

In conclusion, there has been a shift in the way digital currencies, especially bitcoin, are viewed in the institutional space. Previously considered scams, frauds, and even fake, they are now starting to be looked at as real financial assets with considerable potential and upside. In this article, we have seen that numerous events have cemented the belief that opinions are changing, and so has the place of bitcoin in larger investors’ hearts. As a result, we can probably assume that the crypto markets will be positively impacted by the increase of institutional investors in the near future. 

About the Author

mati-greenspan-etoro

​Mati Greenspan

Market Analyst @eToro

Senior Market Analyst at eToro; a man very up-to-date with the goings on of the Crypto markets. Follow him on twitter and other mediums at the links below.

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Nothing At Stake Problem – A Forkin’ Mess!

In this post Shawn explains the Nothing At Stake Problem simply. He goes over the nothing at stake definition, and also touches on nothing at stake Casper issue.

Barging into the bosses office and flipping him off may sometimes be too tempting to resist.  But we manage to refrain. Why? Cause we're incentivised against doing so. Usually, there are consequences – like losing your job. Bad behaviour usually has associated costs. Behave badly – lose something.

Sometimes, however, there are situations that allow you to act badly and lose… nothing. If the bad behaviour results in the most fruitful outcome, you’re most likely going to capitalize on it. This usually results from overlooked  incentivization models. In blockchain technology, The Nothing of Stake problem  is an example of an incentivization structure that allows someone misbehave – and get away with it.

 Nothing At Stake definition: –  a situation where someone loses nothing when behaving badly, but stands to gain everything.

Nothing At Stake Problem in PoS

When a fork occurs, the Consensus Method helps the network agree between the two chains. Participants have to choose which chain to follow, and the majority wins. Ideally, you want the Consensus Method to incentivize people to choose only one of the chains.

Kinda like you having your employees choose between this:  “Should I should I slap my boss across the face – or should I keep my job?”

You can’t have both.  You can’t act “badly” and have no costs. (Unless you have another job waiting for you, in which case – power to you!)

Proof Of Stake allows you to slap your boss and keep your job - You have nothing at stake.

Proof Of Stake: The Costs To Validate

In PoS, participants compete in a lottery to win the right to propose the next block. Each participant deposits tokens into a pool from which a “winner” is chosen. This deposit is the primary cost that a participant has to incur. All other costs are negligible.

The winner’s block is either accepted or rejected – and the process continues with the chain being extended on each “accepted” block.

Nothing_At_Stake(1)

Proof Of Stake:  A Fork In Mess 

However, things can get really messy if we run into a “Fork”.  A “fork” in the chain may occur if:

  • There’s a malicious attack  – an attempt to reverse a transaction

  • Two winners are chosen 

In both cases, two new blocks are proposed – and  hence we have a split in the chain:

Nothing_At_Stake(2)

Now, participants have to pick one of the two chains. The problem, however, is each participant can choose to follow both chains. Ideally, one chain will be picked:

Nothing_At_Stake(1)

Remember, the only real cost to a validator was his deposit. Since the chain forked, his deposit exists on both chains. So it costs him nothing more to validate on both chains. This allows him to collect transactions fees and rewards on both chains.

Nothing At Stake Problem: Best To Cheat

In fact, he is incentivised to follow both chains as his optimal strategy.

  • If he picks only one chain, he risks losing the transaction fees on the orphaned chain.

  • However, If he picks both chains, he simply has to wait for one of the chains to be picked as a winner – and he gets his rewards either way. 

When every validator picks the optimal strategy, we will end up with a chain like this: 

Nothing_At_Stake(4)

Why? Because we’d have 100% consensus on both chains. Everyone’s voting for both sides – so the chains extend at the same pace. At first glance, it may not seem like a big deal. But this compromises the security of the network drastically. A malicious actor can intentionally fork the chain, and get away with a double-spend. All he has to do is the following steps:

  1. Keeps validating on both chains as well.
  2. Wait for confirmation of the bad transaction. 
  3. Stop validating on the first chain.

This would tip the balance of the vote onto the other side of the chain – the one with his bad transaction.  Eventually, the second chain would outpace the original chain. The bad transaction will be officially accepted, and first chain will be orphaned.

Opportunity Cost 

The key point to notice is that the validator can follow both chains and have no opportunity cost.
For example, when you decide to quit your job for a new job, there's an opportunity cost. What if your boss was intending on promoting you? However, Proof Of Stake allows you to have two full-time jobs at no cost. If you don't get promoted in the first job – big deal. You have the second job that will promote you. You have Nothing at stake – no opportunity cost.

Being able to validate on both chains with no costs is like having two jobs.​
If the first chain gets orphaned, you still get all transaction fees & rewards from the second chain. In fact, if you pick only one chain you stand to lose your rewards & fees IF your chain gets orphaned. Hence, the optimal strategy is to pick both chains.

Nothing At Stake Problem: PoW vs PoS

Proof Of Work is not vulnerable to a Nothing At Stake problem. Why? Because , unlike PoS,  a participant has to use external costs to build blocks in Proof Of Work. An external cost forces participants to place his "bet" on one chain or the other. The external cost in Proof Of Work is the electricity/hash power used by the miner. 

To understand this better, we can go back to our Farmer's Analogy. Farmer's had to place their sacks of rice in one of the two rows. The more sacks they had, the more votes they got. The rice was their "external cost". They couldn't vote on both rows with all their sacks. They'd either have to split their sacks of rice or pick one row. The external factor of "rice" ensured that the village mayor didn't have to worry about the nothing at stake problem.

Similarly, In order to build blocks on a chain, he needs to place his electricity on the chain he believes in. To build blocks on both chains – he will have to split his electricity in two. He has an opportunity cost here. As he will not be using the full potential of his hash power on either chain. Since he is not building optimally on either chain, he will lose out on potential rewards. Regardless of which chain is eventually picked as a winner, he will have had some opportunity cost.

In Proof Of Stake a participant does not have any external costs to build blocks.

Remember: the only cost was the initial deposit. Because of this, he can place his bets on both chains. He can simply build blocks on both chains – and wait for a winner. Regardless of which chain wins, he comes out ahead – and no opportunity cost. He had nothing at stake.

Nothing At Stake & Casper: Hypothetical?

It's important to note that we are assuming that all participants act “optimally”.  The more likely scenario is that there will be some people who act honestly and reject the “bad chain”. That’s not to say, though, that the Nothing of Stake problem should be ignored. Even if a portion of validators acting selfishly, then attacking the network becomes easier.

But the great news is that the Casper team is not taking the nothing at stake problem lightly – be it a hypothetical problem or not. Ethereum Casper will include punitive measures like “Slashing” that addresses the Nothing At Stake problem. I will discuss and explain that in part 2 of this post!

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Is Proof Of Stake Less Resource Intensive Than PoW?

So, Mike – a Mango reader –  emailed me with this question a few days ago:

 Hey Shawn, I enjoyed your explanation on Sharding. Thank you. But now I’m  trying to understand what makes Proof Of Stake less resource intensive than Proof Of Work? Doesn’t the verification process need to take place the same way?

This is actually a really good question, Mike! It shows that your understanding is growing deeper. Your asking the right questions!

Yes, PoW and PoS conduct the validation/verification of transactions similarly. As such, Proof Of Stake  consumes just as much resources to verifiy transactions as Proof Of Work does.

However, it’s important to note that the “verification of transactions” is not what makes Proof Of Work resource intensive. It is the Cryptographic Puzzle  – required to be solved by all miners –  that consumes a large majority of the resources.

The PoW Puzzle – The Real Resource Hog

Many of us tend to believe that it's the validation of transactions consumes the resources. In truth, the majority of the resources is consumed while solving the Cryptographic Puzzle - which has nothing to do with the validation/verification of transactions.

In fact, Proof Of Work and other consensus methods are more concerned with the ordering of transactions than the "validation" of transactions. The ordering of transactions is resolved by getting miners to solve the Cryptographic Puzzle.

Miners solve the cryptographic puzzle in order to win the “right” to place their block next on the chain. And it’s the solving for the "cryptographic puzzle" that is computationally intensive - not the verifications transactions.  

In fact, Verifying the transactions is trivial compared to solving the cryptographic puzzle. Proof Of Stake eliminates the need for miners to solve the Cryptographic Puzzle – and hence eliminates the intense resource computation required.​

The PoW “Lottery” vs PoS “Lottery”

A couple of weeks ago, I explained Proof Of Work’s Puzzle using the Reverse Lottery Analogy.

In brief, Proof Of Work uses the Cryptographic Puzzle to setup a lottery. The winner of the lottery gets to place the next block in the blockchain – and everyone else agrees on it.  To win the lottery, miners have to churn numbers after numbers repeatedly until they generate the winning number. This process is extremely resource intensive.

The PoW Lottery System:
Think of it this way –  the miners in this lottery know the winning number but they can’t forcefully print the number. Numbers on their ticket are printed randomly. So all they can do is keep printing tickets until they print the winning number.  The ‘printer’, however, consumes a lot of electricity – and hence the process can get really resource intensive.

The PoS Lottery System: Ethereum’s Proof Of Stake, however, doesn’t use a Reverse Lottery System. Instead, they use a normal lottery. In this lottery, each Ether token represents a lottery ticket. “Miners” (in Ethereum’s case we call them Validators)  simply place their Ether tokens in the lottery jar. We then simply shake the jar and pick the winner. The more tokens you have in the jar, the higher your chance of getting picked. (This is similar to having more hashpower in Proof Of Work)

And Voila! – we eliminate the intensive resource consumption.

Concluding Thoughts

Keep in mind – this is article is not claiming that Proof of Stake is better than Proof Of Work. Making a claim like that would show disregard for the multitude of use-cases for Blockchain and DLTs.  There are pros and cons for both consensus methods – and there will always be tradeoffs. In fact, the intense resources consumed by PoW can be stated as a positive aspect when pertaining to Immutability.  Here's a simple & well written article on Immutability in PoW that I recommend reading.

At MangoResearch, our community seeks to understand and educate ourselves – and not engage in futile debates.

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What Is Blockchain Immutability? – A Secure Tamper Proof Database

By Krisha A / May 21, 2018
Krisha breaks down the concept of blockchain immutability. In addition, she also explains the importance of a blockchain being tamper-proof to claim 'Immutability' , and 'why' being immutable is important to many.

It was the devastating effects of the 2008 financial crisis that gave way to the rise of blockchain technology, in particular, the bitcoin blockchain.

The bitcoin blockchain is revolutionary because it enables the world to transact without the need of a middleman. This elimination of the centuries old middleman was partly due to one inherent property of the bitcoin blockchain - Immutability

Lets breakdown the term: Immutable

  • Immutable in the dictionary is - “Unchanging over time or unable to be changed

  • Immutable in blockchain is - "The inability of a block to be deleted or modified once it is in the blockchain" - An immutable ledger

​​​​You’re probably wondering: 
" Why is blockchain immutability so important in knocking off the middleman anyways? "

It is the property of  immutability  in the Bitcoin blockchain that gives users the assurance that their wealth and information cannot be tampered with. Such an “assurance” is normally given to us by middlemen - like banks. And we often take them up on that assurance, and bestow our trust upon them. We trust  that our banks will protect our money & information. 

Unlike middlemen, you don’t have to trust the bitcoin blockchain to be sure your wealth and information will be protected - It is a trustless system. And an Immutable blockchain allows for that. In fact, it is one of the key pillar stones of the Bitcoin blockchain.

Immutable Blockchain: Tamper Proof vs Tamper Evident

Blockchain Immutability is often misunderstood – even among industry enthusiasts. To truly understand the essence of blockchain immutability, we need to clear out the confusion between Tamper Evident & Tamper Proof.

  • Tamper Evident -
    An object cannot be tampered with, without it going unnoticed

  • Tamper Proof - An object cannot be tampered with

To be truly Immutable, you need to be Tamper PROOF. Being Tamper Evident is not enough. Several Blockchains falsely claim immutability when they are merely Tamper Evident.

If you were tasked to come up with a list of things that cannot be changed, and is indeed Tamper Proof, you probably wouldn’t get very far (Go ahead! Give it a shot). Almost everything is susceptible to change, and things that are susceptible to change cannot be Tamper Proof.

Blockchain Immutability Is Relative

To put into perspective, lets go over a few rudimentary things we deal with on an everyday basis:

Toothpaste
Try squeezing out all the toothpaste from a tube, and putting it back in. It’d be difficult, tedious, and evident that it has been tampered with - It would be Tamper Evident

Emails
Emails that have been sent out cannot be “un-sent”. Although, through an individual perspective, emails can be quite “immutable”. However, you can always persuade the recipient of the email, or the person running the mail server to delete it. Once again, difficult, and not without risk of detection - This too, is Tamper Evident


Notice how even the most immutable things on an individual perspective can be changed someway or the other. The only difference is that somethings are harder to change than others - Immutability is relative.

Everything can be changed. To say something can never be changed, is us discounting the progress of technology.

How Is A Blockchain Immutable? - The Maximum Degree Of Difficulty

At this point you’re probably wondering, “Alright, if everything CAN be changed, how exactly is the bitcoin blockchain immutable (aka tamper-proof)?"

Since almost everything can be changed, we define "Immutability" in practical terms:
" The maximum degree of difficulty to change something "

  • Essentially, How difficult is it to edit the bitcoin blockchain? 

  • Hard?

  • Super Hard?

  • The hardest thing to change in the world?

The Bitcoin Blockchain lies at that maximum degree of difficulty - It is, currently, one of the most difficult things to change in the world. Making it the highest standard of security achieved thus far.

Most people, when asked, cite “the blockchain” as the reason behind Bitcoin's Immutable nature. However, it isn’t the "blockchain" that makes bitcoin immutable, but its Proof of Work consensus method. 

The Proof Of Work that backs the Bitcoin Network is what makes it’s blockchain “the hardest thing to change in the world”. The "Work", aka electricity/hashpower, earned bitcoin its badge of Maximum Immutability. (So to speak - will discuss this more in a separate post).

  • For now, it’s important to note that Blockchains are inherently Tamper Evident due to the underlying data structure, but not all blockchains are Tamper Proof.​​ Only a tamper-proof blockchain can be immutable.

Bitcoin Blockchain - The Immutable, Tamper Proof Ledger

Immutability is relative depending on how difficult it is to change something. The scale of immutability can be measured from  "0" -- to -- “The most difficult thing to change in the world”.

As it stands, the most difficult thing to change in the world is the Bitcoin blockchain. It is the highest standard of security that has been achieved thus far. Remember, the Proof of Work is what makes the bitcoin blockchain tamper proof - it is what makes the blockchain immutable.

If another, superior technology, were to break the scale of immutability - the scale would reset, and a new standard of immutability will be defined.

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