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With all this talk of bitcoin scaling, the August 1st bitcoin network fork, segwit, segwit2x, BCC, BTC and other general craziness going on in the bitcoin space... and the competing incentives between bitcoin miners and bitcoin users, I've been looking under the hood to get a better understanding of what is really going on.

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TLDR; Bitcoin is splitting into two coins (BTC & BCC) because of competing incentive structures pitting one group of miners against core developers. The miners fork called BCC (Bitcoin Cash) will have 8 MB block sizes allowing for more transaction throughput, but will not enable off-network payment channels. Core developers fork is based on SegWit2x, which will increase throughput and also enable the lightning network payment channel that lays the ground work for very low cost off-chain transactions. The community at large seems to be behind BTC/SegWit and many people have suggested BCC will not get enough miners on their side to survive, but only time will tell.

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One way to think about bitcoin that is helpful in understanding the current affairs is this: bitcoin is a collection of individuals who have all decided to have the computers that they control run the same code (network protocol) that keeps track of who owns which bitcoins. There are miners who do work to process each transaction and cryptographically secure the network and get paid fees and block rewards for doing this work. There are users (represented by the bitcoin core developers) who execute transactions on the network. Each computer (miner and user) that participates in the network has it's own copy of all the transactions that have ever happened, this is why the technology can generally be referred to as decentralized ledger technology (DLT).

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This copy of all transactions that have ever happened is called the bitcoin-blockchain. The code/network protocol that each of the computers run has a set of rules that everyone agrees upon that decide how new transactions are written to the bitcoin-blockchain. As long as the network agrees that a transaction is valid, then, the transaction is written to the bitcoin-blockchain, distributed to each node, and is forever held as a true/non-contestable transaction, this feature is called transaction immutability. Due to the growing popularity of bitcoin, the technology has been having growing pains and the network protocol needs to be updated in order to handle more transaction throughput and reduce transaction fees.

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The competing ideas for how to scale the network illuminate the careful balance of incentives that the original implementation of bitcoin created that has enabled the bitcoin network to continue to grow and become a stable and secure place to store value. At the time of this writing, there is around $40 billion dollars of value stored in bitcoin. For miners, they would like to have the solution based upon larger block sizes - BCC will fork bitcoin and start mining 8 MB blocks on August 1st. That means that each new block in the BCC blockchain is able to hold more transactions, thereby increasing transaction throughput. Because miners make money by writing transactions into blocks, this direction to scale the network is preferred by these miners because they are able to continue to collect transaction fees because all transactions will be written to a block. For users, and the bitcoin core developers, they are moving towards what is called SegWit2x. This is a combination of a proposal called Segregated Witness with the promise to increase block size to 2 MB in the near future.

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What is interesting about the segregated witness solution is that it enables payment channels, specifically in bitcoin, called the lightning network. Payment channels allow for the creation of off-chain transactions that can be very low to zero-cost. This has the potential to allow for online micro-transactions and small transactions which could lead to broader interest by merchants to accept this as a form of payment because of the lower transaction fees. Payment channels are very promising and there is a lot of research and development going into building out use-cases.


Payment channels reduce fees because the only time a transaction is written to the blockchain is when you open and close a payment channel. A payment channel can be opened between 2 or more parties by having at least one of those parties lock funds into the channel. Once the payment channel is open, the parties conduct transactions with those locked funds among themselves that are instantaneous and have zero transaction fees. One very interesting aspect of payment channels is that they can be networked together to form a chain of transactions between parties that do not directly have a channel open between them, but are connected via a network of open payment channels. For example, if I have a payment channel open with Dan, and Dan has a payment channel open with Josh, Josh and I can transact with each other by using Dan as an intermediary payment channel even though Josh and I do not have a payment channel open between us. Payment channels are a very promising area of research for crypto-currencies and this may be the path that we see being followed that will allow for low cost transactions, online micro-payments, and low dollar amount retail transactions between parties whether they be P2P, B2B, B2C, or C2B. Once a payment channel is closed, the value of all transactions conducted within that channel is settled on the blockchain.


For a really good technical deep-dive on how payment channels work, I highly recommend these videos.


Jackson Palmer runs it down in 15 minutes: what are payment channels? (eg. the lightning network) - YouTube

Technical deep dive on the lighting network: SF Bitcoin Devs Seminar: Scaling Bitcoin to Billions of Transactions Per Day - YouTube


Lightning network white paper:

For more information on the bitcoin payment channel lightning network: Lightning Network

Payment channels on the Ethereum network: Raiden Network


Thank you for taking the time to read this post, please leave any questions or comments below!

If you are curious to start learning how smart contracts work, this blog post takes you through the steps I've taken to register a domain name using a decentralized app (dApp) running on the Ethereum network.


You may want to register a .eth web domain name so that your site lives and breathes the Ethereum network.  In order to do this, you can install the Metamask chrome plugin.  This is an Ethereum wallet that plugs into your web browser and makes it possible to interact with Ethereum enabled websites (dApps), such as the one where you bid on .eth domain names.


Get Metamask here: MetaMask


It is important to note here that securing your Metamask wallet account is very important.  If you lose you password and pass-phrase, you will not be able to get back into your account and any funds in the account will be lost forever. This is one of the effects of using a de-centralized network, there is no central authority that holds your account and can help you recover a lost account, the account is a feature of the network and you are solely responsible for the security of your account!


With that said, after creating a wallet account in Metamask, you will need to put Ethereum into the newly created wallet. I already have a Coinbase account with some Ethereum in it, so it was very easy to scan the QR code on Metamask with my Coinbase app and send some money to the Metamask wallet.


If you don't have a Coinbase wallet you can sign up for one here: Buy/Sell Digital Currency - Coinbase


We strongly recommend that you use 2-factor authentication with your Coinbase account, and the most secure method is a validator app, such as Google Validator.


If you would like to send me some Ethereum, here is the QR code for my Metamask account!


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Now you should be all set up and have some Ethereum in your Metamask wallet.  Now to register a domain name on .eth, browse to the registration dApp.


Registering domains is governed by a smart-contract.  This is how the decentralized Internet works that is very different from the traditional web.  The rules of registering a domain are governed by smart-contract code, and there is no central authority, business, or entity that holds the contract for the domain once you enter into the smart-contract.  It's explained really well on the registration dApp site, so read here for more details:


Once you have found a domain name that you want to register, you will need to place a bid, this is really exciting because this is probably your first time executing a smart-contract that is running on the Ethereum network and writing the transaction state to the Ethereum blockchain, when I did this the first time I thought it was really cool and a bit like reaching out and touching the future!  Here is what it will look like when you execute the transaction in Metamask.


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If you look closely at the Metamask plugin, you will see that a transaction record is kept for each of the transactions that you have made.


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Bly clicking on one of those transactions, it will take you to the details of that transaction on the blockchain.  For example, here is the link to my very first ever smart-contract when I registered my first ethereum domain tonyrose.eth.



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Feel free to browse to my transaction and leave me a note in the comments section!


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Ok, that is it for this blog post.  On my next post I am going to explore developing a simple web-site with a basic smart-contract running on it.  Stay tuned for more!

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Are you interested in exploring and coding real life use cases on the blockchain?  Explore micro-payments, cross-border-payments, low-zero-transaction-fees, decentralized markets, self-sovereign-identity, crypto-currencies, smart-contracts, bitcoin, ethereum, ICO's and more with us!


Join a team that already has a track record of winning blockchain hackathons!

Vantiv & Voatz Team Up To Win Blockchain Hackathon!


Email for more details...


Here is the Hackathon we're going to: FinTech Week: FinTech & Blockchain Hackathon Tickets, Fri, Aug 4, 2017 at 6:00 PM | Eventbrite

EMV chip card transactions moved to the forefront of payments conversations even before last fall’s fraud chargeback liability shift. But many SMB merchants have overlooked the other payment type most EMV terminals enable– Near Field Communication (NFC) contactless “tap-and-pay” payments.


While EMV adoption has been slower than expected, with only 37 percent of U.S. merchant locations EMV ready four months after the liability shift, the number of consumers making tap-and-pay mobile payments is expected to rise 62 percent in 2016. As mobile payments continue to gain ground among consumers, developers can capitalize on the fact that EMV enabled technology also opens the door to tap-and-pay transactions.


One of the biggest use cases for implementing tap-and-pay functionality is speed. Chip card “dip” transactions tend to take longer than traditional mag-stripe card swipe transactions. Additionally, the EMV learning curve for both merchants and consumers is creating frustrating delays at checkout– a recent survey found that nearly one in five chip card users think EMV transactions take too long.


In contrast, tap-and-pay transactions like Apple Pay take just a few seconds. And many younger consumers who are accustomed to using their mobile phones to manage nearly every facet of their lives are already comfortable with the idea of using their phone to make payments.  A recent survey by Vantiv and Socratic Technology revealed that Millennials (46%) and GenXers (41%) are the heaviest and most frequent users of mobile payments.


Tap-and-pay also opens the door for developers to provide additional consumer convenience by facilitating sales anywhere, anytime. Creating an environment where a mobile wallet is accepted across all channels, both instore with tap-and-pay or via in-app payments, helps a merchant extend their brand and build customer loyalty.

Again, Millennials are the group most likely to appreciate this type of shopping experience by using their mobile devices in conjunction with in-store experiences. Results from Vantiv’s 2015 Consumer Survey showed that 54 percent of Millennials use their mobile devices to retrieve coupons/deals, 48 percent to check prices, 43 percent to make purchases, and 40 percent to review loyalty points.


Security is also a big selling factor for tap-and-pay. EMV chip cards come enabled with an embedded chip that packs in strong security features beyond the capabilities of traditional magstripe cards. It’s important to note, however, that these extra security features aren't fully applicable when shopping online.


While consumers can pick and choose from multiple payment options, NFC technology has a single standard for developers, creating consistency across various platforms. With offerings from Apple, Google, Samsung, and PayPal, developers should be considering where the market is moving. Since their phones and technology are already in the majority of consumers’ hands, Apple Pay and Android Pay are poised to continue to lead the pack of mobile payment options. Whatever mobile wallet ends up on top, NFC will remain the behind-the-scenes technology powering it.


Looking ahead, the next big opportunity for developers lies in supporting digitizing of gift and loyalty cards, coupons and offers, inserting these into mobile wallets, and presenting them over NFC. Vantiv is currently working with Google and Apple to make sure that the next generation of EMV/NFC hardware will support these emerging technologies. As a developer, if you haven’t yet enabled EMV/NFC into your offering, you risk losing merchants that are trending toward payment solutions that are supported by these technologies.


The over-arching advantage of tap-and-pay functionality is enabling merchant and customer convenience through speed, security, and loyalty building features that span all sales channels. Developers that identify the most promising merchant groups (like the aforementioned industries that rely more heavily on timely delivery of goods and services) and highlight tap-and-pay as a value-add, are likely to experience greater success in the marketplace.


Vantiv offers semi-integrated EMV products that are NFC enabled, and welcomes the opportunity to discuss your integration needs for tap-and-pay functionality. Contact us to learn more, and stay tuned for more on this topic.