[2014] Cryptocurrencies as Distributed Community Experiments

Cryptocurrencies as distributed community experiments Matthias  Tarasiewicz,  University  of  Applied  Arts  Vienna,  Austria   Andrew  Newman,  University  of  New  South  Wales,  Australia    

Introduction The  design  of  secure  'digital  cash'  systems  was  first  postulated  by  David  Chaum  (1982)  and  the   discourse  continued  (Chaum  1990;;  Tanaka,  1996;;  Szabo,  1997;;  Dai,  1998;;  Van  Hove  2000)  until   2008,  when  Satoshi  Nakamoto  introduced  Bitcoin  with  a  self-­published  paper  (Nakamoto,  2008)   describing  the  blockchain  ledger  and  inventing  the  first  ‘crypto-­currency’.  The  idea  of  using   cryptography  (rather  than  a  central  authority)  to  control  the  creation  and  transactions  of  such  a   ‘digital  money’  created  the  basis  for  the  cryptocurrency  ecosystem  of  today.  Yet  despite  its   widespread  adoption,  Bitcoin's  underlying  structure  and  technology  has  faced  major  criticism:  its   economic  system  of  a  deflationary  currency,  the  inefficiency  of  mining  (in  terms  of  electricity),  the   long  transaction  verification  time  and  the  inability  to  implement  real  anonymity  into  the  protocol.   Additional  problems  arose  because  Bitcoin  as  ‘experimental  currency’  has  been  in  existence  for   only  five  years.  In  its  current  implementation  the  blockchain  does  not  scale,  the  attribute  of  being   ‘anonymous’  has  been  challenged  and  Bitcoin  could  lose  its  decentralized  nature  because  of  a   mining-­pool  monopoly.     This  paper  outlines  the  major  criticism  cryptocurrencies  faced  since  Bitcoin’s  introduction  in  2009   that  resulted  in  the  iterative  development  of  various  'altcoins'.  These  alternative  cryptocurrencies,  

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which  can  be  seen  as  'distributed  community  experiments',  introduced  new  algorithms  while  also   tackling  social  and  other  evolving  problems  that  emerged  throughout  the  various  phases  of   adaptation  and  collective  learning  processes.  Often  introduced  through  self-­published  white  papers   or  online  announcements,  these  alternative  coins  represent  hypotheses  by  the  respective  creators   until  they  can  show  a  significant  user-­base  and  ultimately  are  accepted  in  online  cryptocurrency   exchanges.  We  examine  the  important  experiments  and  alternative  approaches  to  specific  issues  of   the  Bitcoin  design  and  describe  differences  in  coins  that  have  been  launched.  We  not  only  discuss   successful  experiments,  but  also  show  attempts  that  failed  in  the  relatively  short  but  eventful  past   five  years  of  cryptocurrencies.  We  demonstrate  how  the  initial  design  of  Bitcoin  has  been  extended   and  improved  by  so  called  'next  generation  cryptocurrencies',  while  the  two  main  aspects  -­  the   blockchain  ledger  as  well  as  strong  cryptography  -­  remain  key  elements  to  all  of  these  new   systems.  Finally  we  outline  possible  future  problems  and  developments  around  the  blockchain,   which  not  only  is  the  invention  that  started  cryptocurrencies,  but  remains  the  most  experimental   and  challenging  part  with  no  long-­term  strategy  yet.    

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