Reddit has just announced its desire to put part of its fundraising round on a cryptocurrency blockchain. It is fantastic that Reddit is aware of the cryptocurrency space and wishes to empower its users with these sophisticated tools. Blockchain-based technologies are the way of the future, giving ordinary people unprecedented access and control over their assets. Reddit is absolutely moving in the right direction.
From a technical point of view, however, Reddit stands at a crossroads with many different paths. How to implement their vision so that it is convenient for users, as well as secure and powerful, is a demanding decision that must be made and never changed. It is crucial to get this choice right on the first try. Whichever approach is chosen, it will be vested by the faith of users in Reddit to uphold its obligations. Drastic technical changes down the road could be disastrous in upholding that trust.
I fear that Reddit is intimating the launch of its own crypto currency altogether, on its own, separate blockchain. In other words, Reddit would become just another altcoin, orthogonal to every other coin as DogeCoin is to LiteCoin. I believe that this would be a serious misstep.
Don’t build another Altcoin
Reddit should not be just another altcoin. Altcoins exist by the thousands and they are regularly ridiculed. Altcoins are on their own little islands, apart from the gigantic Pangea that is Bitcoin. While they often have novel technical innovations over Bitcoin, their isolation from mainstream standards has always doomed them. Nor do altcoins built for a sole purpose work well either. Icelanders don’t want to hold Aurora Coins. Even powerful concepts, such as improved anonymity or cheaper transaction fees, have not impelled users to adopt clever new altcoins. Altcoins die lonely deaths.
Feed off the network effects of Bitcoin
The network effects around Bitcoin are paramount. Because it came first, it has the greatest infrastructure, user base, merchant ecosystem, acceptance, and brand name. These are what matter. In a world where cryptocurrencies may be forked at will, what is the differentiating factor? How can a forkable abstraction be valuable? The answer is branding and network effects, however arbitrary. There is no formula or technical comparison that dictates that Bitcoin should be dominant. But the nature of cryptocurrencies, like past systems, inherently demands a single standard. History is path dependent. Bitcoin has already ossified into that standard. To make an altcoin, with its own blockchain but in the mold of Bitcoin, is to attempt to defy historical forces.
Don’t bite off more than you can chew
Building another altcoin is also a demanding proposition from a technical standpoint. Forking the Bitcoin code is not difficult. Ensuring the security of its own blockchain is both essential and exceedingly difficult. The infrastructure challenges associated with building a secure altcoin should not be trivialized. Reddit should not have to worry about hashing algorithms, mining pools, 51 % attacks, and so on. But if Reddit builds its own altcoin, it shall bring upon itself these headaches.
For altcoins, the threat of a 51% attack is very real. The proof of work system that guarantees Bitcoin is only safe en masse, never in small bits. Many altcoins have been overpowered by such attacks. Their very obscurity in mining makes them vulnerable. The only thing protecting most altcoins is their utter lack of financial value. This should not be comforting to Reddit, which is committing non-trivial money to this system. Moreover the consequences of a breach in trust in a Reddit Altcoin could be far more damaging to Reddit than the direct financial consequences.
It would be much better to stick with a system that already works and has never been subject to a 51% attack. Bitcoin has been stress tested to an incredible degree. It has endured an astonishing variety of travails. Battle-hardened, Bitcoin has proven its mettle. And it has survived impeccably. Why not leverage this existing system? Why reinvent the wheel?
Don’t compromise on true decentralization
The Bitcoin Blockchain operates with Proof of Work such that only a conspiracy of monumental proportions, at the cost of hundreds of millions of dollars, could accomplish a 51% attack. But other schemes exist that trade security for convenience. Stellar is one such example. Using ‘trusted nodes’, Stellar is not a true decentralized system. Not all nodes are equal partners. Users must depend on certain, arbitrary nodes not to collude. While this makes for cheaper transaction fees because miners need not be paid, the ‘trusted node’ model entirely defeats the point of the blockchain paradigm. History has demonstrated the rate of failure of ‘trusted nodes’ time and time again. Who guards the guardians?
Build on something that works, not “Future Hopes”
Some will argue that shares should be represented on Ethereum. Ethereum is great. Except it doesn’t exist yet. They haven’t even figured out what their mining algorithm will be yet. It’s so inchoate and nebulous; it is everything and yet it is nothing. Don’t build a system representing real value on castles in the air. When Ethereum comes out, it will have its own trial by fire. But to plan on it now is like saying “I’m planning on getting to work tomorrow… in my flying car”.
Bitcoin works. Bitcoin’s bugs have been ironed out over five years. That means a lot.
The system you want already exists
What Reddit needs already exists. It’s called Colored Coins. It exists on the Bitcoin Blockchain and enjoys all the advantages therein. Metadata written with trace amounts of Bitcoin, Colored Coins cannot be double spent or forged. They are proveable. They are fluid. And they can represent anything. When someone holds Colored Coins, they and they alone control them.
The addresses of holders of Colored Coins are publicly visible. They can be sent micro payments at any time via Bitcoin. Everything is on the same system in the same language.
No Intermediary Currencies
Colored Coins have no currency intermediates besides Bitcoin. Unlike other schemes, such as NXT, MasterCoin, or CounterParty, there are no intermediary currencies in which I must transact to go between Colored Coins and Bitcoin. With these other implementations, not only must I worry about the market price of my asset, in addition to the price of Bitcoin, I must also worry about the highly illiquid, erratic price movements of a still-more-esoteric altcoin (NXT, Counterparty, etc). This increases the exchange risk by another order of magnitude. Nobody wants this. These altcoins were created for technical convenience by their developers, not because they are optimal solutions.
While it is true that Counterparty coins (XCP) may not be necessary for handling most interactions with assets, the mere fact that they exist is an inelegant solution. Why should I have to buy into an altcoin at all? Colored Coins can be created out of pure Bitcoin, without having to consider the current XCP/BTC price. Having to exchange into another currency, purely to achieve functionality that may be replicated in Colored Coins, is bad design.
A Colored Coins API
Assembly has built an open source API and protocol for interacting with Colored Coins on Bitcoin. It is built on the Open Assets protocol, which is secure and generalized. Our implementation works; we already interact with assets precisely as Reddit intends to do. We have API calls that allow you to interact with Colored Coins in myriad ways. Everything about a coin is written openly on the Bitcoin Blockchain. We control absolutely zero proprietary information; it’s all open source.
For example, ownership of the API itself is represented by a Colored Coin. See who owns it here:
The Future is Crypto
Colored Coins enable a host of new capabilities for owners, such as cryptographic voting, to multisignature addresses for mass organizations. Representing ownership as a token is only the first step. Reddit can gain from these innovations. Perhaps users can hold Reddit Shares and write cryptographically signed “Reddit Platinum” messages with them. Maybe subreddits hold money collectively on multisig addresses. Who knows? The possibilities are endless. But let’s start with a sound foundation.
See what we’ve built
Our system works. Check it out at coins.assembly.com
Or tweet me at @abarisser