We are talking with Peter Lawrey about digital currencies.
What do you think is the main advantage of a digital currency vs. a classic one?
Peter Lawrey: Digital currencies have a different trust model. This allows multiple organisation and individual to co-operate with a lower level of trust required. There is less risk of hacking as the data is designed to be shared from the start. Instead of trusting central governments, people can trust the platform and/or a company which interests are known. This doesn't make the solution better but does provide a viable alternative.
One Bitcoin has a market value of more than 10.000 euros. Do you think is a proper price or just a bubble?
Peter Lawrey: The question is; if people stopped buying the coins because they believed they could sell them for a profit later, what is the fundamental value of a coin. You might wonder if a bitcoin is like a tulip, but this is not entirely fair. Bitcoins are not perishable, and they serve a useful purpose. Around 1/3 of the money miners make comes from transaction fees, not from mining. To my mind, this tells me the price is inflated, not the real value is not too far removed. Another issue is the fundamental cost of running the service compared with the revenue it raises. One estimate places the cost of running to be about 1/3rd of cost of the power it consumes. I suspect many miners find a way to pay very little for their power, possibly less than real cost, however even if they paid full rate for the power, and the mining reward disappeared as it will over time, the price at the moment is reasonable.
The problem for bitcoin as I see it is not whether the value of the digital currency market is a bubble, but whether bitcoin cannot be easily replaced by one or more better solutions. Once enough people believe there is a better place to store their money, it can be easily replaced by service(s) with a similar commercial model but are a bit better, e.g. in terms of cost of power.
Which are the current Bitcoins limitation?
Peter Lawrey: I would say the biggest limitation is it's resistance to change. Most of the other technical problems can be solved fairly easily and will be solved in other solutions. However, even a minor technical change to double the block size, something other solutions have already done, failed to happen after a lengthy debate. As it evolves, digital currencies will need to embrace much more dramatic and fundamental changes. As I see it, bitcoin advocates are too attached to arbitrary decisions made at the start, which at the time were disruptive, but over time are likely to be increasingly inadequate.
The amount of power consumption for digital currencies is huge, and in general creates pollution. Are there better alternatives? How far are we from finding an optimised solution?
Peter Lawrey: There are more optimised solutions available already. Solutions using large blocks can half the power consumption, but those using Proof of Stake use several orders of magnitude less power. Further, if we are to have a blockchain to supports IoT needs, the throughput will need to increase by 100,000s of times over Proof Of Work, and the cost of operation will need to decrease by around 1,000,000 times. The problem for bitcoins is this is entirely achievable, and Ethereum is taking a step in this direction with its move to Proof of Stake.
Can you give few starting points for someone who wants to look in creating a new digital currency?
Peter Lawrey: The best thing is to research existing solutions, many are open source. The key thing to look at is the balance between performance and the level of trust you need. If you don't need high performance, and you want a widely used solution Ethereum is a good start.
Peter was a speaker at the new conference The Developers, 19 April 2018, Cluj-Napoca. More details soon at the-developers.com
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