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Here I will list the problems laid out in the Bitcoin white paper with digital currencies, how bitcoin (a decentralized digital currency DDC) solved them, and how a Digital Collectible Currency (DCC) can also solve them. We will also discuss which format has better solutions to which problems.
Verification of ownership of a coin
Bitcoin
Digital signatures are used with public/private key encryption
DCC
Digital signatures are used with public/private key encryption
Creation and distribution of coins
Bitcoin
Bitcoin solves the creation and distribution of coins by having a challenge every 10 minutes where one lucky miner will win and get awarded a set number of coins. Basically a lottery where the price of a ticket is energy usage.
Basically in Bitcoin, you buy an ASIC and work on a hash problem that there is no way to figure out the right answer, you have to try every possible solution. The lucky one who finds the right solution first, wins.
DCC
A DCC solves the creation and distribution of coins by letting miners create and complete a challenge on their own or in a group that meets the requirements of the coin.
You create your own challenge, and don't need any connection to the network to both create the challenge and complete it.
In our DCC, you generate a large random number that is the right bit length, and then you factor it using a CPU/GPU combo. The prime factorization is the solution and earns you a coin.
Pro's and Con's
In bitcoin the miner has to be constantly connected to the internet and has to compete within time limits. In a DCC the miner never has to connect to the internet and can mine at their own pace.
Everyone can earn coins simultaneously in a DCC whereas only one person can earn coins every 10 minutes in bitcoin.
Also in bitcoin ASIC's are the most powerful miners which price out normal people from earning coins by mining. In a DCC consumer grade APU's (CPU GPU combo like a laptop, desktop, or smartphone) will be the most efficient miner until quantum computers can compete in several decades for GNFS factorization.
Bitcoin may be more resistant to quantum computers because it uses an NP-complete algorithm whereas our version of a DCC uses an NP-hard algorithm. However DCC is much more resistant to acceleration in GPU's, FPGA's, and ASIC's. Also a DCC can be designed that uses NP-complete algorithm if desired. In any case quantum computers are decades off that would be able to complete the factorizations that everyday computers can complete today.
DCC has a very serious advantage in the creation and distribution of coins.
Sending coins
Bitcoin
In bitcoin, coins are assigned to your public key to which only you know the private key to claim them. You then sign a transaction that verifies that you give a coin to another person's public key. Once this transaction becomes a part of the blockchain, you can no longer spend it, and the person you gave it to can spend it at will.
DCC
In a DCC coins are assigned to a public key that only you know the private key for just like bitcoin. But to spend the coin, you must give the private key to another person off-chain. So using encrypted messaging, bluetooth, snail mail, passing a note, or verbally, etc. Now both you and the recipient know the private key. The recipient then needs to send a message to the network in order to change the private key so they are the only ones that can spend it in the future.
Pro's and Con's
In bitcoin everything is on-chain, so you do not need to open up a side communication channel to send coins. In a DCC you need to comunicate with the other party directly likely via either encrypted communication like email or wallet to wallet or physically with bluetooth. Bitcoin has a distinct advantage here, but it is also nice that in a DCC you can send coins without internet connection. With bitcoin you can receive coins without an internet connection, which you cannot do with a DCC (unless you trust the person to not double spend it, or you get it via bluetooth from a phone app that somehow prevents double spending).
In bitcoin you need to wait up to 1 hour for your transaction to be confirmed in the network. In a DCC when someone changes the private key to receive coins, they can immediately ping the network and see if it was verified and integrated. DCC has the potential for much faster transactions than bitcoin, however bitcoin's transactions would likely be more secure on average.
Bitcoin has the lead here for ease of sending coins if you have an internet connection but are not in-person.
DCC has the lead here for speed of transactions.
The DCC has the lead here for in-person point of sale, the merchant would need to be connected to the internet but the buyer would not need to be and transactions would be faster than bitcoin and likely cheaper.
Preventing double spend
Double spend is where someone gives their coin to multiple people at once and therefore gets more products than he can afford.
Bitcoin
Double spending is prevented by a blockchain; that is an unbroken chain of transactions that cannot be reordered or changed without re-completing the proof-of-work faster than the rest of the honest network.
DCC
Double spending is prevented by allowing the receiver of the coin to change the private key of the coin they are given. The receiver pings nodes in the network to confirm that the private key of the coin was changed to their private key, and no one else's.
Pro's and Con's
Bitcoin requires less coordination between nodes to prevent double spend. A new miner can simply see what the longest blockchain is, and accept that as objectively the true and correct chain.
DCC requires coordination between nodes. You will have to look for a consensus of nodes to know what the true ledger is. Likely some nodes will be more trusted than others so you will value their ledger as more correct. Bad nodes can be blacklisted from the network and their staked coins erased. Also nodes could require a subscription or connection fee to download or collaborate with or send a transaction to their ledger. This will likely even out with bitcoin, since there are no transactions on the DCC ledger, you will not have to pay transaction fees in a DCC.
Bitcoin has a more cohesive and authoritative and rigid way to prevent double spend. But in practice and network code optimization, DCC should become quite close and be more flexible if errors are later found, unlike bitcoin.
Incentives
Bitcoin
Bitcoin incentivizes nodes by requiring nodes to be constantly connected to the network and have an up-to-date ledger to mine for the currency, collect transaction fees, and to send it.
DCC
DCC incentivizes nodes by requiring a connected node to securely receive payments. Node runners might also require a fee to connect to them and declare that you received a payment.
Pro's and Con's
Bitcoin using mining to incentivize running network nodes has an advantage here, but in practice, I expect roughly equal numbers of nodes in either setup.
Divisibility
Bitcoin
In bitcoin the mining reward is very highly divisible. However it needs to be because there are so few mining rewards. There is an ultimate indivisible amount called the Satoshi which is a set and small fraction of a bitcoin.
DCC
In a DCC, each mining challenge awards the miner with the smallest unit possible of the currency which cannot be further subdivided. This is similar to the satoshi in bitcoin. In our DCC this doesn't matter as much since there is no limit to how many people can be solving challenges at once. The difficulty of the problem can be set, and adjusted, so that the coin maintains a relatively constant value if desired.
Pro's and Con's
While bitcoin is clearly more divisible than DCC in theory, in practice DCC could be difficulty adjusted to make each reward worth a small amount similar to a satoshi or a penny (or more preferably a dollar).
Price stability
Bitcoin
Bitcoin's price is not designed to be stable. Bitcoin is designed to have an ever increasing value by having ever diminishing supply. Also there are liquidity crises every block halving which occurs roughly every 4 years.
DCC
The price can be very stable in a DCC. A price target can be set and the challenge difficulty adjusted to keep the price fixed on whatever is desired. If the price rises, the difficulty can be lowered so more supply comes on the market. If the price falls, difficulty can be raised to reduce supply. A consensus of nodes would be required to set the numbers minimum bit length to be factored to be awarded a coin. Adjusting the difficulty can make mined coins less fungible until they are accepted to the network in which case even if later the bit length is no longer adequate, the coin would still be valid. The varying requirements only effect newly mined coins being accepted onto the network. So if your factors currently don't meet the requirements, you can sit on it until the difficulty lowers in which case you can submit it to the network.
Pro's and Con's
DCC clearly has an advantage in price stability, but at the cost of potential loss of fungibility of some mined coins that are still in-process when difficulty requirements change. Difficulty adjustment can be done at set intervals like monthly or yearly to prevent miner frustration.
Privacy
Bitcoin
In bitcoin everything is transparent but pseudonymous, there is no identity linked to a public key. However if a public key can be linked to an identity like through using off-chain exchanges, your entire history can be tracked if you are using that one public key. Ways around this is to own many public keys that are not linked to exchanges and only connected to your other public keys through obfuscated routing of transactions through 3rd party intermediates. Sophisticated tools could likely still use metadata techniques to figure out what your likely public keys are.
DCC
In a DCC each coin has a separate public and private key. Therefore there is no way to link together the keys to which you own without somehow snooping on your off-chain communications.
Pro's and Con's
DCC has much stronger privacy built in. Mining and sending coins can have 100% unbreakable privacy since it can be done without an internet connection. Receiving coins requires a node and IP address so thus can potentially be spied on, but much less so than bitcoin.
Vulnerabilities
Bitcoin
Bitcoin's biggest vulnerability is a 51% attack. This can happen when a miner or colluding group of miners achieve 51% of the hash-power of the network. When this happens a coin can basically be destroyed at will causing a fork in the chain. Non-colluding miners can be prevented from mining and transactions of non colluding actors can be stopped. It is basically a hostile takeover. It can also be done in secret.
There is nothing that can be done to mitigate this risk.
DCC
A DCC is vulnerable to a large group of bad colluding nodes that will accept your private key change request, but later reverse it in order to double spend the coin. This would happen on a transaction by transaction basis and cannot effect the network as a whole unlike the 51% attack on bitcoin.
This can be mitigated by reporting your key change to nodes that are trusted, either by experience or by them having staked coins. Bad nodes that reverse transactions can be blacklisted from the network and their staked coins erased. Nodes are disposable, and having a fork in the nodes does not effect the security of the coin unlike bitcoin.
Pro's and Con's
Bitcoin has the lead here for casual everyday transactions being more secure. There is forced consensus on bitcoin whereas in a DCC the consensus is voluntary. Node software would likely have to undergo constant research and development to develop protocols that make the network as consensus attaining as possible complete with incentivizing good behavior and punishing bad behavior.
DCC has the lead here for no "Currency destroying" vulnerabilities like the 51% attack. Many altcoins have died due to 51% attack, and it is only a matter of time to bitcoin also succumbing.
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