As in my previous articles, each word is based on my own readings and interpretation of the Byteball white paper and parallel articles. So, the Byteball team or other references shouldn't be perceived as responsible for my inaccurate understanding or my potentially wrong assertions. Furthermore, this article is not an investment advice but an attempt to understand how the Byteball technology could be advantageously used by the current financial system without any friction.
A Forbes article
Few weeks ago, a friend, Byteball bytes holder like myself, attracted my attention on a Forbes article from Caitlin Long. This article, which you can find in reference at the end of this one, was entitled "Two Things That Don't Mix Well : Bitcoin Rehypothecation And Chain Forks".
The Caitlin Long's article was very interesting and vulgarized enough to allow a financial illiterate like me to understand how bitcoins and bitcoin-likes could be problematic to integrate, if not impossible, in the financial system due to potential chain-forks. Indeed, current blockchain cryptocurrencies are not compatible with a monetary system based on fractional reserves because all assets aren't covered. To summarize the core subject, I will allow myself, by laziness and because I'm out of my comfort zone, to quote a full paragraph of the Caitlin Long's article.
The chain-fork issue is confusing. Chain splits, for example, seem so simple — if you own bitcoin before a hard fork, you own the post-fork coins too, right?! Nope, not when uncovered bitcoin exposures are involved — these are positions in a bitcoin-substitute that are not 100% collateralized with real, on-chain bitcoins. The uncovered amount is the amount not backed by real bitcoins. For example, if the financial system has promised 5 bitcoins to customers but has only 3 bitcoins in its custody, the system’s uncovered exposure is 2 bitcoins. — Caitlin Long
So, financial institutions cannot integrate bitcoins and its clones without exposing themselves to massive losses due to uncovered exposures. Worst, it will be merely impossible to replicate them in a post-fork chain because these uncovered exposures were built "gradually within the system as institutions lend and re-lend the same bitcoin to each other".
Could we expect to see the world to give up the fractional reserves system and its debt addiction ?
I don't think so because this imperfect system has allowed the world to experience its biggest economic expansion of all times. In plus, people prefer to delegate their rights to corruptible politicians which will decide what is the best for them. Worst, people are technological illiterates and Wall Street people are too greedy to be reasonable. By consequence, we have to use our common sense because destroying the current system with bitcoins or its twins will automatically lead humankind to a new dark age period where technological aristocrats will be more selfish about their wealth and knowledge than any other generation before us. So, Bitcoin and its alter ego networks can only lead the world and the current financial system to a catastrophe of biblical magnitude. To conclude about Caitlin Long's article, I can only invite you to read it.
The schismatic chains Revolution
As I suggested in my previous articles, the Byteball platform isn't a cryptocurrency network like others and I'm not referring only to the revolutionary DAG model used by the Byteball platform or its witnessing system. In plus to be more decentralized — and it will be far more decentralized in the future — than any other cryptocurrency network, the Byteball platform includes a human readable/editable smart contracts generator. Every time a smart contract is generated by a user or a group of users, a unit is posted in the Byteball distributed database as with any other transaction.
Usually, when a chain-fork occurs in the cryptocurrency world, it means not only a new chain with new rules but also a new client/wallet to interact with the new chain even if the term new could be a bit abusive in most of the cases.
With the Byteball platform, a new post-fork wallet is not required because Anton Churyumov built his model with real world adoption in mind since its inception. Obviously, a real world adoption has to include the current financial system to succeed. For this purpose, the Byteball data structure includes a field called "alt" to support chain-forks without a new wallet. As stated in the Byteball white paper, the post-fork chain will not inherit only of new protocol rules but also of all balances, addresses, etc. The etc. term means without a doubt smart contracts and assets, private or not, created in the pre-fork chain before the fork date. Automatically, all users will have access transparently to the new chain from the original Byteball wallet.
In my opinion, the fact that the "alt" field allows users to experiment easily a new set of protocol rules or gives the opportunity to the Byteball community to start a "revolution" against the witnesses' majority in case of cartel creation is secondary.
As I mentioned in my previous article, Anton Churyumov has probably a playful mind. For me, it's curious that he writes in the Byteball white paper once the word "revolution" and then many times the word "schism". In my secular francophone mind, a schism means a political or an institutional scission. And in my scientific mind, a revolution means one complete turn. So, this words conjunction means automatically that everything will be conserved as is, except some institutional "leaders" or rules.
The financial system continuation
The Byteball white paper includes several chapters about financial and banking matters. They cover notably bank and state issued assets, bonds, commodities, funds, settlements, fixed denominations assets and private payments. To be honest, these Byteball chapters disgusted me in my first readings because I was allergic to the banking system independently of cryptocurrencies dogmas. Eventually, after 17 months, my common sense, assisted by Caitlin Long's article, ended up bringing me to rationality and allowed me to reconsider differently these chapters. In fact, these chapters demonstrate that Anton Churyumov has a deep understanding of the banking and financial system.
For instance, mixing the multilateral signing chapter where Anton Churyumov explains how works the co-authored/co-signed units with above chapters opens myriads of possibilities for financial and state institutions. Some smart contracts flavors above could suit very well in the uncovered contracts that financial institutions have with their clients. By the way, transaction privacy is not neglect with private contracts which could be included as private references. And if we consider the Byteball "alt" field, financial institutions will not have losses in case of chain-fork. Indeed, they wouldn't need to purchase uncovered positions into illiquid and unregulated secondary exchange markets because all their positions and contracts, inclusively all their lend and re-lend history chain, will be instantaneously duplicated in the new Byteball chain.
Better, these forks can happen multiple times and everything will continue as if nothing happens but with the new rules whatever they could be.
In the same time, financial institutions will not be any more able to discreetly "window-dress" their year-end balance sheets to hide their bad performances to clients and regulators. The magnitude of rehypothecations will finally be available to regulators, governments, financial specialists and even to scientifics without business compromission. With the Byteball platform, the world will have a tool to closely monitor and to discover financial institutions bad behaviors. In my opinion, the Byteball platform is an astonishing opportunity to immunize the world economy against chronic diseases of our current financial system without interfering with free markets and individual freedoms.
Byteball assets' classes
As stated previously, Byteball platform supports several assets' classes but I'd like to speak about private fixed denominations assets and how they could be useful. A Byteball demonstration of this assets' class is the Blackbyte. By the way, within the Byteball community, many people think that the Byteball untraceable cash-like cryptocurrency has been implemented by Anton Churyumov with black-markets in mind. In my opinion, nothing is more far from reality than this black-market dream due to the 1-2-5 pattern.
Indeed, when a user tries to send some Blackbytes' big amount which is not a multiple of the 1-2-5 pattern, the wallet refuses to process the transaction because it doesn't respect the pattern described in the Byteball white paper. Blackbytes are a "set of indivisible unmergeable coins similar to the minted coins and banknotes that everybody is familiar with". That means you have to make several transactions to pay specific amounts. For instance, if a user wants to pay 9 Blackbytes to someone, he will have to send 3 Blackbytes transactions (2+2+5).
So, Blackbytes aren't really suitable for black-markets where people want not only anonymous transactions but also immediate transactions. In my opinion, Blackbytes are closer of a proof-of-concept dedicated to financial and state institutions than a feature dedicated to people turpitudes. In fact, black-market fanatics should unite to create their own Byteball private asset without a fixed denomination to realize their "Black-MarketCoin" delirium.
Private fixed denominations assets are very useful in some specific cases as state bonds, bearer securities or company shares. For instance, a public limited company could use this Byteball assets' class to issue shares that will be sold to anonymous shareholders (anonymous shareholders are possible under swiss laws). Obviously, this assets' class can be capped or not. If they aren't capped, the company could, subsequently, decide to increase the number of shares making up its share capital to increase it. These new shares could be acquired, for instance, by any current shareholders, by certain shareholders only or by employees in the case of an increase reserved for employees. The company could also issue this private fixed denominations assets directly on the market to allow any investor to acquire some securities.
Better, Byteball assets' classes can also be destroyed to suit to some very specific cases.
In my opinion, Anton Churyumov never built the Byteball platform to destroy or to substitute the current financial system. In fact, he even paid a particular attention to allow this one and its benefits to the world to survive in the information age. The Byteball platform will extend, improve and accelerate the possibilities of the current system but will also make it auditable by governments as never.
To conclude, it's a wink of eye to all Byteball holders, I'd like to quote partially Conan's father :
We, who found it, are just men: not gods, not giants, just men. And the secret of steel has always carried with it a mystery. You must learn its riddle, Conan, you must learn its discipline.
So, until the time comes, and I know it will come, we have to study carefully Anton Churyumov's proposal and its impressive possibilities. By the way, remember that there are many people suffering all around the world. They need us more than we need Lambos.
Byteball white paper : https://byteball.org/Byteball.pdf
Caitlin Long's article : https://www.forbes.com/sites/caitlinlong/2018/08/21/two-things-that-dont-mix-well-bitcoin-rehypothecation-and-chain-forks/
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