Monthly Archives: December 2018

Schnorr signatures: The big Bitcoin leap forward?

The Schnorr signatures have reappeared on the agenda of the Bitcoin community. On GitHub there’s a file that explains the technical background of Schnorr. The upgrade of the Bitcoin network, which is still too little noticed, could finally take shape. However, it could still take a long time until Schnorr finds a broad application in practice.

For some time it had been quiet around the Bitcoin update Schnorr signatures. The idea to use this new type of signature for Bitcoin had already been present in the cryptospace industry for several years. But until the step from a theoretical idea to a practical implementation succeeds, often more time passes than a large part of the community hopes for. We remember how long it took for most of the Bitcoin Core team to get their act together to activate Segregated Witness.

However, this upgrade of the Bitcoin network laid the foundation for the introduction of Schnorr signatures. Some of the Bitcoin team rejoiced after the SegWit activation that Schnorr was no longer far away. As we now know, things didn’t go quite that fast, though. A good year after SegWit, however, now seems to be coming movement in the thing.

Bitcoin news publishes a standard for Schnorr signatures

Developer Pieter Wuille published a file with a draft of Schnorr signatures on Bitcoin news earlier this month: In it he explains some technical basics for the implementation of Schnorr with the aim to set a standard for 64-byte Schnorr signatures. Now a possible roadmap is given to establish Schnorr as signature for Bitcoin.

Wuille describes the advantages of Schnorr over the ECDSA signatures currently used in the Bitcoin network. In the Elliptic Curve Digital Signature algorithm, elliptic curve cryptography is used to create and encrypt the signature. According to the file, the Schnorr scheme has three advantages over ECDSA signatures: security proof, non-deformability, and linearity.

The advantages of Schnorr compared to ECDSA
The security proof should be provided very easily in the Random Oracle Model, which does not work in the ECDSA scheme. ECDSA signatures can also be changed in principle. For example, an attacker can change an existing signature for a public key without knowing the private key. However, this is not possible with Schnorr signatures.

Last but not least, Schnorr signatures make it possible for several parties to create a signature together that is valid for all their respective public keys. This is a step towards multi-signatures and improves speed and security.

How is Schnorr received in the community?

Schnorr is already being promoted as the “biggest innovation of the Bitcoin network since SegWit”. Similar to this upgrade, it could be difficult for Schnorr to make a breakthrough in the Bitcoin community. That it took so long for the number of SegWit-using nodes to increase is due to the inertia typical of the Bitcoin network. Due to the decentralized nature of the blockchain, the use of SegWit cannot simply be centrally set up or prescribed. The individual nodes must become active independently and accept and use the innovation.

However, an aggravating factor in SegWit was that the activation was preceded by a split in the community. Reservations against Schnorr, as they had been in the Bitcoin cash camp against SegWit, are currently not discernible. The only problem Schnorr faces in comparison to ECDSA is the lack of standardization. But this problem is now being tackled – the initiative of developer Pieter Wuille is a good start.

Bitcoin loophole – How many Bitcoin are there?

The highest number of Bitcoin is limited to just under 21 million Bitcoin (exactly: 20,999,999.9769 BTC). The maximum amount of money is defined in the Bitcoin code. Changing it requires a broad consensus of the network. This makes Bitcoin a finite resource. The last Bitcoin is expected to be mined in 2140.

The special feature of the Bitcoin is that it is both digital and rare. Digital files can be copied as often as you like – Bitcoin is different. Satoshi Nakamoto defined the amount of Bitcoin before the Genesis block, the first Bitcoin block. This limit is one of the most important properties of the crypto currency.

Why is Bitcoin loophole limited to 21 million?

Satoshi Nakamoto based his distribution of Bitcoin loophole on the precious metal gold according to Bitcoin loophole. Initially, when all gold was still in the earth, it was found relatively frequently. But the more gold was mined, the less remained in the ground. Since gold is a finite resource on earth, you will find less and less gold in the ground over time – this is very similar with Bitcoin.

Satoshi Nakamoto has never said why the release of Bitcoin began at 50 Bitcoin per block and halved every 210,000 blocks. In principle, these constants are also no longer relevant for the functioning of Bitcoin. The only important thing is that the release of new monetary units is written into the computer code so that all participants know these parameters and this rule cannot be broken.

A comparison between Euro and Bitcoin

The biggest difference between Euro and Bitcoin is probably the decision-making authority. The European Central Bank (ECB) can increase and decrease the money supply of the euro and has the last word. There is no comparable authority in the Bitcoin ecosystem. Instead, the network finds consensus through individual decisions. Participants have full sovereignty and can decide to change or leave the network.

The second difference is that the amount of all Bitcoin mined can be determined at any time. With the euro, on the other hand, the amount of money can only be estimated. In addition, a distinction is made in fiat currencies between different amounts of money.

Venezuela Expects High Inflation Rate – Cryptosoft to Rescue?

Despite the country’s own crypto currency Petro and the efforts of President Nicolás Maduro, Venezuela’s economy looks very bleak. Analysts expect an inflation rate of one million percent by the end of the year – higher than in the Weimar Republic.

Can Cryptosoft and other crypto currencies help save the country’s economy?

A Reddit user answers cryptosoft questions. In South American Venezuela, the cryptosoft situation is anything but rosy. Already at the beginning of the year, the International Monetary Fund predicted an inflation rate of 13,000 percent. But that’s not all – the United States of America already imposed a trade embargo on Venezuela last year.

Then the Venezuelan president had the apparently rescuing idea: his own crypto currency had to be found. Without further ado, Nicolás Marduro issued the Petro. According to official figures, each petroleum should be covered with a barrel of oil, and the country and its ICO flushed 735 million US dollars into the state coffers in the preliminary round. However, this was never confirmed – neither the revenue from the funds nor the coverage of the petroleum with the oil reserves. On the contrary, doubts arose as to whether the whole story was not about cooperation with Russia in order to wipe one out of the USA.

The milky coffee index

The Café con leche Index: A latte costs one million bolivar in Venezuela.
Petroleum, oil and the USA or not: Venezuela’s economy continues to go downhill. As Bloomberg reports, the inflation rate will rise to 1,000,000 percent by the end of the year – the country’s hyperinflation is higher than in the Weimar Republic. Bloomberg uses the “Cafe con Leche” index for clarification. According to the index, the price of a latte is currently over one million bolivar [as of 24 July, and could be significantly higher by now].

So while the government continues to print worthless banknotes the population is wondering how to escape the misery. How can you keep your wages (if you have one) and buy some a day later without the price dropping dramatically? Similar to Zimbabwe, Bitcoin and other crypto currencies can help here. In spite of the high price fluctuations, the Bitcoin cash exchange rate promises a certain stability that can far outdo the national currency. In a Reddit Ask me Anything (AMA), a Venezuelan Bitcoin Cash user describes the current situation in Venezuela:

“I believe that the younger population still in the country […] needs Bitcoin Cash to support their families. I would say that 40 percent of the population has access to the Internet. About 30 percent of Venezuelans, but especially people under 35, use crypto currencies in my country. Students, whether they study economics or medicine, use crypto currencies to attend courses.”

As Bibi489 further explains, Venezuelans use crypto currencies primarily to preserve value.

But also in some cases to pay with them:

“They [crypto currencies] are used to store value. But there are also companies that accept crypto currencies. […] But you have to exchange crypto currencies to get food, gasoline or cash […] – only for money you need for the bus, the bank or taxes.”

First change, then pay: Crypto currencies as a store of value
It also addresses the lack of acceptance of petroleum:

“[…] One could buy Petros… But: Who would do this? So I’d rather not buy them. I think that’s the only thing you can buy directly with crypto currencies at the moment. I think there is a hairdresser in Caracas who accepts Bitcoin Cash. And in Carabobo there are still a few small shops. When I trade [crypto currencies] in Bolivar, I mainly buy food, soap, clothes and try to invest in education […]”.

Another problem besides the inflation rate is the country’s lack of technical infrastructure. First and foremost, there is a lack of a comprehensive Internet so that more people have access to crypto currencies and thus have a way of protecting their salaries from inflation:

“The Internet is a privilege in Venezuela. This is mainly due to the fact that cables are stolen and it takes a very long time until there are new ones again.

The Bitcoin cash rate is currently 861 US dollars. This is a monthly A