Robert Shiller Can’t Decide if Bitcoin Will Collapse or Succeed

Most people are seemingly convinced Bitcoin is in a bubble. If that is the case, the value of this cryptocurrency will collapse very soon. Nobel laureate Robert Shiller agrees with most of these statements. In his opinion, the world’s leading cryptocurrency will either implode or limp on while bleeding out. He also compares it to tulip mania, which is a comparison we have seen far too many times.  So far, any statement like this has proven to be utterly wrong.

Robert Shiller is not the first person to claim Bitcoin has no inherent value. More specifically, he claims there is only value due to a common consensus. It seems this individual forgets that is not only true for Bitcoin and other cryptocurrencies. It has been the basis for any financial asset or trading vehicle since Mankind first started using it. The money issued by a bank only has value because there is a consensus it has value. On its own, it’s not even worth the cost of the paper used to print these bills.

Robert Shiller Seems Conflicted About Bitcoin

Moreover, Shiller goes on stating how gold would have value if people didn’t see it as an investment. Back in the early days, gold had value in many different ways. It allowed miners and prospectors to pay for rented rooms, alcohol, and other earthly indulgences. To this date, it is still considered to be a payment option, albeit it’s a lot less popular. Gold is mainly a store of value, and it is possible Bitcoin will head in the same direction. A store of value still has real “value” to the people who consider it as such, though.

Comparing Bitcoin to a tulip mania also makes no real sense. More specifically, the tulip mania created an interest craze which had nothing to do with a payment method. Tulip bulbs were never rare other than when the suppliers kept the quantity low. This was done artificially, whereas Bitcoin has a fixed supply from day one. Most of that supply has been brought into circulation as we speak. Bitcoin does tend to become cheaper and more expensive during certain times. This is the true nature of any financial asset.

In the end, Shiller concludes Bitcoin might collapse soon. At the same time, he admits it may stick around for another 100 years. This conflicted opinion shows there’s a lack of understanding how Bitcoin works. Shiller has called Bitcoin a “fad’ before and the value only soared to new heights later on. He’s also intrigued by the revolutionary use of cryptography which powers Bitcoin. Being on both sides of the fence at the same time is impossible. Shiller will need to make up his mind instead of making vague references.

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Embedded Downloads of Ireland, and VVDN Technologies, India, are set to become the producers of the world’s first crypto-communicator. Known as BitVault, the unit will work on all existing networks and will incorporate advanced blockchain security features.

It appears the device will first be available for the fintech and defence market in November. The companies involved believe the need for encryption in these industries is greater than in others.

When asked about how BitVault planned to use cryptography and blockchain to secure a device like a phone, VVDN Technologies president, Vivek Bandal told a source that:

We use the principle that you are the key. All keys for encryption are generated by taking your iris, fingerprints and using NFC. They are generated dynamically and randomly and destroyed upon use. If I make a secure call, it goes through multi-levels of encryption and each key for encryption is generated on the fly and is destroyed soon after use.

Founder of Embedded Downloads, Hein Marais, went into the security features further. He outlined the closed-ecosystem which BitVault creates using private and public key pairs. This secure communication method uses cryptography to exclude all but the devices permitted by the user. The phone uses its blockchain security features when making voice and video calls, as well as when messaging and document transfer too. Finally, there’s integrated support for cryptocurrency wallets, and a secure browser.

The device which will run on Android OS was first demoed at London Fintech Week which was help this June.  It has a 5.5 inch screen and runs on a 64-bit 2.0 GHz octa-core processor. The BitVault won’t support Google Play. Instead, it will come loaded with its own application store. There, users will find programs developed specifically for BitVault and its unique features.

GadgetsNow report that the November launch will also take place in the UK’s capital.

Cryptocurrency is a buzz word for many. Most people who are already part of the bitcoin or any altcoin community have a fundamental knowledge about these digital currencies (if not in-depth technical knowledge and know-how to create or manage on their own). However, this article is apt for those who are either new to cryptocurrencies or still seeking more information about it.

Cryptocurrency — Well the name says it all! These are digital tokens built over cryptographic functions. In other words, cryptocurrencies are sequence of encrypted bits transmitted and stored over a network. Just like the way we have multiple fiat currencies in the real world (eg. USD, GBP, EUR, INR, RMB etc), there are multiple cryptocurrencies as well. These digital currencies are developed using different cryptographic functions and have different values based on its creation date, number of users, extent of the network and transaction volumes. Bitcoin is the USD of cryptocurrencies, it is the gold standard or more like the reserve currency in crypto-world. There are many other cryptocurrencies like dogecoin, litecoin etc which are valued in relation to bitcoin.

Creating a Cryptocurrency 

Creating a cryptocurrency is not a hard task for those who have an understanding of coding. They can easily build it upon existing codes, as most of the platforms are open source and the source code is readily available for download and modification on code sharing platforms like GitHub. Developers can choose the algorithm they wish to develop upon and make use of respective source code to create a fork and develop their own altcoin. SHA-256, CryptoNight and CryptoNote are some of the algorithms used for the development. Those who are not so familiar with coding and still want to have their own cryptocurrency can always make use of services to create, host and maintain it for a fee.

Some of the cryptocurrency generating services includes Cryptolife and Wallet Builders for example. With majority of altcoins (a reference for cryptocurrency other than Bitcoin) being decentralized, it is very important to have a good network of users contributing the processing power and conducting transactions of the new altcoin.

However, the hardest part of creating a cryptocurrency is to gain adoption. Without adoption, or a network affect any cryptocurrency is worthless. Most of the altcoins are built around an idea, to encourage something, or solve some real world problems or problems associated with other cryptocurrencies itself. But without people using it, it is never going to work out. This means, a lot of time, effort and even resources have to be dedicated towards gaining traction and adoption.

Once the altcoin gains enough traction and people start making transactions with the new cryptocurrency, it can be listed on various exchanges. These cryptocurrency exchanges will allow users to sell and buy the new altcoin against a trading pair(s). These trading pairs are other cryptocurrencies or fiat currencies which others can spend to obtain the new altcoin from these exchanges.

Once all the required parameters are met, and the altcoin can be used for the purpose it was intended for. 

Blockstream has announced Bitcoin’s first production Sidechain Liquid in collaboration with a limited number of partners including prominent Bitcoin exchanges such as Bitfinex, BTCC, Kraken, Unocoin, and Xapo. The Company is holding talks with at least a dozen more major institutional traders and licensed Bitcoin exchanges.

The Company’s Chief Instigator Austin Hill said in a blog post,

Liquid will improve capital efficiency and market liquidity by facilitating rapid and secure transfers between accounts held at any participating exchange or brokerage.

Zane Tackett, Director of Product Development, Bitfinex doled out high praises for Blockstream.

By providing users a way to securely and instantly move funds across exchanges, Liquid allows participants to take advantage of trade opportunities like never before, minimizing spreads and increasing liquidity. Blockstream’s innovative solutions are definitely a game changer for the Bitcoin industry.”

What is Liquid?

Blockstream defines Liquid as a production sidechain which adds on to the Bitcoin blockchain like a branch, with an auditable, cryptographically-strong commercial privacy component. The framework arranges for a highly secure and reliable network without ever needing a third party. Liquid, expectedly, boasts of being the best network in terms of rapid funds transfer and settlement, and does not compromise on the security part.

How will it work?

As mentioned above, the Liquid sidechain will aim to reduce the load that the Bitcoin blockchain currently handles. We have seen on numerous occasions, such as the recent Greece crisis, that the current version of Bitcoin blockchain cannot handle a sudden, huge surge in Bitcoin transactions. This limitation has also given birth to infrastructures such as SETL, which now boasts of processing more than 1 billion transactions.

The sidechain Liquid will reduce ISL – Interchange Settlement Lag – by fostering a high-speed transfer environment between accounts held by several participants in a separate, high-volume and low-fee cryptographic system. This will also enhance the liquidity, the security, and considerably bring down counterparty risks.

The founders of the online dating site OkCupid has raised $10.8 million for their new cryptography venture.

Dubbed as Keybase, the project is an attempt towards introducing public key cryptography, like those used by Bitcoins, to everyone in the world. With doing so, the makers expect to secure online message sharing, as well as to provide passwordless login systems, safer software developments, data backups and collaborations, and easily deletable videos and photos’ services.

The project however was started with a core aim to introduce encrypted messaging between two parties. As stated in the founders’ earlier statements, they were trying to borrow Bitcoin’s cryptographic key pair technology and mould it further to simplify it for general public. The decision to add more features, therefore, come as a surprise, as well as a reason enough behind the new funding.

“We’ve gotten more ambitious,” wrote founders Max Krohn and Chris Coyne in a blogpost. “We have a new goal: to bring public key crypto to everyone in the world, even people who don’t understand it. We are building open source apps that anyone can use.”

“Yet the above are all applications based on technologies that exist now. In the future, the lock on your front door and your car’s AI will be connected to a network. Then—like it or not—the only safe way to control your life will be with public key crypto.”

Keybase has received support from Andreessen Horowitz, alongside nine other individual investors, including Reddit co-founder Alexis Ohanian; Markbot Industries’ co-founder Bre Pettis; and’s founder and CEO Adam Ludwin, who is also assisting Nasdaq to integrate Bitcoin’s blockchain into their securities settlement framework.

Clef, an authentication client that combines several solutions for problems posed by centralized systems, continues gaining ground. Initially launched in early 2013, its appeal has recently inspired a partnership with AlphaPoint, a lead provider of cryptocurrency exchange software. Brennen Byrne, Clef’s founder, claims that Bitcoin inspired the project. What similarities do these systems really bare, though?

Like Bitcoin, Clef employs RSA cryptography – the use of private/public key pairs for signing and validating messages – in order to surmount the vulnerabilities posed by storing passwords on a database. This not only negates the risk of a hacker stealing passwords from the server, but also avoids any need for transmitting the private key (analogous to a password) during authentication, thus further protecting users from hackers that might try to intercept their communication.

Unlike passwords, which users must communicate in order to authenticate themselves, private keys require neither transmission from the user’s device (thus negating the threat of interception), nor storage on the system requesting authentication (thus avoiding the risk of a database security breach). Instead, RSA cryptography uses a hash function to incorporate verifiable information about the private key into a message – called the signature – which the user then sends as proof of its identity.

Unlike databases that use passwords, the source requesting authentication does not rely on an identical copy of the private key for verifying this signature. Instead, the source uses a public key – hashed from the private key – to provide a means of verifying the signature without the key needed to generate it. Also unlike passwords, the size of private keys renders RSA cryptographic algorithms practically immune to brute-force attacks, thus protecting users from every threat that doesn’t manage to copy their public key directly from their device’s hard drive (e.g. physical theft, a trojan horse, etc).

Unlike Bitcoin, however, which relies on 256-bit private keys, Clef uses 2048-bit private keys, permanently associated with the user’s mobile device, and streamlines the signature process by using the device’s video camera. To protect users from identity theft if their device gets stolen, Clef implements a second authentication factor: it uses fingerprint recognition by default, and falls back on a PIN number in cases of devices that lack biometric identification. Clef also generates a unique signature with each login, which expires within seconds; this rapid invalidation of the signature deprives attackers from potentially useful information.

Clef also subtly implements a further factor regarding location, in an attempt to combat phishing. When users log in from a new computer for the first time, a feature called “True Logins” prompts them to check their URL, and redirects them to for further instructions in the event that anything seems fishy. After this brief initial confirmation, logging in proceeds as normal without the extra step.

Perhaps most importantly, though, Clef offers all these aforementioned features free of charge, helping assure its popularity and a large user base. Premium features include fraud & usage metrics, priority technical support, and guaranteed 99.99% uptime, at prices ranging from $299 per month to over $10,000 per month, depending on the monthly number of logins.

In short, Clef not only takes Bitcoin’s most appealing feature, RSA cryptography, and offers extension of its protection to potentially all websites’ login information, but also builds on it with several improvements: a 2048-bit private key, video streamlining of the login/signature process, as well as a second (and arguably third) authentication factor, all free of charge. These feats offer a revolution in authentication security, much like Bitcoin did for economics, and might soon render the use of cryptocurrency convenient enough to go mainstream on a global scale.


The crypto space has been referred to variously as an industry and a subculture, but now it has become something more. Using blockchain technology, we have been inadvertently building a universal data structure capable of authenticating any information known to humankind. Factom has now unlocked that potential, converting everything from health records to property titles into cryptographic form.

Using the lense of blockchain topology, we can describe the nature and make-up of the crypto space in precise terms: it is a metric space made by connecting all the known blockchains together into a giant Merkle tree, generated by a subset of the public space. The question is, what does it look like?


One of the defining features of a Merkle tree is its orientation: unlike a normal, gravity-abiding tree, it branches out to leaves at the bottom from a root at the top known as the top hash. In reality, the root is calculated from the leaves, which are concatenated (12 + 34 = 1234, instead of 46) and hashed in succession.

In keeping with the orientation established by Merkle, blockchains grow upwards, emerging–branching, in the case of a fork–from a genesis block and its transactions at the bottom to their top hash above. When you prove the existence of a file by hashing it into a Bitcoin transaction, its data structure is connected to the blockchain as one of the leaves under the upcoming block.

The crypto space follows this same format; relative to the public space, its orientation is found by locating the top hash and the bottom-most leaves. It points from the leaves towards the top hash, wherever those are at the time. It doesn’t matter: so long as they all connect to the right places, it will be homeomorphic to Merkle’s original projection, preserving its invariant properties.

Finding the Top

So, where are the top and bottom hashes? The whole purpose of the top hash is to authenticate data that might be disputed, so it has to be stored somewhere secure. The top hash is the one with the highest authenticity, as defined in the previous article, which will always be on a blockchain–currently, Bitcoin’s.

Bitcoin remains king because it has the highest difficulty level–to use the topological terminology, its metric function has the highest slope, meaning the difficulty of cracking it increases the fastest with each block. Using difficulty as the unit of measurement, we can say that Bitcoin’s blockchain is by far the longest, with the highest number of leaf hashes.

Authenticity is not directly related to difficulty, however. A blockchain based on a network with very few full nodes has low authenticity because the network could easily be taken down, or infected with a high percentage of malicious nodes that restrict or even falsify information. There are also block formation processes such as minting that are not based on difficulty, but rather who is “staking” the most coins, for example.

Whether it’s staking coins or something practical like folding proteins or searching for extraterrestrial life, the key factor is that it’s expensive to do. This is best measured in dollars–or bitcoins, rather–and is therefore somewhat relative to the observer. It is less expensive to 51% attack the Bitcoin network in Iceland, where electricity is cheap.

Follow the Path

The path between the top and bottom hashes is, by definition, the longest, similar to how the most valid fork of the Bitcoin blockchain is the one with the most blocks. On the Bitcoin blockchain, this path is between the genesis block and the one most recently formed; in the crypto space, however, the situation can become more complicated.

The Merkle tree which generates the crypto space has many branches, most of which are dead ends (such as a traditional Bitcoin transaction), but many of which branch out further than their counterparts. Although possible, it’s unlikely for two branches to be equally difficult in length–we just need to investigate.

The bottom hash is not necessarily the least authentic or expensive to falsify, in contrast to the top hash, so we must find it the hard way. Starting from the root, explore each path until you reach the end; calculate the odds of randomly discovering that data and finding it to be a valid input, and whichever hash value is most improbable is the bottom.

Not all Merkle trees are found in blocks generated by mining, so when analyzing the crypto space, we cannot rely on summing the mining difficulty along the chain. You would require knowledge of the specific hash algorithm used at each step, as well as its real-world constraints at the time–at least until a new mathematical solution is discovered.

This and other factors make top hash theory a difficult field to study. Testing any hypothesis requires repeated trials, continuously searching for that piece of data which is most impervious to alteration. It will be an enormous project–analogous to mapping the genome–and the subject of many articles to come.


This article was reviewed for accuracy by Piotr Piasecki who completed his Masters in Bitcoin in Poland, and Alireza Beikverdi, who is pursuing his in South Korea. Special thanks to artist Ram Reva!


Topology is an abstract field, but it has many real-world applications. One of the most notable to the average Bitcoin user is network topology, which studies the shape of a network, including peer-to-peer networks like Bitcoin’s. Now we’re beginning to apply topology to the blockchain, itself.

As previously mentioned, the blockchain is a metric space using difficulty as its continuous function, generated by a compact and connected set of hash values. This framework allows us to say many interesting things about a cryptocurrency’s blockchain, but this article will focus on how they interact with one another.

Public Space

One of the most essential properties of blockchains is that they are public: anyone can see what’s published on one, or get a copy for oneself. Blockchains can therefore be said to lie in the public space. Public space can be defined as the space generated by the public set, the set of all data that is publicly accessible

The public space has no real structure or boundaries; it is compact, and its invariant is accessibility. To test whether or not given data is part of the public set, you simply try to acquire it. Repeat with observers from many different backgrounds, and if everyone successfully accesses the data, it’s safe to say it’s in the public space.

The public space is not a true metric space; since not all of the information out there is cryptographic, we cannot measure how difficult it would be to decipher. Everything at your local library is a great example, unless they’ve gone digital and Factomized their book collection. The connectedness of that space, however, is an interesting debate.


Most data enters the public space disconnected from the rest of the public set, such as the moment a new site goes live on the World Wide Web. It is extremely easy, however, to hash such web data and combine it with other hashes in a Merkle tree. You could hash the entire WWW together this way, which would connect its corresponding data elements.

The benefit of doing this is verification: if you store a webpage after it is taken down, you can prove you have an authentic image of the original by comparing its hash value to the Merkle root calculated before. This process is known as proof of existence, which can be topologically described as the connection of two data elements in the public set.

You can do this at the cost of one Bitcoin transaction fee by inserting the web hash into it. It will be thereafter hashed together with the other Bitcoin transactions in that block, and become connected to the entire blockchain. You could then calculate the difficulty from the original data to the top hash of the latest block, which form the boundaries of a connected metric subspace.

Crypto Space

People will inevitably want to backup their data to more than one blockchain as a failsafe; this effectively connects their data sets together to form a single metric subspace of the public domain. There are also several benefits to hashing one blockchain into another, the combined effect being that many blockchains will join together.

Soon, proof of existence will become standard practice. Using technologies like Factom, we can rapidly combine thousands of entry hashes together into a single Merkle root without relying on a central authority, making proof of existence even cheaper and more reliable. It will be as easy as using a Bitcoin wallet, and the costs will be negligible compared to the rewards.

The end result is that most data in the public space will be connected. What little information isn’t hashed into a Merkle tree on its own will be simple for the intellectually or ideologically driven to take care of. We shall call the topological space generated by this data set the crypto space, in honor of the community poised to accomplish that.


Hashing data is easy, so the crypto space grows much faster than the public space, and they will eventually approximate one another. How quickly public data enters the crypto set depends on its connectability, which is its tendency to utilize or be utilized for proof of existence. It depends mostly on how likely that data’s authenticity is to be disputed–financial records such as loans are more connectible than what you dreamed about last night, for example.

Another lead factor in the connectability of data is authenticity. Authenticity refers to how likely data is to be authentic, a competition dominated by blockchain technology. A blockchain’s authenticity is a factor of the current difficulty of double-spending a transaction (the number of active miners or minters) and the health of its peer-to-peer network (the number of full nodes).

Like many emerging or “controversial” scientific theories, these hypotheses will be hard to test. We will have to rely on simulations and observation over a long period of time, but this is not unheard of in the hard sciences. We can forecast astronomical events, climate change, and even the evolution of species.

The crypto space will come to be as important as the crypto industry itself, one of the fabrics upon which society is built. Its general shape is still emerging, but soon we will know what it looks like, and it will be the subject of intense study.


This article was reviewed for accuracy by Piotr Piasecki who completed his Masters in Bitcoin in Poland, and Alireza Beikverdi, who is pursuing his in South Korea. Special thanks to artist Ram Reva!


Topology: “an area of mathematics concerned with the properties of space that are preserved under continuous deformations, such as stretching and bending, but not tearing or gluing” (from Wikipedia). It has been puzzling children and mathematicians alike since the discovery of the Seven Bridges Problem and Möbius strips.

A map is a great example of a topological space. If you draw the latitudinal and longitudinal lines on a globe, it will still work if it becomes dented, or expands or contracts in size. If you disassemble and project it onto a 2D surface, however, the image will always be distorted.

As the digital era advances, topology is growing even more abstract. Topological data analysis can take data and map it to a 3D space, giving it a visible form. Network topology involves the shape of a digital network, and how the points connect.

Now, a new branch is emerging, closely related to both of the aforementioned. We’ll call it blockchain topology; it may inevitably be broadened to something more like Merkle, crypto, or data topology, but will suffice as a working term, for now.

Blockchains are perfect for topological study: they are spaces for the storage of data. This data comes in sets, which are arranged in branching structures and evolve in response to real-world factors that we can analyze once defined.


Blockchains are essentially made of Merkle trees, a type of data structure named after their inventor. They rely on a mathematical process called hashing–an irreversible function–and are essential to the operation of the Bitcoin protocol.

In addition to inventing the public/private key pairs on which all Bitcoin wallets rely, Merkle came up with a way to distill any set of data to a single hash value called the Merkle root. Although you cannot reclaim any data from the root, it’s easy to prove whether a piece of information was used to produce that number.

A Merkle tree takes all of the data pieces and hashes them together two at a time, eventually coalescing in the Merkle root at the top. A Bitcoin block uses the root of the previous block as one of its “leaves,” along with all the transactions its miner chose to include.

In this manner, a blockchain forms a giant Merkle structure composed of many trees linked together. Its shape is impacted by protocol updates, interactions with other blockchains, and market forces in the cryptocurrency mining/minting industry.

Topological Spaces

As alluded to before, blockchains can be thought of as topological spaces if we arrange their constituent data into sets. We’ll not bother casual readers with the math, for now, but we can still learn a lot by employing related topological terminology.

A topology on a set describes the relationship between its elements. In the blockchain’s case, it illustrates the structure that forms when we connect them in the order that they were calculated. It doesn’t matter how we draw the connecting lines, practically speaking–they only need to connect to the right data pieces, giving the blockchain invariant topological properties.

The space generated is an example of a metric space, meaning the distance between every element is defined by a metric (the 3D world you live in is a good example). The blockchain’s metric is difficulty, a term coined by Bitcoin miners which will prove important to blockchain topology.

Difficulty usually refers to the chance of successfully mining or minting a block; it can also be applied in the context of a double-spend attack, with difficulty increasing as the transaction gains confirmations. At the intra-block level, brute-force attacking a Merkle tree to get a hash value in reverse (currently impossible) becomes more difficult with the number of steps taken.

Functions and Definitions

A blockchain’s metric function is therefore the one which calculates the difficulty of finding the input data point from the output for any two points on the chain. It is absolute, since it should not matter whether we are measuring forward or backwards in time along the chain. If the blockchain forks, the distance between points on separate prongs is taken along the path joining them, backward then forward again.

The difficulty function is continuous: it increases exponentially with the number of hashes performed, in a gradual slope without any jumps, asymptotes, or open points. The hash function itself is discontinuous, however, since changes in input yield drastic and unpredictable changes in output.

The blockchain is always connected, however, in the topological sense. There are no 0 elements in its data set, or else they would hash to themselves (zero). There would be a missing link in the blockchain, and its topological space would fall apart. Blockchains are also compact, having boundaries consisting of the most recent block’s root hash and all of its leaves.

This establishes the basics of blockchain topology, without getting into rigorous formal definitions. Now that the terminology is clear, we can make and examine some hypotheses about blockchain technology that can be tested or proven. Such will be the purpose of the following articles.


This article was reviewed for accuracy by Piotr Piasecki who completed his Masters in Bitcoin in Poland, and Alireza Beikverdi, who is pursuing his in South Korea. Special thanks to artist Ram Reva!


As you’re probably already aware, the power of Bitcoin boils down to cryptography. Using a system of public and private keys, you can track every users’ finances without revealing his or her identity. Security and privacy: the best of both worlds.

What you might be less familiar with is called hashing, the specific mathematical technique employed. It takes data of any size and converts it to a numerical value of fixed length–the hash. The public keys listed on the Bitcoin blockchain are hashed from private keys, as are the signatures needed to verify transactions in the network.

Bitcoin uses the SHA-256 algorithm, which has the special property that it is practically impossible invert. This means that nobody can find a private key which could produce your signature or public key, nor calculate your private key in reverse. If anyone could, he would use it to send all of your bitcoins to himself.

Planting the Seed

The Bitcoin blockchain also uses hashing in its internal structure. It contains a record of every transaction; your wallet actually calculates your balance using addition and subtraction. The transactions in each block are organized into a structure called a Merkle tree, which is shaped like a bracket tournament (as in the featured graphic).

The tree is upside-down: the transactions at the bottom are referred to as leaves, and their data values are concatenated and hashed together two at a time. If there are an odd number of them, the last one is duplicated, and eventually they all coalesce into a single hash called the Merkle root. These roots link the blockchain together, with each new block containing the top hash of the last.

The most important function of the Merkle root is verification; it can be easily proven whether or not any transaction data was used to form it, meaning you can authenticate any transaction using just the most recent block. Its block header contains the essence of every Bitcoin transaction ever issued, which branch out from its root hash value.

Bitcoin 2.0

But what if we’re sending more than just bitcoins? In addition to the payer, payee, and bitcoin amount, each transaction also contains a section called OP_RETURN. Most people still leave it blank, but it can hold many other types of data.

Using protocols like Counterparty, we can integrate data called smart property, which corresponds to real digitally-controlled items (such as smart cars) or represent abstract assets like stocks.  Now that they’ve adopted Ethereum’s Turing-complete language, we should also be able to implement certain smart contracts, such as dividend rules for smart stockholders.

Many of these smart contracts can be automatically implemented and enforced. Once they are included in the Bitcoin blockchain, the top hash can thereafter detect any forgeries. No judge is necessary to say if a contract is valid–instead of signing before a court, you sign to the blockchain, instead.

Transactions are limited in size to prevent rampant blockchain growth, with the OP_RETURN section being 40 bytes as of the time of this writing. This prevents us from storing documents, media, or other large files, but we can store the hashes of them with ease. By comparing, we could later validate any copy supposed to be unaltered.

Factomize Everything

Unfortunately, Bitcoin’s 10-minute block time is too sluggish for most decentralized applications, which must conduct their operations in real time. Moreover, if everyone started using them, our combined transactions would flood the network and render the blockchain too large for most nodes to handle.

Thankfully, Factom has a solution. Using a supplemental peer-to-peer network layered overtop of Bitcoin, it arranges data submitted by these applications into Merkle trees in real time. Once per block, the roots are calculated, combined again, and inserted into the Bitcoin blockchain via a single transaction.

User-submitted data is thereby integrated into the larger Merkle structure, or Factomized, if you will. The Merkle roots on the Entry Layer become Merkle leaves on the Directory Layer, which root in a Bitcoin transaction that stems from a block header that hashes all the way up to the top.

Anything can be Factomized in this fashion, including other blockchains custom tailored to specific applications. Every smart entity on Ethereum, every file location on Storj, every digital object on the Internet of Things will be distilled to one number, with which any forgery of anything ever recorded could be detected.

Regardless of whether people use bitcoins as a currency, people will continue to need Bitcoin; it has the most secure blockchain available, with the most active full nodes and the highest mining difficulty. If a new blockchain supplants it, everything will be Factomized again, and the top root remains the most difficult in the universe to reverse-calculate. It is the greatest arbiter of truth–the ultimate hash value.