Hello and welcome to the proof of writing podcast. As usual, nothing I say is intended as financial advice and is for informational and entertainment purposes only. Crypto is highly volatile, so please remember to always do your own research, and never invest more than you can afford to lose.
I started this podcast because I want to help people discover the merits of the eCash project, so they can differentiate it from the countless other cryptocurrency projects that are out there. You see, I don’t want people to choose eCash out of fomo, or because someone on the internet said it was a hidden gem, but because they understand the fundamentals, the mission, and the roadmap. Which is why in this week’s episode, we’re going to be talking about Avalanche.
For those who don’t know, Avalanche is the name of a new consensus mechanism that was first introduced in 2018. Simply put, a consensus mechanism enables a network of computers to come to agreement about the state of the network. When the network happens to be a blockchain like eCash, what this means is making sure all the computers, or nodes, agree on the data being stored on the network. Data such as the amounts sitting in each address, the details of each transaction, and the blocks they’re included in. Because this data is stored on every node on the network, it’s the reason why blockchains are also referred to as distributed ledgers.
A ledger is the complete set of financial transactions of a business, and every business has one to account for all their financial activities. But in the case of banks, credit card companies, or any other financial institutions, they also have to account for the financial activities of their customers, namely us. This is because we have no choice but to rely on these institutions as central authorities who maintain and track how much money everyone has. It’s what allows us to walk into a store and pay for something using our credit or debit card. The store’s payment system pings your financial institution, who acts as a trusted third party to confirm you have enough funds to make the payment. But cryptocurrencies like eCash make it possible for us to no longer have to rely on these intermediaries, because we can instead transact peer to peer, just as we do when we pay each other using cash, except now it’s with electronic cash.
Bitcoin first made this possible with Nakamoto consensus. It’s the consensus mechanism that started it all, and was created by none other than Bitcoin’s mysterious inventor, Satoshi Nakamoto.
When people hear about Bitcoin, they often hear about something called mining. Mining is a kind of work done by specialized computers that compete with one another to find a special number. The one that finds this number is then allowed to add the next block of transactions to be confirmed on the blockchain. In exchange, they’re rewarded with what is known as the block reward, which is what incentivizes people to run mining nodes. As soon as a new block has been found, the miners start the process all over again in search of the next special number.
As revolutionary as Nakamoto consensus was and is, it also has its limitations. Perhaps the most famous one is its enormous energy consumption. Another one is that it’s slow. Transactions aren’t finalized until they’ve been confirmed in a block, and block confirmations only happen roughly once every ten minutes. The problem is that a transaction that hasn’t been confirmed can easily be reversed through what is known as a double spend transaction.
Imagine going to buy a cup of coffee and having to wait ten minutes before you can walk out because the transaction hasn’t finalized. Or let’s look at it from the merchant’s perspective. Some say it’s safe to accept transactions that haven’t been confirmed as long as the amount you’re talking about is relatively small, but why should a merchant have to risk being defrauded at all? Imagine being a store owner and hoping none of your paying customers are trying to scam you as if your business runs on the honor system. Whether we’re talking about merchants having to trust their customers, or making the customer wait ten minutes for the next block to be mined, to me it sounds like a horrible user experience no matter how you look at it.
This is where Avalanche consensus comes in, because Avalanche works in a different way than Nakamoto consensus, it can finalize a transaction usually within 2 seconds. This means no more having to wait for block confirmations to know that a transaction can’t be reversed.
By combining these two mechanisms, eCash can solve several problems that have plagued Bitcoin and its forks for years. In addition to users no longer having to wait for unpredictable block times, Bitcoin ABC’s new approach also makes it virtually impossible to 51% attack the eCash network. A 51% attack is what can happen if someone has enough mining hardware to take over the entire network. Avalanche can prevent this from happening because now you not only need to defeat the mining nodes, but you must also take down the Avalanche nodes as well.
There’s also another benefit that Avalanche brings to the table. For the first time, a Bitcoin fork will combine proof of work and proof of stake, opening the door for the average person to contribute to the network and earn a portion of the block reward.
This hasn’t really been possible on Bitcoin many years due to the fact that mining the chain for a profit requires enormous amounts of capital as well as access to cheap electricity. In the early days of Bitcoin, anyone could pretty much mine using their home computer. This helped the network grow and become more decentralized. But now that’s no longer the case. The mining industry is dominated by professionals with large warehouses full of mining rigs costing millions of dollars.
And while you can still run a non-mining Bitcoin node, your node doesn’t actually contribute anything to the security of the network, which is why there is no need to incentivize anyone to run a non-mining Bitcoin node.
But Avalanche can help eCash return to being a decentralized network of nodes run by individuals. This is because running an eCash staking node is relatively cheap and easy. All you need is 100M XEC, currently valued at $2900, and a decent computer with a good internet connection. And unlike staking Ethereum, you don’t have to worry about things like potentially losing your coins to slashing, or putting them at risk because you can stake without having to ever expose your private keys to the internet.
It’s yet to be decided exactly what the staking rewards will be. The annual percentage yield will depend on how much of the block reward will go to reward staking nodes, and how much eCash overall ends up being staked. Whatever that ends up being, I’m optimistic that it will help make the eCash network more decentralized and robust while drastically improving the user experience. This also means that the amount of energy consumed by eCash will go down since less miners will be needed to secure the chain as well as the fact that Avalanche nodes only consume a tiny fraction of the energy consumed by mining nodes. Please don’t misunderstand. Miners and Nakamoto consensus will still play an important role, but with Avalanche nodes helping to carry the burden, the work will be more spread out. Another way of looking at it would be that Avalanche nodes will be the primary source of the network’s security, while mining nodes will be relied on as block producers and for data storage to ensure new nodes can bootstrap themselves trustlessly onto the network.
I mentioned in the last episode that Avalanche was one of the reasons the Bitcoin Cash community rejected Bitcoin ABC. To them, taking anything away from the miners was blasphemous, like it went against some religious rule. But eCash isn’t a religion, it’s a technology, a technology that aims to give us a better form of money. Money that isn’t controlled or manipulated by the state, that isn’t dependent on trusted third parties, while also being able to achieve things our current forms of money can’t even dream of.
What I care about most is that eCash works, not so much how it works. Let’s pretend we discovered this magical payment network that couldn’t be destroyed, wasn’t controlled by a central authority, that would run in perpetuity, could never be hacked, with cheap transaction fees, that was permissionless, borderless, and censorship resistant, all while being able to easily handle as many transactions as the global economy required. I wouldn’t care if it was all powered by a single computer sitting in some remote desert as long as everything I just mentioned was true. To me it’s not about what miners should or shouldn’t be entitled to. It’s not about what Satoshi wrote in some forum more than a decade ago. It’s about what works, and I think the combination of the Avalanche and Nakamoto consensus mechanisms can work better than anything else the crypto industry has come up with so far.
What if the Bitcoin developers had figured out a way to make their chain faster, more secure, more user friendly, while incentivizing normal people like you and me to run our own nodes by adding a proof of stake component without having to sacrifice anything as a tradeoff. Well, this is what I believe the Bitcoin ABC team is doing with the eCash network, a fork of Bitcoin that shares the same genesis block, limited supply, and Sha256 mining algorithm as the original Satoshi project.
Despite what some people may think, I didn’t start this podcast because I love hearing myself talk, or because I’m some kind of attention seeking narcissist. I started it because I believe that eCash can truly become a civilization changing technology.
I know it seems like these days we hear about a new civilization changing technology every other week. But to me, whether we’re talking about Web3, or AI, or room temperature superconductors, the opportunity to finally separate money from the state is way more important than all of those technologies combined. Because what good is any technology if we don’t have the freedom to use it for the benefit of mankind? If only those in power are able to wield it to oppress those who oppose their tyranny? I’m here because I believe eCash can not only preserve, but increase the amount of economic freedom in this world, because without economic freedom, you can’t have freedom of speech, or freedom of movement, or the freedom to explore new ideas. And I don’t know about you, but I’d rather not live in a world where we aren’t free to say what we want, go where we want, or think what we want without putting ourselves at risk of having our hard earned money taken from us with the push of a button. This is why I believe it’s imperative that we separate our money from the state, before the state gets the chance to separate us from our money.
Until next week, thank you for listening to the Proof of Writing podcast.