Abstract
In this research paper, the author expands on the Algorithmic authority concept used in day-to-day life. Algorithmic authority is essential to power in algorithms that direct human beings’ actions to affect the information perceived to be right. The author concentrates more on theories behind blockchain’s algorithmic technology and the importance of commonality throughout purchases in the blockchain realm, specifically looking at transactional methods. Tying the power of algorithmic authority with cryptocurrency, specifically bitcoin and ethereum, the study deeply explores the algorithmic authority concept in transactions. In this study, the data used are from interviews, surveys, and the bitcoin community information. The focus is on the bitcoin community that prefers algorithmic authority to the integration of bitcoin into the institution.
The author chooses bitcoin as an example because it is purely managed by algorithms and not banks or governments, thus giving a clear understanding of algorithmic authority. The bitcoin algorithms were established by the Bitcoin source community and applied in the decentralized network of bitcoin. He also used ethereum because it supports all computational methods and is considered better than the blockchain structure. Ethereum symbolizes a blockchain with built-in Turing-complete programming language.
Introduction
In this paper, the research is about algorithms, bitcoin, and ethereum, how they function in transactions, why they are important to Algorithmic authority, and the power of commonality in blockchain technology cryptocurrency. Algorithmic authority is “the fundamental entity with which computer scientists operate” (Gillespie, Boczkowski, and Foot 2014). Algorithms play not only critical roles in software but also in economic, social, and political development. Algorithmic authority is all about trust that the people controlling the coding can act in the right way (Yavuz et al. 2018). In simple terms, algorithmic authority is about authenticating information and controlling humans’ actions by algorithms relying on the authority of humans.
Methods
This research uses data from the survey conducted, interviews, and the information obtained from articles, blogs, and posts from the bitcoin community forum. The formal and informal interviews conducted availed much data on bitcoin technology and ethereum and how they function in transactions (Yavuz et al. 2018). The data obtained from blogs and articles provided much information on the importance of bitcoin and ethereum authority of algorithms and the power of commonality and theories behind the algorithmic authority.
The survey was conducted on two reputable sites, BitcoinTalk.org and /r/Bitcoin, which are popular among bitcoin users. 30 questions were posted on reasons for using bitcoin and ethereum, government regulations, and the future of bitcoin and ethereum (Bach, Mihaljevic, and Zagar 2018). Some questions were open-ended on the anonymity of bitcoin. Since there was an option for participants to leave their contacts, 100 out of 400 people that participated in the survey left their contacts for the interview.
Using information from the survey, interview questions that linked to the obtained responses were drafted. The method applied was a combination of semi-structured and exploratory interviews to acquire more information on the use of bitcoin and ethereum. Avoiding participants who gave short replies to queries and those that never attempted long queries, interviewed half of the participants took part in the interview (Bach, Mihaljevic, and Zagar 2018). Mediums such as emails, telephone, Skype, and messaging based on participants’ choice were used.
During the study, observation was also used by reading several posts, blogs, and articles on the Bitcoin Community. The blogs and posts read focused on what bitcoin and ethereum are and how they function in transactions. Articles that addressed the views of bitcoin and ethereum users were read as well. The study also focused on the theories behind algorithmic authority and the power of commonality. The articles also availed data on bitcoin uses in payment, including illegal use of bitcoin. An attempt to mine bitcoin failed because of a lack of appropriate software.
Attending a seminar on the use and future of bitcoin hosted by Orange Count Tech hour, where additional information on bitcoins’ function in transactions was gathered, was also useful for the research. Collected data was through screenshots, emails, messages, videos, and photographs. The methodology applied in this study enabled the gathering of relevant, necessary, and enough information concerning bitcoin, algorithm authority, and ethereum.
Bitcoin
Bitcoin is a computer folder in a wallet that is digital or digital money and payment platform with no transaction fees and functions in micro-transactions. Bitcoin was created to function as cash in digital design. The development of bitcoin occurred during the Great Recession in 2008 (Gillespie and Seaver 2016). According to Bach, Mihaljevic, and Zagar (2018), there was a higher unemployment rate arising from the financial crisis experienced during that time. The housing cost and stock market made many Americans negative.
Gillespie (2010) said that bitcoin’s introduction first occurred in a white paper by Satoshi Nakamoto, who is believed to be bitcoin’s first creator. He was inspired to create digital currency due to the challenges experienced by electronic commerce. Satoshi claimed that electronic commerce was associated with a lack of privacy to its users and high operation cost (Gillespie 2010). Satoshi wanted to reduce the double-spending cost related to the external party in electronic commerce. There was high transaction cost incurred through double-spending, lack of privacy, and a high probability of money reversal by the third parties. Bitcoin was designed to be digital and managed by distributed and decentralized P2P network.
Why Bitcoin
Bitcoin was chosen for this study because it is more of an algorithm that is heteromated, open-source, and regionalized than critical algorithms studies that are recommender, online search, or targeted advertising (Gillespie and Seaver 2016). Below are the described weaknesses of critical algorithms study over open-source algorithms such as bitcoin. Open source algorithms aid in the easy understanding of algorithmic authority. The following are some of the weaknesses related to critical algorithm research.
First, it does not provide information on the development of algorithms. It is not clear how the researchers in the required algorithm field explain powerful algorithms but do not concentrate on developing the algorithms. Open source algorithms such as bitcoin provide detailed information on algorithms’ power and development (Fuller 2008). Second, critical algorithms do not explain the behaviors of workers when operating the algorithmic systems. Lack of this behavioral understanding limits researchers’ study to assist the algorithm users (Fuller 2008). These critics support the use of open algorithms such as bitcoin in this study.
How Bitcoin Functions in Transactions
Peer software checks if the amount transacted has not been double spent by checking the ledger when a transaction is done. The ledger contains all the transaction records or information. Transactions that have been verified are assembled into blocks through the blockchain then appear in the public ledger (Bach, Mihaljevic, and Zagar 2018). It is difficult to fake the blocks since cryptographic hash algorithm functions connect them. Each block has a specific position marked by the harsh preventing fake currency fraud. The blockchain creates a fork to differentiate the mined blocks within a short period or at the same time. The longest part of the fork becomes the immediate blockchain while the rest is rejected.
Greenspan (2015) describes bitcoin mining as a means of regeneration of new bitcoins, and whenever it occurs, the blocks are formed and added to the blockchain. The mining of bitcoins controls its growth rate. Moreover, the mining of bitcoins helps in eliminating the distribution of currency from a centralized organization. The current bitcoin code shows that 21million bitcoins exist, but the number can be increased by changing the code. Havening of bitcoins occurs after every four years of mining. It is estimated that the 21million will have been mined by 2040 (Greenspan 2015).
Several attacks are discussed on bitcoins, such as majority attack and 25% mining power attack. In the majority attack, double spending, reversing transactions, or barring transactions can occur in the case of fast mining. Mining power centralization seemed a key concern to the participants, but mining has been more integrated over the years. Blockchain also functions as smart contracts and records of ownership storage platforms (Grinberg 2011). Furthermore, transactions for buying and selling products between individuals can be carried out by bitcoin. Blockchain is widely applied in the healthcare sector to keep records such as transactions (Gregory 2000).
Ethereum
Among the most popular cryptocurrency, Ethereum is the second in popularity ranking immediately after Bitcoin (Mingxiao et al. 2017). Thus, it is important to know how the Ethereum platform operates and to distinguish between Bitcoin and Ethereum themselves. It will also be relevant to go deeper and study the design features of Ethereum together with its various applications (Mingxiao et al. 2017).
On the fast interaction, one may ask the meaning of Ethereum. In summary, Ethereum is one of the blockchain technology-based computing podiums, where designers can build and deploy a decentralized application (Mingxiao et al. 2017). In other words, Ethereum is a computing platform that does not depend on a centralized authority to function. Ethereum enables creating a decentralized application giving authority of deciding to the members of that application (Vujičić, Jagodić, and Ranđić 2018).
Ethereum Features
Ethereum has five main features: Ether, smart contract, Ethereum virtual machine, decentralized application, and decentralized autonomous organization (Vujičić, Jagodić, and Ranđić 2018).
Ether
The mode of payment in Ethereum cryptocurrency is known as ether. It has several uses since it is the main fuel source that operates the platform network (Vujičić, Jagodić, and Ranđić 2018). One of the uses of Ethereum is to reward for computational resources and charge any transaction that is carried out within the network of Ethereum (Fairley 2018). Another medium used to pay for computation transactions within the Ethereum network is gas purchased using ether. Therefore, ether is the core center of Ethereum because it is used to construct smart contracts, create decentralized applications, and make systematic peer-peer expenses (Dannen 2017).
Smart Contracts
Within Ethereum, a smart contract is a computerized program that can facilitate converting goods or assets from one party to another (Vujičić, Jagodić, and Ranđić 2018). These asserts for exchange are different depending on the parties, and they include shares, money, property, even digital asserts. The contracts are the standings and conditions in the process of creating the platform that both parties have agreed on (Vujičić, Jagodić, and Ranđić 2018).
The smart contracts cannot be changed immediately after the contract is put in place. The transactions that are done on the smart contracts are also stored enduringly (Dannen 2017). It is impossible to alter or edit the smart contract transaction even in future modification because of these features.
The smart contract implementation is decentralized because centralized authority is not required during smart contract verification since the process is done by anonymous parties of the network (Gillespie, Boczkowski, and Foot 2014). With the smart contract, trust between the two parties is created. Every transaction operated within the platform is transparent and trusted with the parties’ identities locked within the network. In a smart contract, trust is also created by immediately updating the accounts of the parties doing the transaction (Fairley 2018).
Ethereum Virtual Machine
EVM is the sector of Ethereum that recognizes the language of smart contracts, and this language is always written in the solidity for Ethereum (Gregory 2000). It functions mainly in a sandbox environment. The smart contract programing language is assembled into the bytecode, and this is the language that EVM understands. The smart contract is Witten in Solidity, which is then converted into bytecode and operated on EVM. EVM helps to protect Ethereum from cyber hackers (Gregory 2000).
Decentralized Applications (Dapps)
It is a composite of a backing code that goes through and across the peer-to-peer network. Dapps is software formed to operate without the centralized authority within the Ethereum network (Greenspan 2015). Dapps provides a platform for direct interaction between the end-users and its providers. An application is qualified to be a Dapps as long as its code is Github and can utilize a public blockchain to operate the application. For the Dapp to operate, fuel is required, and the token is always used as fuel (Aung and Tantidham 2017).
Decentralized Autonomous Organizations (DAOs)
A DAO functions in a decentralized and democratic way because it is a digital organization that even without ordered supervisions (Gillespie 2010). In the organization, the decision-making is done by appointed authorities or even assigned people or groups but never is the decision-making centralized. The smart contract protocols control DAO; hence, it depends on the contracts to function (Yavuz et al. 2018). Because of the dependency, every decision made within the organization is going through the voting procedure.
Applications of Ethereum to the Real World
Most countries’ voting systems have changed due to adopting the uses of DAO of Ethereum. In these nations, the voting results are made available to the public; this enables the voting process to be a transparent and fair electoral process, eliminating election violations (Gillespie, Boczkowski, and Foot 2014). Most of the banking system has also adopted the use of Ethereum to decentralize their banking system. With this kind of structure, unauthorized access by cyber hackers is drastically reduced (Gillespie, Boczkowski, and Foot 2014). Banks that have adopted Ethereum also use it as a mode of making payments on Ethereum networks.
Bitcoin versus Ethereum
Bitcoin blockchain and ethereum are similar, with slight differences in block composition. Ethereum is the most recent blockchain which has block number, transaction list, nonce, and difficulty (Al-Jaroodi and Mohamed 2019). To get the current state, the former state is applied. The main distinction between Bitcoin, the most popular, and Ethereum is the hashing algorithm. Bitcoin uses the SHA-256 hashing algorithm, while the Ethash hashing algorithm is used for Ethereum (Gillespie and Seaver 2016). In Ethereum, it only takes an average of about 12 to 15 seconds for mining a block which takes 10mins for mining in the case of Bitcoin. The value of Bitcoin is higher than that of Ether that is one Bitcoin is equivalent to $5249.03 while one ether is $180.89 as per April 2019 (Gillespie, Boczkowski, and Foot 2014).
Bitcoin and Ethereum as an Example of Emergent Algorithmic Authority
Humans facilitated algorithmic authority, and many bitcoin users have turned to it (Gillespie, Boczkowski, and Foot 2014). The algorithmic authority has some difficulties and strains from the gathered information. From the interview and surveys, many bitcoin users prefer algorithmic authority to institutions due to trust issues. Many participants viewed bitcoin as apolitical, giving it a higher preference to government banks. Algorithms that govern bitcoin are considered as not partial and lacking corruption.
According to Gillespie and Seaver (2016), Ethereum applies Proof-of-work (PoW) algorithm to achieve its operations. PoW algorithm has several challenges, and fraud is one of them due to the inability to do reverse transactions (Al-Jaroodi and Mohamed 2019). Suppose someone transacts with a wrong person or gets conned; it is impossible to reverse such transactions. Sealing of blocks in PoW authority requires recognized signers (Al-Jaroodi and Mohamed 2019). No hash minings are required, as in the case of bitcoins. By using signers, there a gap since the signers can be changed, added, or removed from the list in case of suspected malicious activity. Despite the few downsides of PoW, its most reliability and security are ensured for the users (Gillespie 2010).
Conclusion
Further research should be done on how algorithmic authority can be upgraded to empower users. Moreover, transparency, decentralization, and openness should be further studied as bitcoin aspects that can solve the closed algorithm weaknesses. Such studies could better audit algorithm biasness. Further studies in critical algorithms should be done to broaden the range of algorithmic authority understanding.
This paper studied the algorithmic authority concept and how bitcoin and ethereum are important to the authority. Bitcoin blockchain and ethereum are similar, with slight differences in block composition. It found that most bitcoin users believe in their judgments as well as the code. Algorithmic authority is not just found in a code but diverse socio technical actants. Most participants’ opinions were that a disruptive authority would result from bitcoin; institutions’ centralization does not hinder bitcoin appeal.
With the evolution in bitcoin, understanding centralization will require more studies to solve the opposition it is facing by the bitcoin users. These studies will as well help in understanding algorithmic authority decentralization. Little research has been carried out on bitcoin users in the current world; more research is necessary. Several changes have occurred in the bitcoin community over the years; thus, research has to be updated to understand algorithmic applications to bitcoin by the current users.
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