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Blockchain-based voting systems have potential despite security concerns



The 2020 United States presidential election was met with an increase in mail-in ballots due to COVID-19 concerns. Yet while many Americans stayed away from polling stations this year, postal delays, rejected ballots, and other challenges emerged.

Unsurprisingly, better ways for casting votes during major elections quickly became a hot topic of discussion. This has also led some in the crypto community advocating with renewed vigor for a blockchain-based voting system to be used in the future presidential elections.

While the promises of blockchain include trust, transparency and immutability, a group of researchers at the Massachusetts Institute of Technology’s Computer Science and Artificial Intelligence Laboratory pointed out security flaws associated with blockchain voting systems. The researchers published a report on Nov. 6 explaining that online voting is fatally flawed since such systems are vulnerable to large-scale cyber attacks. The report specifically discusses blockchain-based voting systems like Voatz, which has been used in U.S. municipal elections, yet reportedly suffers from data security issues.

Security aside, blockchain voting systems may be viable

Despite security concerns, some still believe that blockchain-based voting systems will be leveraged in major elections moving forward. Maxim Rukinov, head of the Distributed Ledger Technologies Center of St. Petersburg State University, told Cointelegraph that blockchain allows for a system of fair elections to take place within a trusted environment between participants who generally do not trust each other: “With blockchain you can make voting available and increase the transparency of any election. In a perfect scenario, the results of such a vote cannot be faked.”

Rukinov shared that he has been working with a team of researchers to develop an online voting system specifically designed for enterprise use. Known as “CryptoVeche,” Rukinov explained that this particular system stores voting results in a blockchain, which is a type of distributed ledger. As such, the system is highly secure against external and internal hacks.

Alex Tapscott, co-founder of the Blockchain Research Institute and a book author, explained this in detail for a New York Times article published in 2018, even before the COVID-19 pandemic brought new challenges to light. Tapscott pointed out that in elections, trust is concentrated within government agencies, which are extremely vulnerable to hacks, fraud, and human errors. To put this into perspective, a study released last year shows that local and federal government entities have fallen victim to 443 data breaches since 2014, but those mostly included lost hardware, mailing errors, and paper breaches.

Tapscott noted that a blockchain system relies on distributed network computers to verify transactions. Once verified, results are recorded in blocks that are linked cryptographically to the preceding block. A secure ledger is then formed, which is transparent to all network participants, yet remains immutable and tamper proof. This feature is also important for ensuring that individuals only cast a single vote, as blockchain-based systems are meant to prevent double-spending. 

Don Tapscott, well-known author and co-founder of the Blockchain Research Institute further told Cointelegraph that votes cannot be sent online today because internet-based systems do not work well for such applications:

“If we transmit information like a vote on the Internet we’re actually sending a copy of that file; the original remains in our possession. This is acceptable for sharing information but unacceptable for transactions with assets, like money, securities, songs or recording votes in elections.”

As such, Tapscott noted that within a blockchain-based system, public trust in the voting process is achieved through cryptography, code, and collaboration among citizens, government agencies, and other stakeholders.

Technical challenges must be overcome

Of course, there is no denying that technical challenges related to blockchain-based voting systems remain. In addition to the security concerns mentioned by MIT researchers in their recent report, Rukinov acknowledged that developing an online voting system is challenging.

Rukinov further explained that with blockchain systems the accuracy of transactions, in this case, voter registration is verified by a consensus mechanism between different members of the network. However, when it comes to voting systems independent observers must also be one of the parties involved with the consensus, meaning they would have to hold several validation nodes.

According to Rukinov, in most cases the number of nodes owned by the network organizer are greater than the number of independent nodes. So in the case of a blockchain-based voting system, an attack may occur when those who control more than half of the resources have the ability to change data at random. Rukinov pointed out that this problem is not the case for all types of consensus mechanisms.

Lior Lamash, Founder and CEO of GK8, a cybersecurity company, also told Cointelegraph that while the immutable nature of blockchain makes it an effective platform to ensure the integrity of the voting process, several vulnerabilities remain. Specifically speaking, Lamash noted that voter identification is problematic when using blockchain-based voting systems:

“The security aspect of blockchain-based voting is tricky. On one hand, the blockchain itself is completely secured from even state-level hackers, as it employs hundreds of thousands of nodes on multiple servers across the globe. The challenge would be in securing the ‘endpoints’ of this network – individual ballots and voting stations.”

Moreover, Lamash noted that while each ballot stores a user’s private keys, a hacker could obtain that information and manipulate the entire election process: “This issue is quite similar to the challenge that banks and other financial institutions face when offering blockchain-based services.”

Undeniable potential

Although challenges remain with blockchain-based voting systems, it’s clear that blockchain has huge potential for use in future elections. Dylan Dewdney, chief executive officer of Kylin, a cross-chain platform designed for Polkadot-based data economy, told Cointelegraph that the trusted outcome of an election must also be taken into consideration. He further determined that blockchain being applied for data validation is highly useful in this case.

According to Dewdney, a decentralized infrastructure could help improve the trusted outcome of an electoral process. Dewdney explained that Kylin has created a data validation process using an oracle node, which serves as an information feed. An arbitration node is then used to judge if that data is valid or not. Dewdney said:

“Anyone operating an arbitration node would have an excellent incentive to challenge inaccurate information as they would be rewarded in a native token to do so. Similarly, providing accurate, validated (challengeable) information as a premium data feeder to consumers like news organizations, is incredibly valuable as a premium data feed in a data marketplace.”

Although Kylin is a solution that can easily be applied in the decentralized finance space, the same concept can be used for voting systems. “Decentralized validation of local electoral results could provide a very powerful tool against some of the problems we are currently seeing.” He further added: “This could easily operate as the linked consensus of the validated API feeds of literally thousands of local election results reported to websites within a Dapp developers premium data sourcing.”

Rukinov believes that the ideal blockchain-based voting system must cater to voter eligibility, verifiability, and immutability. He mentioned that these features can be achieved in the future through cryptographic protocols including digital signatures, zero-knowledge proofs, and homomorphic encryption: “In order to achieve additional benefits, it’s necessary to add the possibility of cancelling the registration; observers being able to detect the facts of falsification; and the permanence of the register change history.”

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All risk, no gain? The vague definition of stablecoins is causing problems




Sometimes, “stablecoins” and variants such as “algorithmic stablecoins” function like historical names, as they refer to projects that call themselves stablecoins, such as Basis Cash, Elastic Set Dollar, Frax and their clones.

The word “stablecoin” can be used as a logical description for “a cryptocurrency designed to have low price volatility” and has “stores of value or units of account,” or “a new type of cryptocurrency that often have their value pegged to another asset… designed to tackle the inherent volatility seen in cryptocurrency prices,” or a currency that can “act as a medium of monetary exchange and a mode of storage of monetary value, and its value should remain relatively stable over longer time horizons.”

On the more metaphysically speculative end, some have defined a stablecoin as “an asset that prices itself, rather than an asset that is priced by supply and demand. This goes against everything we know about how markets work.”

Circularity is the core issue, as I see it. The alleged deficiency of Bitcoin (BTC) as money and a vague definition originally inspired a host of stablecoin projects. The design features of these projects have now been incorporated back into the stablecoin definition.

Haseeb Qureshi — a software engineer, author and famous altruist — defines a stablecoin as simply a price peg. Yet, it is not obvious that anything with a peg should bear the name of stablecoin. Ampleforth has a “peg” and has been bucketed into the stablecoin category. The founding team routinely clarifies that it is no such thing.

So, who is right?

Another example of just what exactly is “stable” in a stablecoin — the peg or its value? Wrapped Bitcoin (wBTC) is perfectly pegged to Bitcoin — one wBTC will always be one BTC. Is that a stablecoin?

According to the original motivations for creating stablecoins, BTC is not a stable means of exchange, even though Bitcoin is the canonical “store of value” asset.

Having clarified the problem — that no one knows how to define or recognize a stablecoin — the rest of this essay outlines a solution. It provides a well-defined description of value as a relational property, namely, “value in terms of a measurement unit.”

Using this description, I then comprehensively classify all digital assets along two dimensions — risk of loss, or the probability of realizing a decrease in value, and risk of gain, or the probability of realizing an increase in value. We can then precisely and logically define stablecoins: assets where the risk of loss and risk of gain are both zero.

That is:


I call this a risk-defined stablecoin.

It is clear that today’s algorithmic stablecoins have a risk of loss but no risk of gain. Thus, not only are they not stablecoins, but they are terrible financial assets. I finish by considering whether it makes sense to expand the concept of a risk-defined stablecoin to a more general concept centered on expected value; an expected-value stablecoin is one where the probabilities of loss and gain, weighted by the magnitude of loss and gain, are perfectly offset and net out to zero.

I conclude that the complexity and ergodicity of such a concept rule it out as a useful stablecoin definition.

What is value?

What “value” means is not entirely clear, as evidenced by continuing debates about the “true” rate of inflation. We can ask: Value in terms of what?

That is, we decide to treat value as a relational property between the object being measured and the thing doing the measuring. It is like asking for height — do you want it in inches or centimeters? For our purposes, can we define a function that maps an asset to a set of numerical values in a chosen unit? I call it: Value.

For example, if the chosen unit is the U.S. dollar, and the item is a bag of chips,


We could just as well have written Heightinches(table)=35in.

Risk of loss, risk of gain

The value of an asset changes over time, so we can expand our Value function to reflect the idea of “the value of an asset, in terms of a unit, at a certain time” by adding the time (t) at which we are measuring value:


We can define risks as the probability that, at a randomly chosen time in the future, the Value function would show a decrease or increase in value.

In practical terms, this means that if I convert the asset into my chosen unit, I would realize a loss or a gain.

A risk-defined stablecoin

We now have enough to create a well-defined description for a stablecoin. A stablecoin is an asset where the risk of loss and the risk of gain are both zero. That is: p(gain)=p(loss)=0.

This means that if I sell the stablecoin asset in the future, I will neither experience a loss nor gain in value, as measured in my chosen unit.

The Boston Consulting Group’s famous matrix was invented by the company’s founder, Bruce Henderson, in the 1970s. With some rearrangement, we can repurpose the Boston Consulting Group growth-share matrix to classify all digital assets by their risk of loss and risk of gain. The four categories are still stars, dogs, unknowns and cash cows.

A star investment, with no risk of loss but a risk of gain, is rare nowadays but abundant in hindsight, such as when one regrets selling Bitcoin back in 2010. Stars also exist in the imagination. Such was the case with the investors in Bernie Madoff’s fund. But those kinds of investments quickly reveal themselves to be dogs. Dogs are sure losers — there is no risk of gain, but if you hold them long enough, the risk of loss becomes an actual loss.

Star investments are most abundant in hindsight when we can no longer buy them:

Unknowns are your regular investments — you could be up or down in terms of value, depending on the day. Most digital assets, even Bitcoin, fall into this category. Lastly, cash cows are investments that have minimal risk of loss or gain. They are dependable. We can now take those projects that have been named as stablecoins to see which truly fit.

Let’s put some major digital assets and stablecoins into the gain-loss matrix.

Projects called algorithmic stablecoins are stablecoins in name only. Because of their multiple token designs, they have no risk of gain — as all of the new supply is given to investors — but holders retain a risk of loss.

Price peg is not enough. The expected value of owning an asset could be positive or negative, but it is not zero. Another lesson is that it is important to specify a unit when discussing value. If our measurement unit is the U.S. dollar, then wBTC is not a stablecoin. But if we are defining value in terms of BTC, then wBTC is the perfect stablecoin.

Lastly, risk assessment is hard. I’ve received pushback about classifying Tether (USDT) as a stablecoin, given its counterparty risk.

These are all valid points.

Except under extraordinary circumstances, no stablecoin is truly free of the risk of loss. Perhaps Tether is a cross between a dog and a cow.

Nonetheless, it should be clear that certain projects egregiously appropriate the term “stablecoin” in a bid to grant investors a risk of gain while saddling holders with a risk of loss. Since no sane person would hold these assets on their books, however, it is almost certain that these dogs will go extinct.

An expected-value stablecoin?

Astute readers will have noticed that expected value is not just a function of the probability of loss and gain — the magnitude of losses and magnitude of gains is just as important.

For example, assume I have a fair die. If I roll a six, I win $60. If I roll any other number I lose $6. The expected value of rolling the die is:


But can we expand the concept of a risk-defined stablecoin into that of an expected-value stablecoin? In other words, would it suffice for the expected value of holding an asset to be zero? Using the die example above, this condition would be met if I won only $30 instead of $60. So, any time I try to convert this “DieCoin” into U.S. dollars, there is a five-sixth chance I will realize a loss in value, and a one-sixth chance I will realize a gain. But because the gain is so much larger than the loss, these cancel out.

I think this could be a clever approach that can be realized through a set of derivative contracts. However, it would lose the property of allowing holders to exit their position with minimal impact to their portfolios.

This should remind us that, ultimately, definitions are artifacts of a community of speakers. And I find it doubtful that more than a few people will find an expected value definition persuasive.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Manny Rincon-Cruz serves as an advisor to the Ampleforth project and is a co-author of the protocol’s white paper. Manny is a researcher at the Hoover Institution at Stanford University, where he helped to launch and currently serves as the executive director of the History Working Group.