It’s been a good decade for the blockchain
It’s not just popular; it’s scorching hot. Not a day goes by, it seems, without another business setting up a blockchain unit, launching a blockchain project or entering a blockchain partnership. Microsoft, with Azure, and especially IBM, starting with its open-source Hyperledger Fabric, were among the first to jump onboard, but now a slew of large companies and institutions are adopting the technology:
· automotive technology and integrations: Ford, Toyota
· supply-chain management: shipping giant Maersk, mining company BHL, food company Nestle, retailer Walmart, consumer goods company Unilever, retail giant Alibaba, pharma giant Pfizer, beverage company Anheuser-Busch, and electronics giant Samsung for
· membership integration:
· insurance management: insurance companies AXA and MetLife
· various financial services and operations: Goldman Sachs, Bank of America, the Industrial and Commercial Bank of China, Providential, JPMorgan Chase, American Express
· citizen data management, voting etc.: the Japanese city of Tsukuba, the U.S. CBP, the country of Estonia, the Swiss municipality Zug
To top it all, internet giants Facebook and Alphabet are also working on their own blockchain projects, and Chinese companies Baidu and Tencent reportedly filed for no less 56% of last year’s blockchain-related patents.
For a technology, principle and even word that’s less than 10 years old, these are pretty spectacular results. How — and why — did this happen?
When you compare the blockchain to cloud storage and databases, the discussion usually involves a big up and a big down for blockchain technology. The big downer is the amount of resources needed to run the blockchain. However light a version you’re running, you still need massive GPUs / ASICs. For the lone miner out there, that’s a very costly proposition these days (however, if you’re into mining, there are workarounds to that).
The upside of the blockchain is, well, pretty much everything else. In a quick roundup, below are the most important advantages:
1. 0% downtime.
If you take Amazon Web Services, i.e. Amazon’s massive money-maker and the most widely used cloud infrastructure solution out there, with a third of the world market, guess what? They have quite a bit of downtime. So far in 2018, there have been at least 5 “events”, as AWS delicately calls them.
With the blockchain technology, there is no downtime, period. Service doesn’t stop. Your computer or your server might fail, but the blockchain is not hosted on a computer or a server; it’s hosted everywhere, on every one of the nodes connected to the network. In the always-on world of today, that is invaluable.
Blockchains create an irreversible audit trail. In other words, you cannot go back on last week’s transaction and alter the block that contains it. Well, you could, but then you would alter every single block — and every single transaction within every block — that comes after the altered transaction. In other words, it is illogical and counter-productive — which is why it is as good as impossible. For better or worse, that transaction is there to stay.
3. Historical records and current records in one place.
Unlike regular databases, blockchains contain every single block of information, from the beginning of time until just a few minutes ago. True, that makes them run to astronomical sizes: the Bitcoin blockchain is probably around 174 GB and constantly growing, but, on the other hand, you can go back and look at Satoshi Nakamoto’s first blocks to see where it all began.
This refers to both user security and coin security.
With the blockchain, there is very little (read: virtually none) room for error or fraud, as the system is immutable and transactions are transparent. Users, on the other hand, are not transparent; up to a point, they too are secure behind their wall.
Some balk at the notion that blockchains are secure, thinking either of crypto fraud or of Ross Ulbricht. In fact, crypto fraud is usually perpetrated through wallets, exchanges or ICOs; and Ross Ulbricht, the mastermind behind the dark-web mega-enterprise dubbed the Silk Road, was caught not simply because someone spied his signature in a pile of digital assets, but because he was literally apprehended before he had time to press the escape key on his computer.
Not to say, though, that there aren’t ways for the authorities to put together information from various sources to track a wallet owner, for instance, to their home address. It all depends on how well users protect their footprint on the internet and beyond.
5. Faster transactions & lower costs.
Transactions across borders and/or between banks can take days and be quite expensive. If you’re in Paraguay on a Friday night and you need to send money to Vietnam, tough luck. With blockchain technology, though, that transaction can happen within hours. To be clear, blockchain transactions are not fast (at all); they’re just faster than international inter-banking. They are also cheaper, though by no means free. In fact, if you want a speedier transaction, you’ll have to pay for it. Still, compared to traditional banking, blockchain technology doesn’t care about where in the world you are and which server you’re running from; it simply disintermediates the coin-transfer process and thus gets rid of the in-between time and fees.
There are a few issues even the most fervent supporters can pinpoint in the structure of blockchains, chief among which are the following.
1. Trusting 51% of the nodes to be honest.
Entities on a blockchain do not need to trust each other — indeed, it’s one of the reasons to be on a blockchain instead of a shared database. However, each node has to trust the majority of the nodes to be honest. This works well when discussing permissionless blockchains operated by tens of thousands of nodes. But how well does it really work when we’re talking about permissioned blockchains maintained on 25 nodes only?
2. Limited query capabilities.
This is one of the most serious problems that blockchains have yet to solve before they can aspire to mass adoption. While an Excel spreadsheet can be queried in hundreds of ways, and smarter databases even more so, the blockchain is almost entirely opaque. You can user Hyperledger Composer, BlockSci or various other clients; you can retrieve lists of transactions and transaction details with various commands. However, for most of these you have to download the entire blockchain and/or rely on third parties. Blockchain is just non query-friendly, and it is not set in its DNA, so to speak, to become user-friendly that way.
It’s big. We’ve mentioned before that Bitcoin sits on 174 GB. Ethereum is much larger, going well beyond 1 TB for the full version, but closer to 55 GB for its fast sync version (which is close to Monero’s blockchain size). Litecoin is light indeed, at around 19 GB, and Dash, which is much younger, is a feather at <8 GB. Either way, growth in user-base triggers size expansion. That’s not to say other databases — and even Excel files — are not very large indeed; but blockchain is not nothing, and resources needed for the highly traded coins are humongous.
The incentive debate and the liberal definition of blockchain technology
There’s a debate going on in Cryptoland around the notion of blockchain. Specifically, can you have a real blockchain without crypto? Some claim a blockchain that doesn’t create its own incentive system, i.e. coin, doesn’t really follow the spirit of Satoshi Nakamoto’s revolutionary invention, but is rather a mere distributed ledger. Others claim there is no reason to set blockchain in opposition to distributed ledgers, as it is merely one type of DLT.
The difference between blockchains and databases can perhaps be summarized as follows: blockchains use cryptography, they use consensus protocols instead of permission, they are server-independent and are append-only.
Blockchain conservatives will tell you that blockchains which do not create coins are not real blockchains. Nodes, they will tell you, function based on rewards in the form of cryptocurrency, which are essential to incentivize them to participate in the network. If these incentives are not created within the system, they come from outside and beyond the system, which in itself violates the principle of decentralization and third-party independence.
The problem with feverish blockchain adoption over the past year or so is that, in fact, most of the “blockchain” is not the conservative kind, but in fact a subset of the distributed ledger category. In other words, it’s a shared database rather than a decentralized network. With California offering a more liberal understanding of blockchain (as “a distributed, decentralized, shared, and reciprocal ledger, that may be public or private, permissioned or permissionless, or driven by tokenized crypto economics or tokenless”), it looks like blockchain conservatives are going to lose the fight. On the other hand, whichever kind of DLT companies are going to use, their involvement can only drive growth for the crypto community.