BLOCKCHAIN a tsunami-like phenomenon
Block-chain isn’t a revolution, its a tsunami-like phenomenon, slowly advancing and gradually enveloping everything along its way by the force of its progression.
What is Blockchain ?
There are 3 parts to it:
Cryptocurrencies : a virtual or digital currency that can be used as a medium of exchange. It secures and verifies the transactions as well as control the creation of new units.
Blockchain: is just a ledger where the network can collectively reach consensus about information and trust across boundaries. The technology behind it is Distributed Ledger technology (DLT).
CryptoAssets: Such as an ERC20 token, the idea that anything can be converted to a tradeable asset .
Blockchain’s ability to generate unprecedented opportunities to create and trade value in society will lead to a generational shift in the Internet’s evolution, from an Internet of Information to a new generation of Internet of Value. “
Ever Growing Struggle
As more and more people are adapting to blockchain and as more transactions than ever need to be mined and added to the public ledger, the technology is currently choking under its own weight due to increasingly large population trying to get there hands on to this so called ‘tech of the great dawn’. With every new block that consists a list of new transactions being added, the blockchain technology is buckling already but as with keeping the interests of the growing population the industry keeps on going through a hell of a shift every few years trying to re-position itself by coming up with solutions for recently discovered boundaries.
Blockchain technology or specifically DLT (Distributed ledger technologies) needs to have :
- Fast Transactions: At the moment bitcoin can make 7 transactions per second while visa does 24,000 and ethereum does 20, with ripple doing 1500)
- Ensuring Privacy : Blockchain having open ledgers can be linked to a person’s identity upon careful observation and through the public ledger can be traced to other people. For the need of privacy we have been building systems to
- Security of Funds : If a human authority reaches 51% control they can change or add transactions in any account as per as there wish. So the need of distributed consensus is needed to protect the value of trust.
- Minimal or NO transaction fee
At the moment an average person spends close to 28$ to send funds(bitcoins) on blockchain. Which is very expensive!
To change the way we look at money, and become the currency of the world
there a lot more that blockchain needs to be do.
Talking about Bitcoin & Visa
Talking about Bitcoin, the current representation of blockchain and crypto currencies for newbies and Visa the brand we all use everyday embedded within our credit and debit cards.
For Bitcoin to process as many transactions as visa, it will have to increase its blocksize to 4TB as opposed to 1mb (the current size). Now, despite the probability of that happening may be very low, as we have seen blockchains adopting a bigger block size in the past through HARD FORKS.
Hard fork is a method where the protocol (that consists of transaction and mining rules and forms the backbone of the blockchain) is changed. As we have seen in the past, after the DAO attack, Ethereum split after a hard fork. (more on this here). Or Like, bitcoin split into Bitcoin and Bitcoin cash that have a 1mb and 8mb block size with the sole purpose to respectively.
Can anyone fork a coin? Anyone can go to GitHub, grab the code of a coin (for example Bitcoin), and then do the development work needed to update the software. However, not anyone can get enough miners to mine the new coin, as its the people currency the people need to start start transacting on it and miner need to start mining it.
Know more about Forking Here ➟
Although Bitcoin Cash has faster transactions, it is highly centralised.
One has to loose something to gain something, isn’t that right?
For eg: Currently Bitcoin and Ethereum are absolutely decentralised, meaning its mostly being controlled by the users that transact on it, a self governing blockchain running by the people. So settling distributed governance is what makes it slow yet the most secure.
If a blockchain starts to create its own power houses that settle the transaction, it can increase the transaction speed drastically.
Examples for which is Ripple & Bitcoin Cash.
BUT People like to talk about speed 🚀
The bigger the size of the block gets, the longer it takes to mine with those traditional machines, resulting only with more powerful machines eventually gaining the most control of the blockchain. Leading to ‘Miner Inequality’.
Already, 3 firms comprise more than 51% of mining pool. For eg, — Bitcoin cash split from bitcoin and now processes 60 transactions per second.
But an increase to 60 transactions per second, it’s good news for us, isn’t it ?
As I said before, everything is a trade, you get speed in return of absolute security.
There seems to be many alternatives in works for solving this issue as, Hard Forks even though may be inevitable in some cases, are not the best solution.
Another option can be Peripheral network such as Lightening Network (based on bitcoin)or Raiden (based on ethereum)
Peripheral network is an off chain method of recording transactions where the transactions are carried out on the internet, instantly and are updated on the mainchain afterwards.
To initiate a transaction through lightening or raiden network, a person will have to lock certain funds in a multi signature wallet along with the person he is intending to interact with. Then, these people can transact/interact infinite number of times instantaneously with 0 transaction fees and can update the balances of the multi sig wallet later-on on the blockchain or whenever the channel shall be closed.
The use case scenario here could be like a dapp (suppose theres a payment app called ‘Joy’), you want to use the dapp to send funds to your friends and family offshore so you lock certain amount of funds within the app ‘Joy’ acting as a contract between the app and you, then dapp helps you send funds to your friend who has locked some funds with the dapp as well, creating a link for the flow of cash.
Problems with the Peripheral networks
The problem with lightening network is that at the very first step to initiate free transactions require me to send certain funds using blockchain and lock them in a contract. This way, I bear transaction fees on my very first transaction only which seems like a win.
To combat this difficulty, lightening network proposes that certain people can act as intermediaries and a wallet may not be necessary every-time a person wishes to transact.
For eg: If Alice has a multi sig wallet with Bob, and Bob has a multi cig wallet with Dave, then Alice can send funds directly to Dave just by paying a nominal fee to B. But this could result in concentration of mining or controlling power in a few hands.
Another limitation of Lightening network is that the receiver will only receive funds if he is online. Now that is a problem! 🤪
Maybe its not such a big thing as we can hold a transaction as pending unless the other party is online. Like the same way it works on Whatsapp Payments.
Well thinking about it Whatsapp or any other chat application can easily use a peripheral network as it already would have a lot of users using the application to interact, it would make existing users start exchanging funds within the network.
Similarly, a use case is mobile gaming, the servers can connect to each other playing a multiplayer simulation within the same network without slowing down.
Ethereum’s Raiden network is up and running and has a well known app Wala built on it, Wala works on raiden network and as the app launched in Africa it blew up, like literally blew up. Wala aka DalaCoin.
Due to minimal fees the app became a sensation, everyone was using it for p2p payments, airtime, mobile data, electricity, DSTV, school fees, and more.
They saw an average of 6,300 transactions with transaction sizes averaging at $0.27.
Which reinforced our understanding of emerging market consumers around micro-transactions.
For Bitcoin’s Lightening Network
Were as a paper on Lightening network was published in 2016 and lightning network is still under works, we are hoping it might get more traction due to the BITCOIN being the most crypto dominant due to its publicity amongst people.
Other Technologies in the works are:
- Plasma : Child Chain aka Side Chain is a way of creating side chains to do what is already possible with the raiden.
- Sharding: Right now we are using individual Transaction Hashes for every small change on the blockchain waiting for atleast 15mins for the block to be created, not only a waste of time but a waste of resources over ethereum. So, ethereum proposed that adding a lot of transactions in one single transaction hash would solve the network clogging issue and keep the transaction fees to a minimum. This way, mining costs will decrease and system efficiency will increase at-least by doublefolds.
- For eg: you worked the whole day updating the application, the log is updated as a whole list over the ethereum network as a single hash rather than individual transactions. Saving time and money!
P.S.- Peripheral networks are similar to side chains and both work on proof of stake.
You might be thinking,
Arn’t Plasma and Raiden the same ?
Well, they both are side chains settling transactions off chain, but plasma is more securer than Raiden(which is developed by 3rd party developers).
Raiden is a network of nodes. Nodes establish payment channels to other nodes Each node has to hold the balance for the amount being moved. That’s why it will be hard to find a path through the network to move 1000 Ether because every node will have to hold that balance.
- USE-CASE: Transferring small amounts of Ether and ERC20 tokens almost instantly and reliably.
Plasma aims to scale transactions by creating side chains that only interact with the main chain every once in a while. Trying to keep the network secure.
- USE-CASE: Transferring huge chunks of money back and forth off chain, keeping the network ‘fraud proof’ .
Summary
All of the introduced concepts try to scale Ethereum. None of them are direct competitors to each other as their concepts differ and therefore cover different use cases. Ask questions in the comments if anything is unclear or you want more details on a particular topic.
It is a very exciting time in crypto space and things are changing real fast. A week in this space feels like a month and a month feels like a year in terms of upcoming news and developments.
