VC On Blockchain #02: Thoughts From TechInAsia 2018 — Zilliqa Fireside Chat
The talk highlighted two key improvements we need to see in the blockchain ecosystem — scalability and safe contracts. They started out the talk with the issues that plagued the blockchain space at the end of 2017 where Ethereum and Bitcoin were both overloaded and everybody started losing faith that this technology could revolutionize the world. Bitcoin, once touted as the future of payments and to be used at Starbucks to purchase coffee daily, cost USD$34 (median) for a transaction at its peak. Ethereum transactions took 2 days to go through when Cryptokitties went live and the whole network was clogged for about 3 days until the hype died down. Even then, Ethereum was processing more than a million transactions a day and it was not enough. There was obviously a problem, and Zilliqa had been developing the solution to scalability since 2015 — sharding. Sharding is a type of database partitioning that separates very large databases the into smaller, faster, more easily managed parts called data shards. However, this goes against the logic of having blockchains, where we need individual nodes to have identical data to confirm a transaction. One valid point is that we may not need absolute replicability, like how exchanges require 2–6 confirmations from miners (for Bitcoin) to prove a valid transaction. With this tradeoff of security for speed, it is possible that with sharding it can hit that 1M transactions per second(tps) and still be secure enough.
The next big issue is security. Catastrophic events have happened on major blockchains showing how unreliable current blockchains are. For example, the DAO hack, Parity freeze and PoWHCoin bug are famous failures that happened on Ethereum, the most utilized open-source public blockchain. One small error in the code can lead to a hacker emptying millions of dollars of investors’ money or in the case of Parity and PoWH, lead to millions of dollars being frozen. Once the blockchain’s main net is up and there are actual users on it, there is no way to recall the code. As such, the code must be close to perfect and tested by hackers sufficiently before it gets shipped off.
Zilliqa went on to talk about the importance of safe smart contracts. Blockchain technology has evolved to include smart contracts which are essentially programs designed to execute automatically and enforce a set of rules autonomously. Some examples of this include insurance, supply chain management, loan and employment contracts. Of course, these contracts have evolved to turn assets into tokenized contracts and used in what we call token economies. The end goal was hyper liquidity, where infinite token economies and blockchains can interact seamlessly with one another, removing completely the need for trusted middlemen.
This does not necessarily mean that middlemen will disappear, because we will still require third parties to contribute to liquidity. However, we may no longer have to trust them, with the introduction of atomic swaps, and escrow systems will become obsolete. I used the word ‘may’ because we still depend on these middlemen to provide sufficient and timely liquidity, and that dependence is a form of trust.
In my opinion, security is the number one reason why anybody should use blockchains instead of traditional data storage systems, which are already very secure. The value proposition of blockchain lies in its immutability and independence, removing the need for trusted middlemen. Technology that do not even appear to require or utilize either of the above qualities should not even think of starting an ICO or use the blockchain. An extreme comment, but definitely needed when people are still throwing millions of dollars at anything which has blockchain in it.
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Written by Douglas Tan, Venture Associate at TRIVE
