The Globally Distributed Ledger Software of the Future — Part I
Public blockchains are clearly a revolutionary technology with enormous disruptive potential. Public blockchains are immutable, pseudonymous, and decentralized. This means anyone can choose to become part of the network and participate in the consensus process, making the network more inclusive, or “permissionless”. And, there should be no way for anyone to change/alter transactions retrospectively. This means that the contents of the public blockchains can be trusted to be consistent once being put there, which is especially useful when the participating entities do not trust each other, usually in a “trustless” environment.
Trust is arguably the most expensive thing in the world, and the cost of bring trust into a trustless environment is never cheap. To fulfill the full potential of such a revolutionary technology, a public blockchain needs to be built on a globally distributed ledger software which would benefit from the economy of scale and reducing the transaction costs to the lowest point possible. A reliable and secure consensus algorithm is also essential. Smart contracts need to be truly smart and fit for its purposes without adding unnecessary overheads. At present, there are too many blockchains around, to be successful, public blockchain need clear design goals to meet all the fundamental requirements in ingenuitive ways.
A little bit about myself
I started working on blockchain since 2013. At that time, I developed BTC + LTC dual mining chips and hardware, the technology was sold to a world-wide market. I then tried to develop an IoT software platform based on blockchain technology, and after several months of trial and development, I encountered serious issues with scalability and the transaction fees were very high. Issues like these prevent mass adoption of the blockchain technology and ultimately drove the foundation of the TrustNote open source project and its development of a fast, scalable, and decentralized platform to provide high-performance for everyone on every device at a lower cost. This distributed ledger system will potentially make it a lot easier to implement, and scale new blockchain applications for a much broader audience, allowing more innovative ideas to flourish quickly.
In this article, I would like to put forward my vision for meeting these goals. I welcome any questions, comments, or suggestions you may have.
Let’s start with the basics
Although the word “ledger” seems to be a term specific to accounting and financial services, a ledger is a basic but essential tool being used throughout the history of human society, because any transactions in economic terms would require some form of bookkeeping system to record the value exchange for future reference, which is true even long before the specialized accounting tools and methodologies were developed, when people have been keeping “mental ledgers” of their interactions with each other’s for thousands of years.
Just like tortoise shells, knot notes, and paper accounting books, public blockchain is also a tool to record the value exchange for future reference, more specifically a shared software system that helps people or entities keeping accounts. Because ledger is such a fundamental tool in the human society, the changes on how to record and use of value exchange triggered by the blockchain technology is likely to provide a foundation for the next revolution in human social and economic activities.
The earliest written ledgers of mankind recorded the number of items people traded with each other, with the medium of exchange being the item itself. Later, people invented currency, coins and banknotes became the medium of exchange. Correspondingly, the invention of blockchain saw Mr. Satoshi Nakamoto create a ledger with crypto-currencies namely Bitcoin being used as the medium of exchange. The Bitcoin ledger is the total record of all bitcoin transactions all around the world, recorded in the UTXO (Unspent Transaction Output) model. The UTXO model is similar to the double-entry bookkeeping system widely used in today’s accounting world. The value of this new ledger system lies in its ability of reducing the costs of transaction, achievable not necessarily through reducing the infrastructure or IT costs, but primarily through cutting the costs of building and maintaining trust in the economic activities, where trust is the most fundamental requirement of any trade conducted between people or business entities.
Trust is a must have prerequisite for any value exchange. Public blockchain is essentially an Internet of value realized by building trust through distributed consensus. By bring trust into the trustless environment, public blockchains help to improve the unfairness in the real-world and will inevitably penetrate deep into our daily lives in the near future.
For example, public blockchains allowing people to record and control his own data and wealth, most importantly retaining complete ownership of their information and finances. Public blockchains can optimize the relations of production, using incentives to improve the efficiency and effectiveness of social behavior. Public blockchains can also be used on social networking, balancing the dual needs of both information interaction and privacy protection.
Now let’s take a look at Bitcoin and Ethereum
Bitcoin and Ethereum are two of the pioneering blockchain projects. Bitcoin is a public ledger for digital currency, and Ethereum is a public ledger for the smart contracts, these two are also the most successful public blockchain projects as of today in terms of both user adoption and market value.
However, Bitcoin and Ethereum are only suited for a limited range of applications. As a ledger for digital currency, Bitcoin can only be used in scenarios similar to “digital gold”. Although Ethereum is a little more flexible than Bitcoin, it has yet to achieve its stated purpose of supporting a wide range of smart-contract based applications in any large scale. So far, DApps have not yet to find much of a mainstream audience or real-world application. The Ethereum network is still mainly used in digital token distribution scenarios or simply ICOs. In terms of fully realizing public blockchains’ enormous potential, the performance, cost, and concurrency of Ethereum’s transactions are all unsustainable.
In summary, neither Bitcoin nor Ethereum is adaptable to broader scenarios which were originally aimed for. The main reasons are:
- The performance of both ledgers is too low and there is simply no scalability;
- The cost of transactions is too high;
- The smart contract system of Ethereum is too heavy and there are too many security issues.
In order to bring the revolutionary technology of public blockchains into real-world adoption, based on the lessons we learned from all these great experiments, it’s time for all of us to rethink, what the public blockchain should really look like?
In my view, a public blockchain must be an open and globally distributed ledger software. It must be inclusive which means not just permissionless but also is ready for mobile and IoT devices. It must allow high transaction throughput, with short confirmation times, low transaction fees, better user privacy, while supporting a wide variety of tokens and tokenized applications. My proposal of creating such an open and globally distributed ledger software is based on the following considerations:
I. Although blockchain is revolutionary, it is not appropriate to overstate its role.
The blockchain technology was designed and invented by Mr. Satoshi Nakamoto and others to solve the centralization of global value transfer. And it is only suitable for distributed and decentralized transfer of value using tokens as medium of exchange. Public blockchains are not being designed to replace the general distributed database, and is not suitable for being used as one, including storing massive amounts of data in areas such as Artificial Intelligence and Big Data.
The experiments we see from those projects running on the Ethereum network also tells us that there are continuing difficulties with bringing the conventional DApp (decentralized applications), especially those misguided designs who treat public blockchains as a computer, or even an operating system into real-world adoption.
Again, taking Ethereum as an example, only ICO-type token issuance is currently in real use.
II. Blockchain is simply a shared database of transactions. It cannot be a distributed computing system, nor can it be a globally-distributed operating system.
Until now, there is no cost-effective cryptographic method for verifying the output of any distributed systems in large scale. In the meantime, it is neither necessary nor ROI-justifiable to use a tamper-proof and traceable database in ordinary applications of distributed computing, as this simply increases the overall costs while offering no tangible benefit.
In typical applications of distributed computing, a lot of initial data (irrelevant of whether they are come from IoT sensors or not) usually come from a centralized data collection. If data decentralization cannot be guaranteed at its source level, then the intermediate processing of these data should not be recorded on the public blockchain, because rather than hugely increasing the overall cost of storage and transactions, recording centralized data onto the public blockchain does not make them decentralized.
The proper way of handling centralized data on public blockchains should be channeled through oracles. Oracles are trusted data sources or entities that provide information or sign claims about the state of the external world for smart contracts. Oracles should be the link between the real-world events and the digital world of the public blockchains, and centralized raw data should be pre-processed and aggregated before the resulting data are channeled through oracles.
III. Too many public blockchains are a huge waste of resources, public blockchains should be a globally distributed ledger system for tokens.
As we can see from various ICO whitepapers, different application scenarios would require different medium of value exchange, or different tokens. Developing a separate public blockchain for each of these tokens is a huge waste of resources and energies. It’s my view that along with the increasingly more adoption of tokenized applications, ultimately all these different tokens would end up with sharing one distributed ledger system, which would also be the most scalable and cost effective one.
Think about Bitcoin and Ethereum once again, Bitcoin’s success lies in its focus on the value transfer of a single token — Bitcoin, plus the addition of very limited scripts for better support the transactions. One of the design flaws of Ethereum is its complex smart contract system that neither guarantees the security of the contract nor the efficiency of the contract execution.
Because public blockchains are most suitable for transfer of value in the medium of tokens, public blockchains’ smart contract system should also focus on the smart token contracts, including the issuance, distribution, transaction, management and more “use cases” of various tokens along with the data channeled through oracles. Note tokens mentioned here would include tokens conforming to protocols including ERC20 and ERC721.
Summary
Although the blockchain technology itself is revolutionary, it is not appropriate to overstate its role. A blockchain is simply a shared database of transactions, it cannot be a distributed computing system, nor can it be a globally-distributed operating system. Too many public blockchains existing today are a huge waste of resources, the public blockchain of the future should be positioned as a globally distributed ledger system designed for the transfer of value using tokens as medium of exchange.
In my next follow-up article, I will comment on popular technologies addressing the scalability issue of today’s public blockchains, and do some comparisons on those popular consensus algorithms. I will also explain TrustNote’s unique design approach and why I believe it will contribute to the real adoption of the blockchain, bringing its power and disruptive potential to everyone.
So, thanks for your patience and please stay tuned for Part II, which will be released in the next few weeks!
Jeff Zhou
Founder, TrustNote foundation
August 11th, 2018
