Myths about Blockchains.” – ConsenSys Media

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There are many prevailing beliefs, conceptions, and misconceptions about public blockchain implementations. Many of them are in regards to blockchains being inadequate for enterprises and governments. For example, the belief that blockchains do not provide sufficient privacy. But do they? Can they? What is fact? What is fiction?

In this series we will surface some of the most common narratives about blockchain and work to validate the underlying truths.

Myth 1: “It’s not bitcoin, it’s blockchain” and blockchain should be demystified by a more palatable term, like DLT.

“It’s not bitcoin, it’s blockchain!” is a very common phrase that appeared in 2016 and rapidly gained popularity, because it expressed the insight that there is more to the cryptocurrency phenomenon than money. Although the statement is correct, it doesn’t help us understand why blockchain technology is more exciting than a distributed database with some security features. While bitcoin is understood well enough as a sort of new money, the term “blockchain” remains very open to interpretation. Saying “it’s not bitcoin, it’s blockchain!” while catchy, actually makes us think “it’s not new money, it’s blockchain”, which suggests that blockchain is somehow separate from the new money use case that is bitcoin. That subtle implication is what gets us in trouble, because it seems to imply that the invention of bitcoin is not about money, but something technological in nature. In this process, some of the sheen of blockchain seems to dull.

What makes matters worse is that we are surrounded by confirmations of this implication. Many more blockchains other than bitcoin emerged, many of them are used for things other than money, and it seems it is just a technology after all. It doesn’t help that that some have started to come up with better names for what they think blockchain is, like Distributed Ledger Technology or DLT. DLT then elegantly ingrains the word technology in the name of the phenomenon and dismisses new money entirely. Considering the amount of speculation surrounding the blockchain phenomenon, isn’t calling it Distributed Ledger Technology at least a little bit underwhelming? When you think about blockchain, do you not suspect that there’s more to this thing than some cloud-based database technology? I mean, why would a cloud database be so exciting? Your saved emails are probably stored on a trusted cloud database for free, and so is your phone backup at some nominal fee. Did blockchain tech all of a sudden inspire cloud providers to share their great platforms for less? Of course not, and it’s probably not even necessary. That begs the question, what exactly is so much better now that we have blockchain technology? Let’s explore the technological aspect of blockchain for a moment to find out if that hunch has any substance.

“Adding in a limited supply of virtual tokens as a mining reward transforms the technological model into an economic one.”

The technology underpinning blockchain (including Ethereum) daisy chains a number of well known and well understood technologies into an incentive model that motivates spending large amounts of energy to validate a ledger and make it immutable. That motivation effect is not technological, but economic in nature.

6 Core Technologies: Paving Way for Blockchains

  1. Public-key cryptography, first demonstrated in 1970, used to uniquely identify the owner of an address as the only party authorized to modify the state (ex. a balance) associated with an account.
  2. Peer-to-peer file sharing, first demonstrated in 1999, used to disseminate a copy of data to an undefined number of network nodes.
  3. Cryptographic hash functions and Merkle Trees, invented in late 1970s, used to link transactions into verifiable chains.
  4. Proof of work, invented in 1993, used to demonstrate that a non-trivial amount of computer time was devoted to generating a given merkle tree.
  5. Smart contracts, invented in 1994, as a model for self enforcing agreements.
  6. Process Virtual Machine, invented in 1966 and very widely used today (ex. Java Virtual Machine), to be able to compile smart contracts into abstract executables that can be evaluated and validated by a wide variety of hardware and software implementations.

Any student of computer sciences will know how to use each one of these technologies, and the way that they are put together will seem obvious as a way to tamperproof a database. That first impression is a mistake. For what is non-obvious is that the problem with sharing trusted data was never for a lack of tamperproofing in the first place. Cryptographic signatures are already tamperproof enough, as are merkle trees, for that matter. If we just focus on the tamperproofing, we miss the real breakthrough, which is that sprinkling of magic dust called proof of work. Using proof of work to agree on a correct order of transactions and adding in a limited supply of virtual tokens as a mining reward for doing that transforms the technological model into an economic one. Let’s dwell on this for a moment, because this is truly big stuff.

Looking at blockchain’s technologies is like looking at clockwork in a pocket watch. We tend to focus on the pieces: a toothed wheel here, another one there, a spring, a sparkle of a jewel, a frame. You might even spot an escapement. Have you ever tried looking at a pocket watch mechanism and tried to find, what makes it tick? I have, and I can tell you that focusing on so many moving parts separately makes it easy to miss the big picture about what makes it keep time, for it’s not the wheels, the jewels, and not even the spring (not on its own at least) that make the clock go tick-tock. The element that makes it keep time is a piece of mass captured in a pendulum that repeatedly converts kinetic into potential energy and back. Remember energy from physics class? Well, the only thing that matters for this argument is that it’s invisible. No wonder you couldn’t spot it!

“In a trustless network you don’t have to trust anyone to participate, you only need to trust both math and physics.”

Tick-Tock for Every Block

And so, just like a clock, the technologies of blockchain and the energy focused economic and social models that they embody are all part of one grand design that goes tick-tock for every block. They fit together, like clockwork, and they lose their purpose if something is missing.

Stepping back from the blockchain clockwork and accepting it as one mechanism, we can begin to understand that the economic model that incentivises making it expensive to attack a blockchain makes all these technologies conjure a trustless network. You don’t have to trust anyone to participate. You only need to trust both math and physics. Not needing to trust anyone to be able to trust a record makes it possible to come to agreement on a single sequence of events without having to know, where or who we got it from. It just so happens that this trustless mechanism brings a new level of utility to the internet and with it, a new incarnation of money.

Until now, it has not been possible to have a scarce resource that is not based in physical matter. Since money needs to have a limited supply to be useful, we only had two choices on how to mint it: we could make money out of durable and scarce physical resources, like gold or silver, or if we wanted a more convenient paper or digital version, we needed to trust someone to keep an honest supply book (or ledger), and to safeguard against counterfeiting. Because blockchain isn’t controlled by any one party or group, but can be trusted to keep a tally of a scarce quantity, it can programmatically issue its own form of money, called cryptocurrency. Bitcoin is the first such cryptocurrency and the most famous one. Not only can we now have completely digital money that is more immune from dishonest actors than any form before it, because it this money lives in computer code, we can write computer programs called smart contracts to control this money and a bunch of other things as well. Think of it like money that lives on the Internet. This phenomenon isn’t limited to only money, it could be anything you want to keep track of without the possibility of cheating. Because this stuff is programmable, you can even make things keep track of themselves. This blows my mind every time I think about it.

Through all this recording, it’s important to remember that the cryptocurrency that is issued on the blockchain is part and parcel of an economic incentive mechanism that keeps the blockchain record backed up on thousands of computers, and growing in an orderly way without needing to trust anyone to keep things honest. You may have heard of this growing mechanism as mining.

So, through its trustless permanence blockchain becomes the bonding medium for the Internet’s default transience. Put simply, the blockchain is a place, where you can record some bits of information permanently without incurring maintenance costs forever. In light of the bonding property of blockchain, the term DLT underperforms by a large margin. Programmable money is a good runner up, but it’s still too focused on money. Money is a necessary property of blockchain, but let’s not mistake the tick-tock of a pendulum for the utility of the pocket watch. Did I just take the clockwork analogy too far?

This all begs the question: why do we need a better word for blockchain? Do we need a more descriptive name for the Internet? Put another way, blockchain could be to DLT, like Internet would be to Computer Network Technology, a term I invented just now. Would CNT be a useful term to describe the development of services that we associate with the Internet? The Internet is about much more than computer networking; it is about sharing knowledge, global availability, borderless commerce, access to resources, sharing data, transactional banking, social networking, email, and an ever growing list of other valuable use cases. How would calling it CNT help anyone understand the potential of the next great Internet startup?

Blockchain is much more than a distributed ledger, and it is much more than money, it is as a medium that bonds the Internet’s transient data. This bonding medium can be used as a mortar between the building blocks of the world’s economy. Does that sound strange and mysterious? It should. The Internet once did too.

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