Be aware of several major misunderstandings before adopting blockchain

Baozou Comment : The author of this article is a Bitcoin and blockchain consultant who once worked for Bitcoin exchange itBit. He analyzed companies that tried to adjust blockchain technology and develop other technology application fields, and pointed out several common cognitive misunderstandings, including blockchain security, privacy, authenticity, and disintermediation. He pointed out that the process of technological improvement is a process of continuous application and adjustment, so he encouraged active participation in technology research and development under the premise of correct cognition.

Translation: Annie_Xu

There are both good and bad reasons for adopting blockchain.

I’ve noticed widespread confusion in conversations with people interested in blockchain applications: Many of the terms that were initially used in a narrow context (often to describe the Bitcoin blockchain) are now being extended to other blockchains, or even to those that no longer apply.

I hope to use this article to clear up some common misunderstandings.

Topic: Blockchain is secure

Writing Data

Bitcoin's proof-of-work consensus makes it uniquely secure when it comes to writing data. That is, in order to add a block of transactions to the blockchain, you must verify all transactions in the block (simple operation), then repeat the calculation (called hashing) to find a magic number that allows other participants to accept and recognize your block according to the network rules (simple operation, but high computing power cost, so high energy consumption and high cost). Proof of work and the longest blockchain rule increase the cost of mining in a new chain.

Private chains have certain block validators, and their mechanisms may replace proof of work, which prevents others from updating the blockchain.

These rules can stipulate that the blockchain must have a known, certain number of signatures. This ring signature method, where each party takes turns writing to the block, can limit malicious behavior by a single party.

Reading Data

Bitcoin and blockchain have no inherent security restrictions on information read. In fact, the blockchain is the mechanism for copying data to all relevant participants, which is what we call consensus.

If you consider a central database to be a cybersecurity challenge with limited reads, you can add more attack surface (set of attack vectors) to your blockchain by multiplying that database by the number of your blockchain nodes.

You can control the access to information to a certain extent by encrypting certain elements on the blockchain and then handing the keys to the relevant participants. However, industrial espionage will sell the keys to competing organizations that also run nodes, and the opponent can bypass your system and directly read your data because the blockchain directly copies the data to his data center.

Key handover may be a solution, but historical data must be considered. The value of a third party is that they can more strictly control access to data. In addition, if a third party leaks private keys or violates contractual obligations, it can also allow individual groups to sue.

Denial of Service Attack

The way blockchain responds to denial of service attacks is much more flexible than centralized systems because it has point-to-point and multi-redundancy features. Even if one node fails, other nodes are not affected.

Users connected to a failed node will be unable to connect to the system unless there is a mechanism to allow them to connect to other nodes.

Topic: Blockchain is encrypted

People may confuse Bitcoin's cryptographic methods (hashing, digital signatures) with encrypted data on the blockchain (data stored as encrypted text).

This might give the impression that data on the blockchain is encrypted by default.

In fact, data on the blockchain is not encrypted by default, especially those that require node verification. Transaction data in Bitcoin is not encrypted, and any transaction in the Bitcoin blockchain can be proven.

The most significant problem with data encryption in blockchain is that encrypted data cannot be verified because the nodes must know what is being verified.

Suppose I am verifying the legitimacy of the 2 bitcoins spent from your wallet, I need to know the information of your wallet (such as previous deposits), and the fact that you are spending 2 bitcoins (and which two you are spending).

In a private chain, if all validating nodes can decrypt your data with the key, then why encrypt it in the first place?

Initial cryptographic research yielded solutions to verify the fact that data was true without the underlying data being known, called zero-knowledge proofs, but the technology is still immature.

If privacy is important, consider what needs to be encrypted. All data in motion? All data at rest? The entire database? Data in a specific database field? Who can decrypt, and when? How is authorization granted? Can authorization be revoked? What if a third party obtains the decryption key from a dishonest employee? What if the legitimate user loses the decryption key?

Key management is an important part of data security, especially in industries where competitors share information; blockchain solutions need to take this into account.

Topic: Blockchain increases data access

Existing centralized solutions already have good data acquisition methods, strict data reading and writing controls, and the reliability of the main data owners is high, and they can respond to ethical constraints and legal provisions.

For example, Facebook blocks hate speech and copyrighted material while ensuring global access.

Blockchain can increase the complexity of data access control, and its immutability also has certain defects. In many potential use cases, independent groups or organizations operate nodes (if they are not independent, why use blockchain?), each controlling and managing their own data access permissions.

When all groups hold a copy of blockchain data, there are many challenges in managing data access rights.

Subject: Blockchain allows end users to transfer money peer-to-peer without the need for middlemen

This article seems to be from the Bitcoin whitepaper, which states that Bitcoin allows people to transfer digital money peer to peer without middlemen. If you think of the miners who add blocks as middlemen who collect fees and rewards, then there are middlemen in Bitcoin. But they are not fixed (one miner can replace another), and the success or failure of your transaction has nothing to do with the miners.

In the private chains that are often mentioned in various industries, there are also middlemen, that is, participants who run nodes, or technology providers who profit from blockchain solutions.

Topic: Users will operate blockchain on their mobile phones

I came across an idea where users store blockchain data on their phones (especially for use cases where users need to have control over their own data).

Mobile blockchain means that the phone must always communicate with the network, constantly downloading and uploading other people's data in order to maintain consensus.

Topic: Blockchain is an immutable record of all events

All historical transactions in Bitcoin are tracked to determine the validity of new transactions.

Moreover, only transactions that have been notified to the Bitcoin network in advance and approved by the block can be executed and settled. Every Bitcoin event is necessary to complete the state of the ledger.

This is not to say that by using blockchain to solve random problems, we can capture every event accurately immediately.

Someone or something needs to input the event, and then be foreseen and approved before it can be recorded.

The data in the blockchain is not guaranteed to be accurate, but the accuracy of the event record must be ensured first. This issue should be taken more seriously when the data cannot be tampered with.

Topic: Everything on the blockchain is real

The confusion revolves around the word truth.

Reality in Bitcoin means that the network agrees that the transaction occurred and the nodes agree with it.

The concept of truth in blockchain has no other extension. If the heart monitoring hardware device fails and records wrong heart rate data on the blockchain, can this be called truth? Obviously not.

Blockchain may be able to record the transfer of car ownership in an unchangeable way. If the transaction record itself is wrong, or the user's phone is hacked and the information is fraudulent, what is the truth? If the police find that the transaction involves fraud and need to reverse it, what should they do, because digital signatures are cryptographically secure (they are solutions, but they need to be thought about).

Truth in blockchain means “what is initially recorded and recognized by the majority of nodes.”

Valid does not necessarily mean true. Don’t confuse blockchain facts with “truth”.

Topic: Data in blockchain

This is the blockchain used for customer needs (KYC) and data for document storage.

The comment "stored on the blockchain" can cause confusion if the hash of a file (PDF, JPEG, etc.) is published on the blockchain. The hash is not an encrypted version of the original file, and after the hash is stored, it is not possible to decrypt the hash and recover the original data. If a fingerprint of a piece of data corresponds to a hash, stored on the blockchain, the person storing the exact data (off-chain) can prove that the specific data existed in the time period of the timestamp.

While it is possible to store entire files on a blockchain (all a blockchain is is a database, linked to software that verifies and shares information added by other participants), the high speed at which data blocks are transferred can cause problems.

Topic: Blockchain Participants

The word participant can also cause confusion.

Generally speaking, there are three types of participants in a blockchain.

1. Participants who write blocks (in Bitcoin, this means miners, who will analyze the data);

2. Participants who maintain the entire blockchain, verify and publicize new information (often referred to as full nodes in Bitcoin);

3. End users of blockchain functionality usually connect to a full node and enter the blockchain (referred to as users in Bitcoin).

It is always best to be clear about which participant you are referring to.

Topic: What is blockchain used for?

Blockchain is useful in situations where multiple parties can read the same information, but no single party can control the data.

Gideon Greenspan wrote an article about how to avoid meaningless blockchain projects.

Subject: The word blockchain gets me a budget

Why not give it a try?

The only way technology advances is if people apply and modify it to better solve specific problems.

Try to understand and recognize its complexity and limitations early on, and be cautious about overly associating a popular technology solution with a problem.