Blockchain technology shrouded in mystery

Rage Comment : Recently, loopholes in the Internet systems of various countries have caused great losses to companies, so naturally many people have begun to pay attention to the popular blockchain technology. However, based on their own interests and the constraints of real rules, the development of many blockchain technologies has deviated from the real subversive path. They are all ordinary protocols that are not much different from the existing technology system under the guise of "blockchain". Therefore, the author warns investors to distinguish these variants from real blockchain technology and not to waste money on pseudo-blockchain technology that has no return on investment.

Translation: Annie_Xu

In recent weeks, the central topic in the banking and blockchain technology fields has been that hackers used the SWIFT (Society for Worldwide Interbank Financial Telecommunications) communication system to steal $81 million from the Bangladesh Central Bank; as a result, the buzzwords "blockchain" and "distributed ledger" have been repeatedly seen as the "white knight" that can fill the SWIFT loophole.

SWIFT is a global interbank communication service that connects more than 11,000 financial institutions in more than 200 countries and regions, with a daily message volume of 25 million, with a total value of approximately US$5 trillion. However, due to the importance of SWIFT to the global financial system, its activities do not take place in a vacuum. This means that the hack of SWIFT is a common problem for the global banking industry.

To address these issues, SWIFT has formed an alliance with many large banks and securities companies to explore how to reduce or eliminate associated costs and improve security and reliability since 2014. These companies believe that distributed ledger technology initiatives can maintain the long-term sustainability of markets that are constantly challenged by digitalization issues.

Of course, there is nothing special about technology collaboration, and even competitors have various forms of collaboration. So we can put it down to good public relations. However, despite the collaboration, more and more people think that blockchain may be selling second-hand goods, not new goods.

Recently, I and my colleagues at the company proposed a different view from the general trend, "Can trust-based private blockchains be trusted?". Our point is simple: permissioned or trust-based blockchains without proof of work have been proven to fail to provide an immutable historical record, and are just distributed databases that lie about blockchain technology. Since the article was published, many blockchain development initiatives, including R3CEV, have revealed that they are not building blockchains at all. Investors have also taken notice.

So what happened?

Let's look at a little story. Since the emergence of Bitcoin, it has gone through two significant evolutionary or updating steps. First, Bitcoin brought market flattening and various disruptive forces. In general, Bitcoin is a new idea with great potential. However, enterprise users encountered many problems after using it immediately, which is expected.

Imagine that the openness of the public chain, the type of Bitcoin, the tortuous history, internal disputes, rigid software, forks, unclear supervision and other issues are intertwined. Whether Bitcoin can be relied on forever is still a question, and corporate executives especially need to consider these issues. The reality is obvious, it is not a miraculous innovation. The original intention of Bitcoin is a digital currency, not an enterprise platform.

2013 brought new surprises, and the second generation of blockchain supporters said:

"We don't need the openness of the public chain. We can build a private chain that is not restricted by Bitcoin, which is better. Let me separate the blockchain from Bitcoin and build a permissioned, private blockchain."

Soon, the propaganda of "blockchain will change the world" gradually became popular with "blockchain" as the core. Subsequently, "blockchain" became an independent technology to transform inefficient non-digital currency activities, and capital began to flow into the so-called "use cases" of blockchain companies.

However, in this wave of enthusiasm for leveraging the power of blockchain, many "private" use case innovations have quickly abandoned blockchain data architecture and proof of work mechanisms. Without market flattening and the network effect of public chains, it is difficult to improve the inefficiency of blockchain databases and the corresponding proof of work computing power costs.

So what's left?

Once the core technology of Bitcoin is stripped away, what remains is only a shared or universal protocol platform composed of restricted "permissioned" related parties, rather than a true P2P blockchain experience that changes the world, balances the market, and generates maximum efficiency. In the end, people's subversive expectations and cognition of the concept of "blockchain" are stripped away.

The truth about blockchain technology is a comprehensive technology portfolio

Many people don’t realize that a blockchain architecture without a trustless environment is redundant. The blockchain data structure itself is a block of information linked together by cryptographic signatures, which is not an efficient way to store and distribute information. However, a collection of ordinary blocks with proof of work becomes an immutable record with great potential.

With objective mechanisms and consensus protocols for determining the validity of records, there is no longer a need for central institutions and trusted or licensed third parties to guarantee the authenticity of multi-party records; in return, the result is ultra-efficient P2P transactions without counterparty risk.

Blockchain eliminates counterparty risk and creates an efficient peer-to-peer environment, eliminating various third parties seeking service fees. These benefits outweigh the cost of inefficient data structures and the computational cost of proof-of-work protocols, permanently ensuring the security of historical records.

However, the second generation of blockchain practitioners introduced trusted third parties called permissioned or trusted nodes to maintain and guarantee the validity of data; inefficient blockchain data structures have little or no value. So blockchain advocates began to remove the logic of blockchain data structures, or modify it and transfer it to pseudo-blockchains without immutability; building information sharing networks that have strange similarities to existing systems, although it also uses new general protocols.

It must be noted that pseudo-blockchains may have cryptographically signed blocks, but lack the decisive external verification function of the proof-of-work protocol, and cannot guarantee the immutability of records and the efficient automatic execution of the blockchain.

To make up for these shortcomings, Bitcoin needs to spend $400 million to $500 million each year to ensure the immutability of records.

The second generation of blockchain technology practitioners have been constantly trying to use various software and proof-of-stake mechanisms to circumvent the high cost of mining, without realizing or ignoring the externalities and resource consumption of proof-of-work required for data immutability; a blockchain without these features is just an ordinary protocol information sharing environment.

Of course, ordinary information sharing protocols may be beneficial, especially for systems that lack common protocols. This is obvious, but it is obviously not the kind of efficiency that real blockchain technology can provide. However, people just keep promoting blockchain as having the efficiency of Bitcoin's trustless system, but they don't really do it.

This situation did not begin to change until 2016. Not only did R3CEV admit that it did not build a blockchain, but Ripple, Blythe Masters Digital Asset Holdings' Hyperledger, Chain, IBM, and others were all peddling the same common traditional permissioned protocols, information sharing systems, and different consensus software, and packaging them as new and transformative technologies.

It means not touching the core and not making creative subversion to Bitcoin-type blockchains; instead, it increases the versatility of the protocol environment and achieves higher efficiency; a small change turns the "old" into the "new".

Blockchain disruption is not alchemy

Despite all the deep thoughts that are shaking up blockchain technologists; there is still a small group of blockchain enthusiasts, entrepreneurs and data scientists, not alchemists, who understand the beauty of blockchain technology.

In the world of digital currencies, Bitcoin is the poetry of technology; a masterpiece of simplicity, balance, and rationality. We shouldn’t overlook the right aggregate, because just as poetry conveys deep ideas in simple words, blockchain does one thing extremely well; it eliminates third-party risk, filling the gap of third parties who claim to guarantee the integrity of transactions but do nothing to actually do so. This is both the simplest elegance and the disruptive power of blockchain technology.

Specifically, Bitcoin’s “high artistry” blockchain innovation is a “trustless”, “autonomous execution” environment supported by a proof-of-work protocol. With that, you have a computer cluster that enables modern communication.

As a core-related addition, perhaps Bitcoin’s inventor chose the Japanese pseudonym Satoshi Nakamoto to allude to the poetic perfection of his invention.

Where can I find the transcriber of Satoshi Nakamoto’s “high artistry” blockchain poetry?

The answer is that it cannot be found.

Blockchain, which was once a paragon of elegance and now has become a middle-aged currency slogan pop culture, has raised $1 billion from venture capital firms, corporations, angel funds, and incubators. Many people compare it to the good old days of the Internet.

It is true that slogans are useful in some cases, but blockchain slogans are useless because in the blockchain field, foggy places will only attract more mysteries.

Failure came quickly. In just seven years, the core blockchain propaganda team and academic advocates were decentralised, deconstructing “high art” into its components and packaging those individual components as “blockchain technology”, while excluding or redefining the components that activate ordinary distributed ledgers as subversive poetry art, a “trustless” and “autonomous execution” environment supported by immutable records.

I want to go off topic a bit and start a little technical discussion to explain the ridiculous concept that blockchain components are malleable, interchangeable or movable, while looking forward to the real disruption of blockchain technology. Blockchain has three main interlocking components: consensus, verification, and immutability. And to make it easy to understand, the technology underlying all components is decades older than Bitcoin and blockchain hype.

Distributed systems are used to using consensus mechanisms (embedded in the underlying application logic) and verification techniques (supported by public key cryptography). However, before Bitcoin, the third component - immutability (provided by proof of work) had never appeared together with the other two components. It was not until the three were combined that something truly new, surprising, and even magical appeared. In other words, proof of work became the link between the other components and became what we now call "blockchain".

Of course, not everyone likes the science and cost behind the immutability and immutability of the proof-of-work protocol, especially those who support it. So in order to commercialize the technology, many technology supporters deliberately downplay the definition of immutability in order to force the blockchain into an ideal state. Unfortunately, without the immutability of historical records supported by proof-of-work, the resilience of blockchain technology that people are so proud of - automatic execution is no longer transferable.

At this point in the discussion, a common response is (in a matter-of-fact way to mask the contempt for being caught), “well, we’re not building a blockchain, we’re building a distributed ledger.”

So they eliminated the inefficient blockchain data structure and the immutable record supported by proof of work; they welcomed back trusted third-party validators, and they simply re-adopted a modified or virtual central authority plan.

To put it in another big-picture way, we’re slowly learning that blockchain proponents have simply returned to square one; back to developing task-based software projects, rather than engaging in the high-growth, multi-channel investment products that are innovative in the Internet, worth investing in, and that savvy investors expect.

Where is the future for investors?

Use case verification projects have always led the investment direction. Common protocol systems may have use cases in many fields and industries; however, in order to achieve the perfect ideal state, common protocols need to be widely used by existing participants.

There are two specific problems.

First, experienced financial personnel clearly know that leading the entire industry is like herding cats. Second, investors will not invest in the development of common protocol software, but disruptive blockchain technology.

So before losing more money and reputation, investors need to take control of the situation, because at least most of the funds are used in common protocol use cases disguised as "blockchain technology", and the return on investment is usually zero. If you are one of those investors who thought they were investing in blockchain, but found out that it was actually distributed ledger; I have to tell you, sorry, you were deceived. This is not a brand new Internet technology at all, accept this fact, and find ways to reduce your losses.

Finally, I would like to offer two pieces of guidance.

First, investors need to distinguish between projects that bring Bitcoin-style disruptive technology to new markets and so-called "blockchain" projects that simply repackage common protocols.

Second, if the blockchain technology field insists on pretending to build blockchain technology, investors can just "pretend" to invest.

I also want to warn those people at SWIFT, protect your wishes. When blockchain technology is truly implemented, you will be out of work!