Blockchain technology, in particular, its most famous application Bitcoin, has captured many people’s attention in 2017.
Having started the year worth around USD 1,000, the cost of buying one Bitcoin soared from USD 17,000 per coin last week to more than USD 19,000 only to drop to USD 15,000, all within 20 minutes — demonstrating the volatility of the virtual currency.
Although some, particularly in the financial and business sectors, say the underlining blockchain technology behind cryptocurrencies like Bitcoin are revolutionary, there is healthy scepticism within the technical community.
One sceptic is Internet Hall of Famer, Radia Perlman, who gave the keynote presentation on the subject at last month’s Asia Internet Engineering Conference — AINTEC 2017 — held in Bangkok, Thailand.
Now in its 13th year, AINTEC provides an international technical forum for experts from industry and academia to discuss issues relevant to the Asia Pacific region.
Known for inventing the spanning-tree protocol (STP), which is fundamental to the operation of network bridges and the Internet, Radia has, in recent years, taken an interest in understanding what blockchain technology really is, its security and scalability properties, and how it compares to other traditional technologies.
For all that she has learned, Radia is first to confess that she is by no means an expert in the technology — admitting that she cannot distinguish exactly what makes something blockchain technology, a point that she highlights is the basis for a lot of misinformation as to its characteristics.
A survey of over 200 board-level UK executives recently found that while over half of businesses sampled are planning blockchain initiatives, more than 40% of non-IT/data senior executives admit to not fully understanding blockchain technology. This lack of understanding, Radia says, is leading many to invest in variant blockchain applications that don’t adhere to the original concept of blockchain technology – to verify the order in which entries are made to a ledger, without any centralized authority.
For Radia, blockchain is currently undergoing a ‘honeymoon’ phase that many new technologies before it have experienced; one where hype and FOMO (fear of missing out) are clouding people’s perception of what the technology actually is, and how it compares to other things.
“I see lots of talks that treat blockchain as a black box that has magic properties. These people talk about all the applications it can be used for, assuming these magic properties,” said Radia.
“But just because you can do something with it doesn’t mean it couldn’t have been done before using an already tested method. And it doesn’t mean it’s the best solution.”
Read Sydney Blockchain Workshop: Lawrence Lessig on the law and the net
How do you know if blockchain is the right application?
Before you even consider blockchain as a potential technology for your next application, Radia suggested that you first ask the following questions: “What problem am I solving?”, and “What are the solutions and how do they compare?”
“Don’t say ‘Can we apply blockchain for this application?’ or ‘We have blockchain, what sort of things can we use it for’. Instead, start from the other end with the problem you’re trying to solve and consider the best ways to solve it,” said Radia.
Here are some points to consider as to whether blockchain is appropriate for your application:
- Data on blockchains is by default, unencrypted, especially data that needs to be validated by the nodes.
- Blockchains do not have inherent security against read access. You can control read access to some degree by encrypting certain elements on your blockchain but this can be compromised.
- Not all information on the blockchain is true; data still needs to be checked and uploaded correctly and as such is open to human error.
- No amount of time guarantees something will stay in the ledger. It is also difficult to remove data if required by law.
- It’s not secure because it depends on the assumption that the blockchain community has more compute than the rest of the world.
- It’s absurdly expensive to mine blocks to store data indefinitely.
- Lack of government regulations for blockchain could impede growth.
The views expressed by the authors of this blog are their own and do not necessarily reflect the views of APNIC. Please note a Code of Conduct applies to this blog.
“It’s absurdly expensive to mine blocks to store data indefinitely.”
Mining is an inefficient consensus algorithm that is slowly being dropped by newer generations of blockchain applications. An example is NEO’s dBFT or Ethereum’s plan to switch to PoS in the future.
You might want to check out IOTA. It adresses some oof these shortcomings.
There many consensus mechanisms other the Bitcoin’s Proof of Work (PoW), that are secure and do not require lots of energy.
There are blockchains that have encrypted transactions that use zk-SNARKs.
You should expand your research beyond Bitcoin.
I grow so tire of bullshit articles with little research involved. You sir have missed what blockchain is. It is in fact revolutionary considering there have been only 3 advancements in accounting ie single entry, double and now triple.
Triple entry accounting, with agreed consensus. Every tech has to start somewhere and obviously will improve as we learn what problems it can solve.
Excellent point of view. Thanks for this meaningful insight. Thinking which day to day financial problem could be solved by this blockchain shit in a quicker, more elegant, safer and, above all, cheaper way, I find— nothing. Überflüssig wie ein Kropf, as we say: Superfluous like a goiter.
(Criminals and conspiracy tards may see this different. Q. e. d.)
For a general audience this article is not clarifying enough where the hype is and where it isn’t.
There is a clear distinction between public/permissionless blockchains (e.g. Bitcoin) and distributed ledgers (misnamed as private blockchains). Your article is referring mainly to the later.
Bitcoin is a theoretical and practical computer science innovation even if the Bitcoin price goes down to $ 0. The innovation covers a search for decades for a secure P2P and [central] bankless protocol solving the multiple spending problem. This innovation uses game theory and security, and we expect that there will be new innovations around this concept. Check “Blockchain Research Resources” https://docs.google.com/document/d/1J8hehbnZWzcIUMQcxMiGbjz86wDu3zDFF7UtkR0XjGE/
Regarding distributed ledgers the signal to noise ratio is very low (lot of hype). To clarify this we must understand that distributed ledgers existed long before the blockchain and are not really connected to Bitcoin and other public blockchains beyond reusing some part of those implementations but with the core innovation. This are examples of previous initiatives:
The Bitcoin paper is from 2008 while Nick Szabo’s smart contracts concept is from 1994 (https://en.wikipedia.org/wiki/Smart_contract#History
if we go back in time we can find the AMIX project in 1988. http://erights.org/smart-contracts/index.html and http://erights.org/smart-contracts/history/index.html
Another concept used in a distributed ledger is the idea of immutability of data recorded there. Ideas of log immutability can be traced back to a 1995 Spanish article titled “VCR y PEO, dos protocolos criptográficos simples”
[https://www.coresecurity.com/system/files/publications/2016/05/2Protocolos.pdf] and then reviewed in 1998 in English as “VCR and PEO revised” [https://www.coresecurity.com/system/files/publications/2016/05/PEO.pdf]. Bruce Schneier also published similar works in 1997 with Automatic Event-Stream Notorization Using Digital Signatures and in 1998 as “Cryptographic Support for Secure Logs on Untrusted Machines”
Excellent point of view. Thanks for sharing this meaningful insight.
While the blockchains themselves are secure, the applications running on the blockchain may not be. These applications interact with the blockchain through smart contracts, but just like any other software, bugs in the code can lead to security vulnerabilities. For this, we need to involve the auditors who conduct security audits on the smart contract. Bug-free code is nice to have in other types of software, in blockchain applications, it is essential.