Blockchain, the technology behind the infamous Bitcoin currency, has been getting a lot of hype even since Bitcoin was introduced in 2009. It can be hard at times to determine how much of this is warranted versus how much is simply ‘hype’. If we take a clear look at the gains and potential weaknesses of blockchain, we can determine for ourselves if it’s value warrants the hype.
In its most compacted definition, Blockchain technology allows information to be verified through a decentralized network with both speed and a high degree of security. While the security is pretty much guaranteed, the speed is not always such a given. Based on the size of each “block” and the amount of transactions in the network, speeds can take a hit.
While the original Bitcoin is getting so large as to experience some issues with speed, most Blockchain based coins and technologies since have thought this problem through and have been designed to work at speed, even under the high transaction rates that Bitcoin sees these days. The underlying architecture of a system like Bitcoin can be updated though, in what is known as a hard or soft “fork” if the network desires a change. Bitcoin recently did a hard fork when Bitcoin Cash was introduced, but before diving into that, let’s clearly lay out Blockchian’s value proposition.
Blockchain as a Viable Currency
Blockchain provides record keeping surety of the now, providing security through the elegant solution of full transparency. The built-in redundancies of the blockchain system mean that every transaction is backed up almost infinitely, providing an irrefutable source of truth to validate any transaction, offering peace of mind for payer and payee. No worries about smoke and mirrors, no chance of fraud, just peace of mind for completed payment on both sides of the table.
As technology futurist Ian Khan said, “Blockchain truly is a mechanism to bring everyone to the highest degree of accountability. No more missed transactions, human or machine errors, or even an exchange that was not done with the consent of the parties involved.”
Structured through a publicly distributed database across a network of computers, blockchain offers safety through full disclosure and an un-erasable number backups.
Full disclosure: By making all transaction records public, blockchain databases create an easily traceable trail for any chain of events, from tracking a diamond’s ID number to ensuring that fiscal payments have cleared from one party to another.
Backup security: Each time a transaction occurs, the database adds a new record called a block that contains a timestamp and a link to a previous block. Once created, the data in the block cannot be altered. This technology makes it easy to verify record validity. Decentralization also maintains data quality by massive database replication. By design, every computer has a copy of the blockchain, there is no centralized official copy, and no one user is more trusted than others. This means that corruption from single point hacking becomes unlikely because an attack would have to track down each copy of the transaction from every node where it has been recorded.
To solve conflicts, there is a rating system used to build consensus by keeping only the highest validation quality across the network. Proof-of-work is commonly used as verification and requires the computer creating the transaction to solve a computational problem – much like a digital CAPTCHA – for validation. Proof-of-stake-and proof-of-burn are also alternative forms of quality control. These verification records are then used to create the rating for each transaction.
Using these rankings, computers in the network then programmatically pick the chains with the highest verification rating, and use one of those pathways to complete the transaction and maintain the highest quality blockchain.
Occasionally, the validation and maintenance of a very large blockchain can surpass the computing ability of a single consumer computer. In these cases, the blockchain risks centralization in its processor selection because only computers that can handle the costs required to operate bigger data will maintain the quality.
Soft vs. Hard Forks
If two groups of network users disagree with a change or validation, those two factions could split or “fork” from each other and create two sets of blockchains with separate histories from that point on.
There are two types of forks: soft and hard.
Soft forks are forward-compatible because they consider blocks that validate using new rules valid as long as the old ones are still enforced.
Hard forks are not forward-compatible and don’t consider nodes running new consensus rules valid even if they enforce the old ones as well.
Bitcoin Cash was a recent hard fork from Bitcoin. This made a separate currency, but gave ever current owner an equal value in that currency. This was a choice made by some highly ranked nodes in the system to upgrade the code for speed going forward. It has caused some conflict but the fact that it didn’t ruin the currency speaks volumes to the robustness of the technology as a whole.
Ethereum blockchain was hacked in 2016 with ⅓ of its assets, roughly $50M, stolen. As a result, it hard-forked and the result was two copies of Ethereum blockchain in coexistence. Since then, Ethereum has forked multiple times to deal with other attacks, leaving even more incompatible copies of blockchain. Even though the promise of blockchain is democratization, a governing body must exist to create technological standards and deal with threats.
The reality of such vulnerabilities as the one shown in the Ethereum attack, is that these are attacks that steal from individual users, that are akin to taking money from a person’s wallet. These are not a flaw in the system, so much as a flaw with an end user’s security to protect their own assets. Even this can be fixed though, by having individual entities with insurance to cover theft that are in charge of transactions for a user. One can think of this in the same vein as a bank branch.
Perhaps the most interesting part of this technology extends beyond currency and into other record keeping. Whether it be for property deeds, or any such contract, and even governmental records, this sort of system prevents fraud and loss while keeping the network accessible when desired. Considering our current systems that rely on a couple servers, or even worse, paper records, this technology becomes very desirable for many applications going forward.
Other interesting developments include the Winklevoss twins bid to publicly trade Bitcoin and Shelterpod’s new currency. The Winklevoss twins have pushed hard to put Bitcoin on a public exchange, but, beyond the red tape preventing approval, the current programing requires a hard fork to implement changes needed for it to quality. Perhaps Bitcoin Cash has accomplished this and they can try again with it. Either way though, the development of a publically traded Blockchain based currency would do a lot to push it to the mainstream.
Shelterpod, which is a quick deploy shelter designed for a wide range of environments, is attempting to create a coin which is tied to their product as well. The shelters, originally created for burning man and now deployed worldwide for emergency relief efforts, have a multi-million dollar demand at this point.
The idea behind the currency is to complete an ICO (Initial Coin Offering) to establish value of the currency, and then to provide a discount to buyers of Shelterpods who use the currency. This would make it the first cryptocurrency backed by the demand of a physical product, and the purchases of the shelters with the currency should provide solid growth for the currency through its real world grounding.
Blockchain may seem like an abstract concept to many, but these developments have shown its many uses. Versions of this technology are poised to change the world, and viewing this technology as a fad would be a quite the misstep at this time.