Is a Blockchain a Blockchain if it Isn’t?

Anyone who has heard of Bitcoin knows that it is built on a mechanism called The Blockchain. Most of us who follow the topic are also aware that Bitcoin and the blockchain were unveiled—together—in a whitepaper by a mysterious developer, under the pseudonym Satoshi Nakamoto.

That was eight years ago. Bitcoin is still the granddaddy of all blockchain-based networks, and most of the others deal with alternate payment coins of one type or another. Since Bitcoin is king, the others are collectively referred to as ‘Altcoins’.

But the blockchain can power so much more than coins and payments. And so—as you might expect—investors are paying lots of attention to blockchain startups or blockchain integration into existing services. Not just for payments, but for everything under the sun.

Think of Bitcoin as a product and the blockchain as a clever network architecture that enables Bitcoin and a great many future products and institutions to do more things—or to do these things better, cheaper, more robust and more blockchain-01secure than products and institutions built upon legacy architectures.

When blockchain developers talk about permissionless, peer-to-peer ledgers, or decentralized trust, or mining and “the halving event”, eyes glaze over. That’s not surprising. These things refer to advantages and minutiae in abstract ways, using a lexicon of the art. But—for many—they don’t sum up the benefits or provide a simple listing of products that can be improved, and how they will be better.

I am often asked “What can the Blockchain be used for—other than digital currency?” It may surprise some readers to learn that the blockchain is already redefining the way we do banking and accounting, voting, land deeds and property registration, health care proxies, genetic research, copyright & patents, ticket sales, and many proof-of-work platforms. All of these things existed in the past, but they are about to serve society better because of the blockchain. And this impromptu list barely scratches the surface.

I address the question of non-coin blockchain applications in other articles. But today, I will focus on a subtle but important tangent. I call it “A blockchain in name only”

Question: Can a blockchain be a blockchain if it is controlled by the issuing authority? That is, can we admire the purpose and utility, if it was released in a fashion that is not open-source, fully distributed—and permissionless to all users and data originators?

A Wild Duck Answer (Unmask Charlatans):
Many of the blockchains gaining attention from users and investors are “blockchains” in name only. So, what makes a blockchain a blockchain?

Everyone knows that it entails distributed storage of a transaction ledger. But this fact alone could be handled by a geographically redundant, cloud storage service. The really beneficial magic relies on other traits. Each one applies to Bitcoin, which is the original blockchain implementation:

blockchain_logo▪Open-source
▪Fully distributed among all users.
▪ Any user can also be a node to the ledger
▪Permissionless to all users and data originators
▪Access from anywhere data is generated or analyzed

A blockchain designed and used within Santander Bank, the US Post Office, or even MasterCard might be a nifty tool to increase internal redundancy or immunity from hackers. These potential benefits over the legacy mechanism are barely worth mentioning. But if a blockchain pretender lacks the golden facets listed above, then it lacks the critical and noteworthy benefits that make it a hot topic at the dinner table and in the boardroom of VCs that understand what they are investing in.

Some venture financiers realize this, of course. But, I wonder how many Wall Street pundits stay laser-focused on what makes a blockchain special, and know how to ascertain which ventures have a leg up in their implementations.

Perhaps more interesting and insipid is that even for users and investors who are versed in this radical and significant new methodology—and even for me—there is a subtle bias to assume a need for some overseer; a nexus; a trusted party. permissioned-vs-permissionlessAfter all, doesn’t there have to be someone who authenticates a transaction, guarantees redemption, or at least someone who enforces a level playing field?

That bias comes from our tendency to revert to a comfort zone. We are comfortable with certain trusted institutions and we feel assured when they validate or guarantee a process that involves value or financial risk, especially when dealing with strangers. A reputable intermediary is one solution to the problem of trust. It’s natural to look for one.

So, back to the question. True or False?…

In a complex value exchange with strangers and at a distance, there must be someone or some institution who authenticates a transaction, guarantees redemption, or at least enforces the rules of engagement (a contract arbiter).

Absolutely False!

No one sits at the middle of a blockchain transaction, nor does any institution guarantee the value exchange. Instead, trust is conveyed by math and by the number of eyeballs. Each transaction is personal and validation is crowd-sourced. More importantly, with a dispersed, permissionless and popular blockchain, transactions are more provably accurate, more robust, and more immune from hacking or government interference.

What about the protections that are commonly associated with a bank-brokered transaction? (For example: right of rescission, right to return a product and get a refund, a shipping guaranty, etc). These can be built into a blockchain transaction. That’s what the Cryptocurrency Standards Association is working on right now. Their standards and practices are completely voluntary. Any missing protection that might be expected by one party or the other is easily revealed during the exchange set up.

For complex or high value transactions, some of the added protections involve a trusted authority. blockchain-02But not the transaction itself. (Ah-hah!). These outside authorities only become involved (and only tax the system), when there is a dispute.

Sure! The architecture must be continuously tested and verified—and Yes: Mechanisms facilitating updates and scalability need organizational protocol—perhaps even a hierarchy. Bitcoin is a great example of this. With ongoing growing pains, we are still figuring out how to manage disputes among the small percentage of users who seek to guide network evolution.

But, without a network that is fully distributed among its users as well as permissionless, open-source and readily accessible, a blockchain becomes a blockchain in name only. It bestows few benefits to its creator, none to its users—certainly none of the dramatic perks that have generated media buzz from the day Satoshi hit the headlines.

Related:

Ellery Davies is co-chair of The Cryptocurrency Standards Association,
host & MC for The Bitcoin Event and editor at A Wild Duck.

Awash in cash, does Dropbox sense the undertow?

Dropbox CEO, Drew Houston, is about to facilitate a meaningful donation to his favorite cause, but he doesn’t know it yet. More about this in the last paragraph…

Dropbox is in an enviable position. The company is smokin! It’s so hot, that Forbes magazine calls it Tech’s Hottest Startup. So hot, that Steve Jobs tried to acquire it. So hot, that when anointed by the MacMeister with a personal audience, 28-year-old founder Drew Houston snubbed his proverbial nose at the offer. *

Dropbox: Atop it’s game…  But what about Future Shock?

What does Dropbox sell?
Dropbox sells cloud storage services, including backup, synchronization and file distribution. They are arguably king the market leader, but they have plenty of competition: Apple’s new iCloud, SugarSync, SkyDrive (Microsoft), LiveDrive, Google Docs, Box.net, FolderShare and a growing list of wannabees. Without getting into the nitty-gritty, let’s just say that if you’re not using Dropbox or a similar service now, you will do so soon.

What can cloud storage do for me?
You are probably familiar with Carbonite and Mozy. These vendors market clouds as safety nets, constantly backing up your PC over the internet, as you work. On the other hand, Google Docs makes collaboration easier and more efficient because users spread far apart can work on the same document at the same time – and without worrying about who has the latest version. These are all ancillary benefits of cloud computing at best. Since the concept is still in its infancy, they focus on a simple and easily digestible pitch.

But clouds offer much more! With data in the cloud, documents, photos and music are always available, backed up, in sync and safe – no matter where you travel or what gadget is handy. Files don’t depend on equipment that you own or carry, so you can travel light and with constant access to your business, media and memories. Much as predicted by Asimov in The Last Question, using a personal data cloud is like having your brain in ever-present hyperspace.

Dropbox is the convergence leader. What’s wrong with that?
When startups reach a phase that I call investor frenzy, founders and early investors inevitably get the “not invented here” bug, or the “we are obviously doing it right” bug. But smart directors swat away cocky bugs of success until the company reaches the profit phase and, of course, the ROI phase. They also keep a keen eye on competitors and even tiny startups to see if someone has come up with a startling new way to improve service, boost revenue or reduce expenses.

What’s new in cloud technology?
“What’s New” is a tectonic shift in technology from centralized, data center storage to distributed peer storage. It’s a dramatic architectural enhancement that I call Ellery’s Reverse Distributed Data cloud [RDDC]. While I can’t take the credit for all that is about to unfold, I was first to propose it three years ago. This past August, I blogged about the concept at AWildDuck.

RDDC changes dynamics of everything that matters in storage: cost, security and speed and even environmental impact – all in the right direction. As each user adds inexpensive storage to their own home or business network (the same drives that they previously used to store their working data or backups), a central “traffic cop” uses this worldwide, massively redundant, distributed storage network as if it were a “RAID-10,000” drive array. The Result: As long as 33% of users don’t turn off their storage devices at the same time, everyone’s data is available instantly, securely and without risk of errors or hacks.

Incredible? You Bet! Want more? Of course!
Consider the return data throughput. That’s the rate at which downloads from these many different storage drives arrive into your PC when restoring a backup or even when using a global cloud array as your main drive. You might think that spreading your data, bytewise across lots of slow uplinks would result in data recovery at a snail’s pace. You would be wrong. Even the programmers who understand the math are astounded at the RDT. Even if many drives in your personal cloud are heavily fragmented or poke along at the 3rd tier connection speed of a rural carrier, incoming throughput sizzles at blistering, heart-pounding speed. Why? Because inbound data is staged in the cloud as a torrent from a massively parallel cluster – and not as a serial stream from one peer.

There’s more. While all of this is happening the uplink channel is not idle. Your global cloud array dispatches data around the world with predictive caching, based on new research into the distribution of media across disparate platforms.

Should I Care?
While the architecture of remote storage may seem a geeky detail, the fallout is a litany of benefits to users and a massive windfall for the first provider’s to get with the program. They will enjoy a 90% reduction in operational expenses, while customers experience a blistering bump in speed and meaningful intangibles like fault tolerance associated with massive redundancy.

What vendors are rolling out this new technology?
Symform is already offering RDDC. SpaceMonkey has not yet announced, but it’s two founders in Salt Lake City (both from EMC) have an even more compelling model. They’re lining up investors now. They get it and the angels are starting to take notice!

These tiny startups and a few others have a big edge on their well-funded brethren, because they are already on top of RDDC. If the challenge is not rapidly met by Dropbox and SugarSync, the new kids will sweep the market.

What’s the risk to the established players? Will they catch up?
Cloud computing for the masses is rapidly becoming a crowded market. Massive consolidation will come in a year. Only a few companies will be left standing. Most of the names entering the market today, and even some established brands won’t survive nor even be acquired. They’ll just die. A few fortunate startups will cash out, because of their early implementation of RDDC. My bet is with cloud providers that move quickly into massively distributed data clouds. They will be healthy and profitable. If Dropbox gets it and moves quickly to seize the day, they will very likely come out on top.

Drew Houston: In the catbird seat, but for how long?

Does Drew know about RDDC?
He might. More likely, he considered it briefly and then dismissed it. Even a bright individual can overlook an elegant solution to an unrecognized problem. (i.e. reducing expenses dramatically while boosting data security).

It’s a safe bet that Carbonite and Mozy can’t implement RDDC in time to save their hides. One is too narrowly focused on marketing themselves as a backup service and the other is married to data centers that they own.

Perhaps Dropbox “gets it” and needs no input from their biggest fan. But perhaps – just perhaps mind you – they have yet to design a fully holographic RAID-10K algorithm. Perhaps they have not yet optimized predictive caching for peer distributed networks. Perhaps they are not equipped to quickly build a torrent reacquisition mechanism on the fly and activate it safely across thousands of peers with disparate upload and download speeds, while each user powers down storage media every day without notice.

What’s the ‘R’ stand for in “RDDC”?
It stands for “Reverse”. This teaser lacks an explanation by design. If Drew or his deputies at Dropbox contact me, I wish to give them an edge. It’s one of the few aspects of an ideal architecture model that has not yet been exploited by any startup.

If Dropbox knows about RDDC, what is the purpose of this blog?
Finally an easy question! Drew Houston may or may not be contemplating a Dropbox implementation of RDDC. But even if he is shoe-horning it into his ops plan right now, the purpose of this Blog is to get his attention. Dropbox understands the business of cloud computing. Yours truly understands the seismic benefits of Reverse Distributed Data Clouds and has the business and engineering experience to jump start a rapidly growing market leader. Your humble editor is itching to help a cloud sync startup beat Apple, Google, EMC and Amazon and dominate the market before the average Joe adopts RDDC from your daddy’s generation.

Tech & investment communities know Ellery by another name
I have never kept it a secret that Ellery is a pen name. I use it here at AWildDuck and for articles that I freelance to Google, c|net, Engadget, Yahoo & Amazon. My general vitae is posted to this blog and of course, Drew Houston will get all of my contact info.

Got your ears on, Drew? I get it. Years ago, I created the blueprint. I tested architectural dynamics before your competitors got off the ground. Together, we can dramatically reduce costs while creating the most robust swarm on earth. Together, we can sew up a new paradigm before others learn to tie their shoes. Reach to me, Drew. I’ll give 5 hours to your favorite cause for 5 minutes of your time. Nothing to lose and either way, you gain! Your move.

* To be fair, Drew admits that Jobs is his idol and a scion of high tech entrepreneurship!