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.

Slippery Slope: Japan seeks to ban Tor

The Electronic Freedom Foundation (EFF) often finds itself on the opposite side of legislation that is initiated or supported by media rights owners. In fact, the Recording Industry Association of America (RIAA) and its Hollywood counterpart, the Motion Picture Association of America (MPAA) have thwarted every promising technology since the dawn of the photocopier and the 8-track tape cartridge.

We could list delayed technologies or those that were threatened with a use tax, such as the VCR, writable CDs, file sharing networks, and DVD backup software. But the funny thing about grumbling rights owners is that they are, well, right. Sort of. After all, anyone who believes that it is OK to download a movie with Bit Torrent or trade music with friends (while maintaining access in their own playlist) has a weak argument. They certainly can’t claim the moral high ground, unless they are the only person on earth that limits file copies to back ups and playlists in strict conformity to exceptions allowed under DMCA.

But this week, it isn’t the RIAA or MPAA that seeks to squash the natural evolution of the Internet. This time, it is the government of Japan. Japan?!!

Napster-ShawnFirst, some background…

In July 2001, Napster was forced to shut its servers by order of the US Ninth Circuit court. Despite legitimate uses for the service, the court agreed with a district court and the US Recording Industry Association (RIAA), that Napster encouraged and facilitated intellectual property theft—mostly music in that era.

The decision that halted Napster was directed at a specific company. Of course, it de-legitimized other file swapping services. (Who remembers Limewire, Kazaa, Bearshare or WinMX?) But, it was never intended to condemn the underlying technology. In fact, Napster was a pioneer in the emergence of ad hoc, peer-to-peer networks. It is the precursor of today’s Bit Torrent which merges distributed p2p storage with swarm technology to achieve phenomenal download speed and a robust, nearline storage medium. In fact, over the next few years, AWildDuck predicts that the big cloud services will migrate to a distributed p2p architecture.

Akamai has long used the power of distributed networks for storing data “at the fringe”, a technique that serves up web pages rapidly and reduces conserves network resources. But a similar network, grown organically and distributed among the masses strikes fear in the hearts of anyone who believes that power stems from identification and control.

In 2000 and 2001, p2p networks were perceived as a threat, because they facilitated the sharing of files that might be legally by few peers–or none at all. Today, p2p networks are fundamental to the distribution of files and updates and are at the very core of the Internet.

how_tor_works

Tor facilitates privacy. User identification is by choice.

Peer-to-peer networks are no more a tool of crime than telephones. Although both can be used for illegal purposes, no reasonable person advocates banning phones, and no one who understands the evolution and benefit of modern networks would advocate the regulation of peer-to-peer networks. (Please don’t add guns to this list. That issue has completely different considerations at play. With guns, there is a reasonable debate about widespread ownership, because few people use it as a tool for everyday activities and because safe use requires training).

But p2p networks are evolving. The robust, distributed nature is enhanced by distributing the tables that point to files. In newer models, users control the permissions as a membership criteria and not based on the individual source or content of files. For this reason, anonymity is a natural byproduct of technology refinement.

Consider the individual users of a p2p network. They are nodes in a massive and geographically distributed storage network. As both a source of data and also a repository for fragments from other data originators, they have no way to determine what is being stored on their drives or who created the data. Not knowing the packet details is a good thing for all parties—and not just to confound forensic analysis. It is a good thing every which way you evaluate a distributed network.*

The RE-Criminalization of P2P Networks

tor-crop

Japan’s National Police Agency (NPA) is much like America’s FBI. As a federal agency equipped with investigators, SWAT teams and forensic labs, their jurisdiction supersedes local authorities in criminal matters of national concern.

This weekend, the NPA became the first national agency in any country to call for a ban on the use of anonymous web surfing. They want Internet service providers to monitor and block attempts by their subscribers to use proxy servers that relay their internet traffic through remote servers, thereby anonymizing web traffic and even emboldening users to browse areas of the Internet that they might otherwise avoid.

But the Japanese NPA has a naïve and immature view of humanity. The use of proxy servers is not only fundamental to many legitimate purposes, many netizens consider web-surfing privacy to be a legitimate objective on its own merits. We could list a dozen non-controversial reasons for web surfing privacy—but if we had to do that, you probably wouldn’t be reading this page.

* The statement that anonymity and encryption is a good thing for distributed, p2p networks—not just for data thieves, but for all legal and business purposes—may not be self-evident to all readers. It will be the topic of a future discussion in this Blog.

Ellery Davies is an author, privacy consultant and cloud
storage architect. He is also editor at AWild Duck.com.