A Debate On The True Value Of Blockchain.
(This post is translated from here.)
In KryptoGO’s TGIF meeting last week, we talked about judging faith in Blockchain. An internal debate for nearly five hours arose on the origin of belief in Blockchain. Do people put faith in blockchain because of the technology or is it all market speculation?
Let’s say it’s because of the technology, then what is it about the technology that we believe in? During the debate, I was able to look at Blockchain through different perspectives. In the end, I wish to reflect on the reasons why I chose to start a Blockchain-based business through this article.
What exactly is Blockchain capable of?
Let’s start with the fundamentals of Blockchain; How did Blockchain come to be? Blockchain is the crucial infrastructure supporting the Bitcoin network, we can think of it as an immutable and public distributed ledger. Blockchain and cryptocurrency are inseparable, which brings us several benefits:
- No Middlemen: Two parties can easily complete a peer-to-peer transaction without a need for intermediaries and third parties
- Increased efficiency: Cryptocurrency has no borders, international transactions are much faster than SWIFT.
- Safe escrow: Unless the private key for your cryptocurrency wallet is stolen or lost, assets will be safely stored on the Blockchain.
- Transparency: All transaction records are fully recorded on the Blockchain ledger.
- Difficult to arbitrarily inflate: Most cryptocurrencies have controlled supply (such as Bitcoin), and even if the supply is increased, it would be regulated and publically reviewed.
- Low entry barrier: Compared to opening an account at a bank, there are almost no restrictions for creating a virtual currency wallet.
- Privacy: Although all transactions are recorded on the ledger, the addresses are anonymous, and you can choose from a variety of cryptocurrencies to fit your needs.
- Decentralization: There is no single organization, company, or government behind the Blockchain network to control it alone.
It is impractical to discuss Blockchain and crypto separately. One of the most valuable parts of the Blockchain is that it utilizes economic incentives to solve the “Byzantine’s General Problem”.
Solving the “Byzantine General’s Problem” in itself is an unprecedented achievement in computer science. One must possess knowledge in multiple fields such as mathematics, computer networks, cryptography, operating systems, compilers, economics, psychology, and even politics and law. That is why a number of people suspect that the founder of Bitcoin, Satoshi Nakamoto, is a group or an organization rather than a single person.
The “Byzantine General’s Problem”: A group of Byzantine generals each leads an army to attack a city. The city is strong enough to defend itself against multiple armies, but not strong enough to defend against all of the armies at the same time. So the generals must vote to reach a consensus strategy, that is, all troops either attack together or all troops withdraw together. Because the generals are in different directions surrounding the city, they can only communicate with each other through messengers. During the voting process, each general will vote to either attack or retreat, information is sent through a messenger to notify all other generals. This way, each general may take action based on his own vote and the information sent by the other generals.This situation involves multiple parties that must agree on a single strategy in order to avoid complete failure, but where some of the involved parties are corrupt and may put out false information.
There are also Blockchains that don’t have associated Cryptocurrencies. Usually, we refer to this technology as DLT (Distributed Ledger Technology). Corda and Hyperledger are classic examples of this.
Do we really need Blockchain?
If we put aside irrational arguments and look at this from a scientific point of view. We should first consider the probability of the Byzantine General Problem occurring, if it has a very low chance, then Blockchain is not needed. In the past, decentralized databases and BFT fault-tolerant consensus algorithms are already great solutions to this problem.
When is Blockchain irreplaceable?
After much debate, people often conclude with this question「If you say that Blockchain is suitable for a certain application. Why is that? And why can’t centralized technology solve this problem?」
The answer to this is: No technology is absolutely necessary, just like no one forces us to use the TCP/IP protocol, and no one says that Git can do things that SVN cannot do (for example SVN + rsync). But people still use these services because of widespread adoption and the convenience and advantages that these technologies bring to the table.
We can build technologies on top of existing centralized frameworks that may be similar to Blockchain. In fact, this has already been implemented by other companies such as Tencent. This enables us to build on existing communication protocols and explore different alternatives. In the end, for the sake of simplicity, this technology is likely going to be generalized to the Blockchain field.
These are all general terms that may ultimately refer to technologies that: allows parties to participate in the verification process and browse the history of transactions that are on the shared ledger.
What is it about Blockchain exactly that we embrace? — The spirit of Open Source
This extends the question to “Where does the value of Blockchain come from?”. If “Blockchain” is not what we’re embracing, what is?
This debate helped me think more clearly. The Blockchain that we highly admire and debate about, is actually a representation of the spirit of open source. If the Internet is thought of as a country, then the Blockchain would be the revolution that will lead us from monarchy to a democratic system. We can use this technology to realize the sovereignty of an open economy and retrieve digital data that is rightfully ours.
Personally, if a website does not give me the choice of exporting personal data, it would seriously affect my willingness to use it, because once I start relying on this service or application, then I would be bound. It would be no different than being held hostage. The reason why Blockchain has the opportunity to become the cornerstone of the next-generation Internet is that, through it, transactions would be able to execute on a trusted infrastructure thus reducing the friction of value transfer.
Maybe there will be a technology that is more advanced than Blockchain in the future. Even if this technology isn’t called Blockchain, (let’s call it Interchain for example), then Interchain would be the technology that I would value. The reason why Blockchain is so popular right now is simply that Blockchain is a relatively low-cost solution that creates a basis of trust for business transactions(the cost which has been amortized in the past ten years).
I like the example that Blocktrend brings up in their Podcast. If a person’s schedule changes, we can easily transfer high-speed rail tickets, but for digital high-speed rail tickets, there is no way to do that unless the High-speed rail company is willing to implement this function into their APP. The biggest reason is due to the imperfect digital infrastructure. In the next generation of the Internet constructed by the Blockchain, theoretically, we should be able to truly own the tickets that we purchase.
Blockchain is also redefining the relation of production
In today’s world, the relation of production is highly centralized. From governments to companies, labor and incentive models are hierarchical. In the Blockchain-based economic system, the incentive models are decentralized. For example, no central authority in the Blockchain network demands miners to act as auditors, but under a free market mechanism, people will be incentivized to audit the transactions as they are paid for their contribution by the network. The true value of Blockchain lies in its ability to disrupt the traditional hierarchical structure model, allowing everyone to reach consensus through code, rather than abiding by the rules set by a centralized authority.
Today the internet is much more like Disneyland
Chris Dixon, of a16z venture capital firm, shares in this article why they are focusing on Blockchain technology. “If I’m building a restaurant in Disneyland and Disneyland thinks I’m making too much money, they may raise the rent or change the rules.”
(Note: Disneyland is a metaphor for centralized platforms/monopoly markets such as Facebook, Google or Apple.)
In this era, building an internet startup is becoming more and more difficult. The obvious problems are already solved by the Internet Giants (platform companies), or they simply acquire startups that are relevant, giving businesses no chance to survive. Of course, it’s a different story for startups that are breaking technological advances. In the 21 century, it has become a competition for talents, and it’s getting harder for small companies to find good talents, although startups could look for funding to solve this problem, in the end, it becomes the chicken and egg problem.
Blockchain technology can make it easier for start-ups to gain trust from the public and potential business partners. It also makes it easier for companies that are at the tip of the long tail to unite, relying on the strength of the masses to put pressure on these Internet Giants.
Start-ups need to rely on Blockchain to breakthrough, but I don’t think anyone will specifically mention that they are a “Blockchain” company in the future, just like no one will say that they are a cloud computing company just because they do cloud computing. Or companies that use Excel calling itself a Big Data company, or using if-else functions and saying it’s AI.
So what exactly is a Blockchain company?
The core technology of the Blockchain lies in the ability to design and develop the underlying Blockchain, exchanges, and wallets. Developing the underlying Blockchain represents that the company has a comprehensive understanding of the design of the Blockchain and has the ability to design a consensus mechanism for different scenarios to meet the needs. And as mentioned at the beginning of the article, if the Blockchain and Cryptocurrency are inseparable, the preservation of the assets on the chain (wallet) and transactions (exchanges) are indispensable.
What is the technology that’s going to disrupt the Internet Giants?
The rising companies of the future are definitely not ones that build on an industry already existing on the Internet. It is like the digital encyclopedia, everyone imagined that at first, it was to scan and upload the traditional encyclopedia page by page and then index through OCR . Google wanted to do content search in books, but in the end, because the technology was impossible at the time, Google decided to start with a simple web page.
Under existing conditions, the Internet Giant companies can instantly drive traffic. The integration of Blockchain technology would be a piece of cake. They wouldn’t have to do everything from scratch. They can directly integrate open source technology or directly connect to the Blockchain.
The opportunities that lie in the future depends on whether we are willing or able to think of solutions that big companies aren’t capable of, or simply don’t have the flexibility to do. In the end, it’s a game of speed and the battle between David and Goliath.
If the price of Cryptocurrencies become regulated (or even drops to zero), would there be any interest left in Cryptocurrencies (Blockchain)?
The reason why Blockchain has helped us build trust and reduce friction, is due to the accumulated trust Bitcoin has created over the past ten years. The value of Bitcoin is generally believed to come from transactions from the Dark Web. If this assumption is true, I don’t think that the value of Bitcoin will go to zero unless a devastating vulnerability is suddenly exposed. In addition, under the above-mentioned inferences, Blockchain will continue to be embraced by startups, thereby forming a force coming from companies that are on the Long Tail, also increasing applications of the Blockchain.
Even if we only take governments and financial institutions into consideration. They have discovered that the Blockchain is a very efficient infrastructure for data exchange/transactions. Regardless of whether the Blockchain is centralized, the Blockchain can still solve the problem of trust and data exchange between multiple nodes. It can quickly construct a heterogeneous distributed network and speed up the exchange of information with each other. Banks will be able to make cross-branch and cross-border transfers quicker through the Blockchain, and the government can speed up the flow of data between departments. Therefore, if the Chinese government can implement this technology from the top down, I think it will greatly increase administrative efficiency of the public sector.
Twenty years ago, selling on the internet was illegal
Marc Andreessen was an early participant in the Internet era and the creator of Netscape. In the Podcast, he shared his belief that the current state of Blockchain is comparable to the Internet from 1992 to 1993. Now youngsters under 30 may find it difficult to imagine this situation: In the early days, the Internet was used by a small number of people in the academic circle. The government and schools invested major resources for maintenance. According to the terms of use agreement, the Internet can only be used for personal, non-commercial use. If you violate this, you may be imprisoned. But what’s for sure is that administrators have the authority to kick you out from the network. Being banned from the internet — to people nowadays, it’s no different from being locked into jail.
The Internet was very difficult to use in the past, it was even considered as a mere playground!
The mainstream public tends to believe that Blockchain is hard to access and difficult to understand. But we have to realize that the Internet was hard to access in the early days (even for those who are good at computers). It was 1996 when I first started to access the Internet. At that time, I relied on a modem to dial in to the Internet, but in earlier years, connecting to the Internet may be more complicated than buying Cryptocurrency!
At that time, the steps to connect to the Internet were as follows:
1. Go to a bookstore and buy a book about how to use the Internet: At the time, the internet was a trendy topic, so bookstores were filled with books about the internet.
2. There is a floppy disk in each book, you must load the floppy disk to your computer, and then the floppy disk will take you through a very tedious series of instructions.
3. You had to dynamically rebuild the entire computer’s operating system to add a network. If you accidentally make a mistake, you would run the risk of ruining your computer.
4. Purchase modems, modem and computer configuration to cooperate with each other: this is about a 38 step process, you must be very careful.
5. Register Internet Service Provider ( ISP ): But at that time you couldn’t Google on the Internet to see where to find the ISP. You had to get out a phone book, find an ISP in the yellow page , and then call him.
From this article we can see that everyone was ridiculing the Internet at that time, but in 1994, the network traffic skyrocketed and the Internet began to become mainstream.
The world won’t end if Blockchain seized to exist, but it would be better off otherwise
The ICO, IEO, and STO booms are indeed being dismissed by the regulators, as is the Cryptocurrency prices and the overall industry. But this does not affect the value of the Blockchain itself. From a technical point of view, regulation can never stop Bitcoin. A market cooldown is not a bad thing. When the tide recedes, we will know who are the ones swimming naked, who are true supporters of the Blockchain and who are just following the hype to get rich quick. The industry will move on when the bad actors leave the ecosystem.
A Better Internet ( Blockchain could make the Internet better )
Just through the advertising industry, the Internet has produced high-speed economic growth. But what would happen if we embedded these real economic models and economic operations in the browser from the beginning?
The revolution that is going to disrupt the industry won’t just happen in a few short years. Looking back at the past ten years of Bitcoin development and the seven major trends in the future. I believe that this day will come as people become more conscious of democracy.
