I've seen a lot of confusion regarding 'private blockchains' (aka permissioned ledgers, distributed ledger technology, ...) lately, and I think I'm in a good position to clarify what this technology is about, and what does it mean for Bitcoin.
First I'd like to introduce myself via facts of biography and projects I've been involved in:
- I've read the Bitcoin paper in 2010, but was rather skeptical due to scalability concerns.
- I started by first Bitcoin project in 2011, it was a futures exchange. I've launched an alpha version but then shut it down because I was concerned about custodial wallet security.
- I've also got interested in the protocol itself; I've proposed a scheme which now can be classified as sidechain or drivechain, but it got very little attention
- In 2012 I've made the first colored coins implementation.
- I also did research on proof-of-stake and proof-of-activity (PoS+PoW combo), contributing to two academic papers
- In 2014 I founded a startup called ChromaWay, which is supposed to commercialize colored coins and other blockchain technology
- First bank-issued fiat currency on the Bitcoin blockchain: in 2015 LHV bank (Estonia) released Cuber wallet, a mobile wallet which transacts in euro-denominated colored coins. All software used in this project was developed by ChromaWay.
- In 2016 Funderbeam launched a startup investment secondary market. Under the hood it uses ChromaWay's colored coin platform to secure trades.
- In 2016 ChromaWay implemented a demo for Swedish Land Registry, illustrating how a blockchain might streamline real estate transactions in future. We used an imaginary blockchain for this demo (a message chain, actually).
Through the years I mostly worked with the Bitcoin blockchain, but I also researched private blockchains and talked with potential customers who might want to use a private blockchain or something like that.
So I'd like to address some common questions and misconceptions I've seen on /bitcoin
. Rhetoric question: Isn't a private blockchain just a database? Can't banks just use SQL as usual? Answer:
It certainly can be classified as a database, of a special kind. The Bitcoin blockchain is actually also a database of a special kind. They can certainly use SQL, but SQL, by itself, doesn't provide means of sharing a database between multiple parties in a secure way.
Use of SQL and use of blockchains isn't mutually exclusive. SQL is being used by a number of Bitcoin projects, for example: blockchain.info, Coinbase's Toshi, Abe block explorer
, and Chromanode. There is at least one Bitcoin full node implementation which uses SQL: bits of proof supernode. Question: Can't banks just use a distributed database or a shared ledger? Answer:
Modern distributed databases are designed with an assumption that all computers in a cluster are trusted. If an attacker can hijack a single computer of a cluster, he can compromise the whole clustedatabase.
Thus this software products aren't suitable for a case when a database needs to be shared between multiple parties which do not unconditionally trust each other. E.g. suppose banks A, B, C decided to share some database between themselves. If C's IT team fucks up, whole database might get corrupt.
Byzantine fault tolerance is an old concept, but it's rarely used in enterprise software. So there are no secure shared database
products banks could use.
Bitcoin sparked new interest in secure distributed technology by demonstrating that it's actually possible & feasible. Now banks want it. Products which are inspired by Bitcoin and its block chain approach, and so they are often called "blockchains". Misconception: A blockchain without proof-of-work makes no sense. Answer:
It was demonstrated that proof-of-stake can be quite good, both in theory and in practice. PoW and PoS have different security characteristics, which one is better is a matter of an opinion.
Other BFT consensus algorithms can be combined with a blockchain approach, e.g. Ripple/Stellar consensus, or PBFT-style three phase commit. They have well-understood security properties which differ from PoW and PoS.
In my opinion, if something has a chain of blocks, it can be called a blockchain. But if you want to understand a blockchain in a very narrow sense I don't mind, there are other terms like 'distributed ledger' which can be used instead. Misconception: Banks use permissioned ledgers to implement "bankcoins", which are going to fail. Answer:
As someone who talked with many people from many banks, I can tell you they have very little interest for 'bankcoins', i.e. things which resemble Bitcoin. They might experiment with things like that just for shits and giggles, but there are no plans to launch it for real.
Banks plan to use permissioned ledger either to improve processes which are currently inefficient or non-secure; or to enable new business models. Misconception: Banks should just use Bitcoin instead of this permissioned ledger mumbo-jumbo. Answer:
Bitcoin isn't suitable for things which permissioned ledgers aim to solve. It's, like, not related.
It would certainly be nice if banks provided Bitcoin services, but for them it's too much PITA with little to no benefits, as Bitcoin market is too small. Privatbank in Ukraine provides a Bitcoin payment service to merchant, kinda like Coinbase. So it's possible, just not common now.
So I think that Bitcoin can peacefully co-exist with private/permissioned blockchain/ledger technology: they aim to solve different problems, in different ways. There is some risk of a "bankcoin" competing with Bitcoin in future, but it's very small.
On contrary, I think adoption of crypto-based tech by banks is actually good for Bitcoin, as e.g. irreversible crypto money can be used for secure fiat <-> Bitcoin exchanges, which is good for Bitcoin, as it might reduce a hassle of buying Bitcoin, and thus increase userbase. Devices used to keep crypto bank money might also be used as secure Bitcoin wallets, etc.
I'll be happy to answer questions related to projects I've been involved in or blockchains in general.
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