December 12, 2017

“Well sir, there’s nothing on Earth like a genuine, bona-fide, electrified, six-car blockchain!”

Filed under: Technology — Tags: , , , — Nicholas @ 03:00

The way blockchain technology is being hyped these days, you’d think it was being pushed by the monorail salesman on The Simpsons. At Catallaxy Files, this guest post by Peter Van Valkenburgh is another of their informative series on what blockchain tech can do:

“Blockchain” has become a buzzword in the technology and financial industries. It is often cited as a panacea for all manner business and governance problems. “Blockchain’s” popularity may be an encouraging sign for innovation, but it has also resulted in the word coming to mean too many things to too many people, and — ultimately — almost nothing at all.

The word “blockchain” is like the word “vehicle” in that they both describe a broad class of technology. But unlike the word “blockchain” no one ever asks you, “Hey, how do you feel about vehicle?” or excitedly exclaims, “I’ve got it! We can solve this problem with vehicle.” And while you and I might talk about “vehicle technology,” even that would be a strangely abstract conversation. We should probably talk about cars, trains, boats, or rocket ships, depending on what it is about vehicles that we are interested in. And “blockchain” is the same. There is no “The Blockchain” any more than there is “The Vehicle,” and the category “blockchain technology” is almost hopelessly broad.

There’s one thing that we definitely know is blockchain technology, and that’s Bitcoin. We know this for sure because the word was originally invented to name and describe the distributed ledger of bitcoin transactions that is created by the Bitcoin network. But since the invention of Bitcoin in 2008, there have been several individuals, companies, consortia, and nonprofits who have created new networks or software tools that borrow something from Bitcoin—maybe directly borrowing code from Bitcoin’s reference client or maybe just building on technological or game-theoretical ideas that Bitcoin’s emergence uncovered. You’ve probably heard about some of these technologies and companies or seen their logos.

Aside from being in some way inspired by Bitcoin what do all of these technologies have in common? Is there anything we can say is always true about a blockchain technology? Yes.

All Blockchains Have…

All blockchain technologies should have three constituent parts: peer-to-peer networking, consensus mechanisms, and (yes) blockchains, A.K.A. hash-linked data structures. You might be wondering why we call them blockchain technologies if the blockchain is just one of three essential parts. It probably just comes down to good branding. Ever since Napster and BitTorrent, the general public has unfortunately come to associate peer-to-peer networks with piracy and copyright infringement. “Consensus mechanism” sounds very academic and a little too hard to explain a little too much of a mouthful to be a good brand. But “blockchain,” well that sounds interesting and new. It almost rolls off the tongue; at least compared to, say, “cryptography” which sounds like it happens in the basement of a church.

But understanding each of those three constituent parts makes blockchain technology suddenly easier to understand. And that’s because we can write a simple one sentence explanation about how the three parts achieve a useful result:

Connected computers reach agreement over shared data.

That’s what a blockchain technology should do; it should allow connected computers to reach agreement over shared data. And each part of that sentence corresponds to our three constituent technologies.

Connected Computers. The computers are connected in a peer-to-peer network. If your computer is a part of a blockchain network it is talking directly to other computers on that network, not through a central server owned by a corporation or other central party.

Reach Agreement. Agreement between all of the connected computers is facilitated by using a consensus mechanism. That means that there are rules written in software that the connected computers run, and those rules help ensure that all the computers on the network stay in sync and agree with each other.

Shared Data. And the thing they all agree on is this shared data called a blockchain. “Blockchain” just means the data is in a specific format (just like you can imagine data in the form of a word document or data in the form of an image file). The blockchain format simply makes data easy for machines to verify the consistency of a long and growing log of data. Later data entries must always reference earlier entries, creating a linked chain of data. Any attempt to alter an early entry will necessitate altering every subsequent entry; otherwise, digital signatures embedded in the data will reveal a mismatch. Specifically how that all works is beyond the scope of this backgrounder, but it mostly has to do with the science of cryptography and digital signatures. Some people might tell you that this makes blockchains “immutable;” that’s not really accurate. The blockchain data structure will make alterations evident, but if the people running the connected computers choose to accept or ignore the alterations then they will remain.

November 30, 2017


Filed under: Economics, Technology — Tags: , , , , — Nicholas @ 03:00

Charles Stross explains why he’s not a fan of Bitcoin (and I do agree with him that the hard limit to the total number of Bitcoins sounded like a bad idea to me the first time I ever heard of them):

So: me and bitcoin, you already knew I disliked it, right?

(Let’s discriminate between Blockchain and Bitcoin for a moment. Blockchain: a cryptographically secured distributed database, useful for numerous purposes. Bitcoin: a particularly pernicious cryptocurrency implemented using blockchain.) What makes Bitcoin (hereafter BTC) pernicious in the first instance is the mining process, in combination with the hard upper limit on the number of BTC: it becomes increasingly computationally expensive over time. Per this article, Bitcoin mining is now consuming 30.23 TWh of electricity per year, or rather more electricity than Ireland; it’s outrageously more energy-intensive than the Visa or Mastercard networks, all in the name of delivering a decentralized currency rather than one with individual choke-points. (Here’s a semi-log plot of relative mining difficulty over time.)

Bitcoin relative mining difficulty chart with logarithmic vertical scale. Relative difficulty defined as 1 at 9 January 2009. Higher number means higher difficulty. Horizontal range is from 9 January 2009 to 8 November 2014.
Source: Wikipedia.

Credit card and banking settlement is vulnerable to government pressure, so it’s no surprise that BTC is a libertarian shibboleth. (Per a demographic survey of BTC users compiled by a UCL researcher and no longer on the web, the typical BTC user in 2013 was a 32 year old male libertarian.)

Times change, and so, I think, do the people behind the ongoing BTC commodity bubble. (Which is still inflating because around 30% of BTC remain to be mined, so conditions of artificial scarcity and a commodity bubble coincide). Last night I tweeted an intemperate opinion—that’s about all twitter is good for, plus the odd bon mot and cat jpeg—that we need to ban Bitcoin because it’s fucking our carbon emissions. It’s up to 0.12% of global energy consumption and rising rapidly: the implication is that it has the potential to outstrip more useful and productive computational uses of energy (like, oh, kitten jpegs) and to rival other major power-hogging industries without providing anything we actually need. And boy did I get some interesting random replies!

September 29, 2017

Blockchain primer – blockchain as a ledger

Filed under: Business, Economics, History, Technology — Tags: , — Nicholas @ 04:00

At Catallaxy Files, Sinclair Davidson provides some background knowledge of blockchain technology as a modern evolution of the simple ledger:

The blockchain is a digital, decentralised, distributed ledger.

Most explanations for the importance of the blockchain start with Bitcoin and the history of money. But money is just the first use case of the blockchain. And it is unlikely to be the most important.

It might seem strange that a ledger — a dull and practical document associated mainly with accounting — would be described as a revolutionary technology. But the blockchain matters because ledgers matter.

Ledgers all the way down

Ledgers are everywhere. Ledgers do more than just record accounting transactions. A ledger consists simply of data structured by rules. Any time we need a consensus about facts, we use a ledger. Ledgers record the facts underpinning the modern economy.

Ledgers confirm ownership. Property title registers map who owns what and whether their land is subject to any caveats or encumbrances. Hernando de Soto has documented how the poor suffer when they own property that has not been confirmed in a ledger. The firm is a ledger, as a network of ownership, employment and production relationships with a single purpose. A club is a ledger, structuring who benefits and who does not.

Ledgers confirm identity. Businesses have identities recorded on government ledgers to track their existence and their status under tax law. The register of Births Deaths and Marriages records the existence of individuals at key moments, and uses that information to confirm identities when those individuals are interacting with the world.

Ledgers confirm status. Citizenship is a ledger, recording who has the rights and is subject to obligations due to national membership. The electoral roll is a ledger, allowing (and, in Australia, obliging) those who are on that roll a vote. Employment is a ledger, giving those employed a contractual claim on payment in return for work.

Ledgers confirm authority. Ledgers identify who can validly sit in parliament, who can access what bank account, who can work with children, who can enter restricted areas.

At their most fundamental level, ledgers map economic and social relationships.

Agreement about the facts and when they change — that is, a consensus about what is in the ledger, and a trust that the ledger is accurate — is one of the fundamental bases of market capitalism.


The evolution of the ledger

For all its importance, ledger technology has been mostly unchanged … until now.

Ledgers appear at the dawn of written communication. Ledgers and writing developed simultaneously in the Ancient Near East to record production, trade, and debt. Clay tablets baked with cuneiform script detailed units of rations, taxes, workers and so forth. The first international ‘community’ was arranged through a structured network of alliances that functioned a lot like a distributed ledger.

A fragment of a late Babylonian cuneiform ledger, held by the British Museum, 58278

The first major change to ledgers appeared in the fourteenth century with the invention of double entry bookkeeping. By recording both debits and credits, double entry bookkeeping conserved data across multiple (distributed) ledgers, and allowed for the reconciliation of information between ledgers.

The nineteenth century saw the next advance in ledger technology with the rise of large corporate firms and large bureaucracies. These centralised ledgers enabled dramatic increases in organisational size and scope, but relied entirely on trust in the centralised institutions.

In the late twentieth century ledgers moved from analog to digital ledgers. For example, in the 1970s the Australian passport ledger was digitised and centralised. A database allows for more complex distribution, calculation, analysis and tracking. A database is computable and searchable.

But a database still relies on trust; a digitised ledger is only as reliable as the organisation that maintains it (and the individuals they employ). It is this problem that the blockchain solves. The blockchain is a distributed ledgers that does not rely on a trusted central authority to maintain and validate the ledger.

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