Blockchain is Not Meaningless: A Response to Verge

NB: This post was originally published on Medium.

Back in March, the Verge boldly claimed that the widespread use of the word “blockchain” by multinational companies, international institutions, and famous crypto-entrepreneurs, has transformed the technical term into a meaningless buzzword.

At the start of the article, the Verge cites a few examples of companies that have hijacked the word blockchain for their shady marketing campaigns. One company such changed its name from Long Island Iced Tea Corp. to Long Blockchain Corp, and saw its share price rise by 289%.

These and perhaps many other companies have a vested interested in perpetuating blockchain ignorance. There are hundreds of companies running crypto-scams — many which are ponzi schemes and fake mining pools that prey on the ignorance of cryptocurrency investors. The con-artists behind these pyramid schemes and fake mining pools often purport to mine various cryptocurrencies with insanely high and unreasonably consistent profit margins.

A lot of crypto-ponzi investors are unaware of the fact that Bitcoin and every other mineable cryptocurrency have hash-rate difficulties that increase exponentially as more miners join their respective blockchain networks as nodes, and compete for the block reward: the newly minted cryptocurrency for each mined block.

All miners, including mining pools will experience diminishing returns, regardless of how much they have invested in mining hardware. The only way any given mining pool would make more money over time, is if other mining pools abandon their efforts. But that is an extremely unlikely scenario, because the sunk cost of investing in mining hardware compels most miners to continue mining their respective cryptocurrencies until the cost of electricity is greater than the revenue they receive from mining.

The lack of a clear and precise working definition of what a blockchain is makes it harder for new, and naive crypto-investors to learn more about the technology. And their lack of knowledge makes them easy prey for a new generation of con-men. Unethical marketing campaigns from ambitious tech companies will only make the situation worse.

The Verge had pointed out how legitimate companies are deliberately spreading confusing information to bolster their marketing campaigns. The article gives an example of the consequences of prominent tech companies running marketing campaigns built on the nebulous idea of a blockchain.

According to the Verge, major news outlets such as the Harvard Business Review and The New Yorker, had erroneously described Estonia’s national identity system as a blockchain technology. The Verge attributes this error to the myth making borne from the marketing decisions of a private Estonian company.

Estonia’s technology vendor, Guardtime, rebranded its offering from “hash-linked time-stamping” to a “blockchain technology.” That’s not necessarily untrue since “blockchain” has no agreed-upon definition — and for now, it’s a good marketing tactic.

Many more of the world’s most important ideas are plagued by the same conceptual imprecision we see in blockchain technology. But unlike other scientific ideas, the blockchain is a real-world solution. The mere fact that developers have coded and implemented blockchain technologies means that a working definition for blockchain technology must exist. No biologist has ever created life in a test tube or petri dish — and that may be why life has no scientific definition, despite hundreds of years research and experimentation.

Much of the confusion surrounding the term “blockchain” stems from an ongoing debate among software developers on whether a blockchain can be centralized. Can a single database hosted on just one server or one computer be described as a blockchain if it uses time-stamping, and hashing algorithms to connect chronologically recorded transactions? The short answer is no.

A blockchain is fundamentally a data structure in which transactions are verified in batches called blocks, and the nodes or servers verify said transactions through a consensus algorithm. There are a variety of blockchain consensus algorithms, but they boil down to four essential variations: proof of work, proof of stake, proof of importance, and byzantine fault tolerance or some combination thereof.

The Verge notes that some people think a private blockchain is just a shared database, but these two types of distributed databases have different consensus algorithms. A private blockchain uses what can be colloquially referred to as a proof of permission consensus algorithm that requires each masternode or participating company in the network, to simultaneously verify each new transaction by submitting their respective private keys. A shared database on the other hand, uses multi-concurrency version control (MVCC) — a system in which simultaneous transactions that produce conflicting outputs are processed in parallel. And according to Gideon Greenspan, the founder of Coin Sciences, we can think of a blockchain as a distributed MVCC.

Without a consensus algorithm there would be no reason to group transactions into uniquely identifiable blocks or batches and there would be no logical way to justify the use of a blockchain data structure. Bitcoin, for example, uses transaction blocks to set a quantifiable limit on the number of times miners must solve a nonce, the unique key of each batch or block of transactions, in order to determine the overall security of the network.

The Verge then cited an article from David Gerard in which the director of the World Food Programme (WFP) tried to explain what a blockchain is. As shown in the following quote; Houman Haddad, one of WFP’s executives, thought a comparison to Git would help clarify the meaning of blockchain technology.

Git like blockchain, uses merkle trees. A blockchain, in a certain sense, can be seen as a peer-to-peer (P2P) hosted Git repository. In order to modify this repository, users must have a copy of the whole repository and pull the latest commits. When you download a blockchain client and run it, you have to check out the entire blockchain history, much like checking out a Git repo.

Not all distributed databases are blockchains, because not all distributed databases need to process transactions with a consensus algorithm. Git is the kind of distributed database that doesn’t need a consensus algorithm, because each super-user or masternode has complete control over a given code repository and these super-users don’t need to organize their transactions in batches or blocks. To become a blockchain, Git would need some of its code repositories to be owned by multiple companies and these companies would have to simultaneously agree to each new code change before it was implemented in order to justify the use of a consensus algorithm.

Git is a distributed database that has no consensus algorithm.

Transactions or commits (code changes) in Git, can be processed one at a time or in batches, and the staging index where new data is temporarily stored is somewhat like Bitcoin’s memory pool of unconfirmed transactions, but neither one of these traits make Git more like a blockchain.

The WFP’s private network, built on the Ethereum blockchain, may contain a semi-immutable record of the thousands if not millions of transactions that have taken place within Azraq — Jordan’s refugee camp for Syrians, but that doesn’t make it a blockchain. WFP’s private network could become a blockchain when international NGOs and private companies decide to host their own competing nodes on its network. The lack of trust among such competing institutions could justify the use of a consensus algorithm based on a blockchain data structure.

A private network built with the code base of a blockchain, is not an actual blockchain.

Ethereum’s transaction gas costs may have forced Haddad to build a private network. But since the launch of the EOS mainnet, there’s just no reason to continue using a shared database. EOS is a feeless blockchain that can process thousands of transactions per second. If speed and transparency are the key attributes the WFP is looking for in their distributed database, then EOS may be the perfect fit. But if privacy is also a priority, then Tendermint and Hyperledger are both great tools for building a private blockchain from scratch.

The legal ramifications of ambiguous blockchain terminology may have an even bigger impact on the long-term growth of blockchain adoption than misleading marketing campaigns. Angela Walch, a law professor from St. Mary’s University, believes that America’s current attempts to create blockchain legislation are driven by misconceptions and a poor understanding of how the new technology actually works. She provided a few suggestions on how US politicians should go about writing blockchain laws, like hiring internal blockchain experts in their legislative committees.

She then went on to describe how some former state employees are now closely associated with blockchain businesses and may be trying to persuade legislators to adopt more favorable legislation on behalf of their new clients. This sounds like a precursor to full-on political lobbying for the blockchain space. But we probably won’t see any collective efforts to lobby for favorable crypto-legislation among blockchain business leaders, until they see less political volatility and polarization in American politics, which may prolong the process of formulating coherent blockchain regulation. This may in turn make blockchain a more elusive concept for legal professionals.

Shen then argues that the confusion surrounding the idea of immutability has had a negative impact on US legislation.

The term “immutable,” with its varying and sometimes non-intuitive meanings in describing blockchain technology, is one that I very much wish we could strike from the blockchain lexicon, as “by ridding ourselves of an unnecessary confusion we should gain very much in the clearness of our thought.

Programmers are accustomed to the idea that certain objects, individual pieces of data in a program — can be immutable in the sense that they cannot be changed, but they can be entirely deleted from the program or a module of the program in question. A lawyer, on the other hand, would think of immutability as a complete or absolute resistance to changes of any kind.

Unfortunately, many programmers are pragmatic short-termists who feel that software development is more important than business communication, and that’s why programmatic terminology is often only as precise and as thorough as a pragmatist needs it to be. Blockchain developers could start describing blockchains as semi-immutable databases, and with a little caution and diligence, they will in due time solve all the contentious issues surrounding blockchain jargon.

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