What's the point of a private blockchain? Who are you competing against with your hash rate? And if you are keeping it private to stay in control, why choose a technology designed to not let you stay in control?
I've heard buzz about "enterprise blockchains" several times, but I still don't understand what this brings that an authenticated REST service on top of an SQL database doesn't.
The value prop for private or consortium chains is significantly different than public blockchains.
The first point is that it's a shared database that allows organizations to co-operate, with a common view of the world meaning fewer integration points which are exponential as the number of participants grows.
The second point is that none of the individual parties has monopoly control of the "central" database meaning they can't extract excessive rent from the participants and exert political/corrupt influence on the network.
This is my favorite video explaining this and blockchains in general, and this aspect specifically which begins at 23:45 in. The sound is terrible, but definitely worth listening to.
https://vimeo.com/153600491
The thing is, none of the things you mention require proof-of-work, which is really the only thing that makes a Blockchain a Blockchain, rather than just a weird append-only database which allocates tokens to accounts (scripts). Only by proof-of-work do these tokens become meaningful, because it allows the tokens to be moved around by the account-holders without a central party.
There is simply no need for a private consortium to waste energy on proof-of-work. The features you mention can be implemented without any need for proof-of-work. The purpose of the organized waste that is proof-of-work is to achieve trustlessness, simply by requiring a huge expansion of energy if you wish to rewrite history.
In Bitcoin, the maintainers of the database (the miners) are separate from the users, and proof-of-work prevents the Blockchain/database maintainers (miners) from rewriting history. But if the owners and users of the database exist within the same organization, it would be trivial to verify that nothing has been rewritten simply by every party keeping a copy.
There's also no way to order transactions, and no need for blocks in your proposed model. You can just syndicate signed messages in exactly the way we do now, over http, and have the same security.
Git doesn't currently handle "accounts", it handles lines of text in diff form. You can't currently use git to pay for things, though no doubt someone will add this feature.
Proof of Work is the process by which registered value (an electric bill) is converted to fungible value. It is nearly 100% efficient (depending on how you quantify waste).
If you don't like the externality costs of mining - I'm with you. But that's the government's job to manage, and seemingly, they're ok with that. They even subsidize the network by requiring that some goods only be purchased via blockchain.
Proof of Work is the process by which registered value (an electric bill) is converted to fungible value. It is nearly 100% efficient (depending on how you quantify waste).
That is not true. The proof of work is the mechanism required to prevent users from casting arbitrarily many (fraudulent) votes on blocks because Bitcoin is anonymous. If Bitcoin were not anonymous, you could just give one vote per block to every user and everything would be fine. But Bitcoin is anonymous and the proof of work essentially only replaces knowing all users by making it hard to cast a vote and in consequence even harder to cast many. So the proof of work is logically the component in Bitcoin establishing some kind of identity for users and has nothing to do with the creation of value.
> If 100 people compete on a block and 1 person is awarded the block, then isn't it 1% efficient and 99% wasteful?
From the network's perspective, everyone collaborated to make that block more secure. The more hashing power you have, the harder it is to subvert the network.
"Wastefulness" in this case can only be expressed by comparing energy spent per hash to the most efficient extant computer which could hypothetically be used by an attacker. In this case, Bitcoin is already mined using specialized ultra-efficient ASICs, so by this standard it is not wasteful.
> everyone collaborated to make that block more secure.
The rational actors aren't collaborating to make the network more secure, they're competing to get the reward.
In fact, the asics you mention is why the network isn't that secure. They create an economies of scale that allows the network to be controlled by a handful of Chinese miners, who in turn won't fork useful updates.
That means the redundant work being done by the miners is wasted.
Lol, the entire Bitcoin mining ecosystem uses less electricy than the Bank of America headquarters.
Also, ponzi schemes require that money from users be stolen to pay off new users. Instead we pay miners to secure all the Bitcoins in the network by burning power (IE, just like a job, you use 8 hours of energy and you get a paycheck)
You can sort of ballpark the bitcoin energy usage by assuming all mined coins are sold at the current exchange rate, and used to buy electricity at a reasonable average for the world...
12.5 BTC every 10 mins => 12.5 / 600 per second => 0.02083.
0.02083. * $600 = $12.5 / sec
Assuming electricity cost of $0.10 per kWH...
%12.50 / 0.10 = 125 kWh / sec.
125kWH * 3.6e6 joules, per second => 450 MW
For comparison, the UK power grid runs at about 30-40GW.
In finance, successful two party private systems / standards are often turned into industry standards. Think Swift, FIX, etc.
In the case of FIX, the reason it was widely adopted was that a buy-side client (Fidelity) demanded their brokers (developed with Goldman, then taken up by others) adopt the standard.
I understand why Microsoft would want to support this. I can understand why BoAML would want this. Where I'm failing to see how this initiative will succeed is there seem to be missing a buy side participant to demand implementation. Perhaps BoAML has some sort of leverage with other market participants to get them on board? Recording transactions from one arm of BoAML with another arm of BoAML doesn't make sense to me. There are already internal systems to handle transaction recording.
It's possible to design a blockchains that don't require brute-force computation. Bitcoin uses a "proof of work" algorithm, but Peercoin (for instance) uses "proof of stake" which is a lot less CPU-intensive.
The fundamental problem seems to be that, when positioned against the same threat model as Bitcoin, all the PoW alternatives reduce to an obscured form of PoW. Put another way, a PoW alternative proposal must be designed such that participants can't increase profits expending more energy (for example, the fact that stake-grinding is profitable shows that Peercoin's PoS is really PoW-by-obscurity). As far as I know, this is still an open problem.
If you can accept centralization (which for many non-crypto-currency use-cases actually makes sense, since it mirrors the way the real world works) - you don't actually need proof of work.
You can still get the benefits of verifiability, append-only, detect misbehavior etc without it. See for example Certificate Transparency (RFC6962) for a standard that implements those properties using similar Merkle Tree constructions.
Disclaimer, I have a startup that generalizes the same Verifiable Logs (and also allows for Verifiable Maps): https://www.continusec.com/
So that you (or other interested parties) can verify the correct operation of the centralized authority, and so that the central authority can prove that they aren't hiding anything.
For example, in the case of certificate transparency, that the CAs aren't mis-issuing certificates, and further that the logs aren't conspiring to hide entries (such as via split views).
I might be confused: I thought the only reason those third parties were trusted in the first place was that they were co-owned by all the banks? My point was, you replace one cooperative system with another functionally equivalent one, and nothing much changes except that there are fees to be collected in the process. A centralized settlement system is like a commodity, it's standardized and cheap to run, but a blockchain can be sold. There's also an unjustified assumption that the new system wouldn't have banks paying fees, because blockchain. There's a long series of posts on Alphaville about just that. All those trust and legal issue don't just disappear.
So, instead they are going to pay fees to third parties who provide cloud-based "blockchain-as-a-service" which functions as a centralized (on Azure) settlement database?
well this is built on the Ethereum network, according to a tweet I saw in this thread, and would therefore be a private contract. So the private data is settled on a blockchain that is secured by proof of work now, and proof of stake later.
One of them I think is to establish the standard for true international wireless transfers protocol since they don't really exist today[1]. This makes a huge difference when it comes to something like remittance and would allow for a whole new kind of international companies and collaboration to be built.
it's just a buzzword. These are simply bad message passing systems that will never come to fruition as a blockchain. R3 spearheaded this effort and already dropped the unneccessary 'blocks' from their project. I'm unclear what their pitch is now, other than sharing your data with your competitors. A stupid goal that could be better performed with http..
Was interviewing with a blockchain company yesterday and this was my question to them. There is a strong buzz -- imo not very informed buzz -- about this approach in the enterprise and after this cycle of failed pilot projects the buzz should/will die.
Blockchains waste a substantial amount of computing resources. All that heat is wasted energy if the technology is used where the unique featureset of a blockchain are not important. And in the enterprise, that unique featureset is typically not really that important. B2B is a much better enterprise space for blockchains since the name of the blockchain game is 'distributed computing at the edge'.
I've yet to see a sensible use for what I consider to be an impressive achievement, the blockchain concept.
So, what does it give you? An immutable, distributed, public database that can be trusted despite not having trust in any particular participant.
Now, if you're a bank, why have you got offices with marble floors in the nicest neighborhoods? Why do your employees wear suits and ties? Why do you get a credit rating?
If you want security, that already exists. You can use encryption to identify people, and you can use it to hide sensitive information. You can use it over public channels, no problem. For instance this forum is on an encrypted https connection, and people can't sit on the route between me and YC to find out what I'm up to.
If you want a ledger, that's also been done. In fact you can use encryption to make sure there's never an unauthorized change to the ledger. And there's a whole load of ways that ledger can be scaled so that many people can use it at once.
Someone mentioned settlement of trades as a potential use case. But what is really to be gained against the way it is currently done? At the moment, you have a bunch of ops guys settling trades in the way it's been done for many years. If there's an error, you can call someone one the other side and fix it. Mostly, it's automatic, done by various cron jobs. What do we get from putting that in something similar to bitcoin?
The current system implies that international banks and other financial institutions trust each other (or a designated neutral party), and it becomes increasingly hard to maintain that trust. (E.g. in light of recent attack of North Korea on Bangladesh central bank).
Blockchain, in essence, is just a voter protocol that can deliver trusted consensus in adversarial (Byzantine) environment. This is its main value proposal for international finance.
I'd also like to see a blockchain-based public voting and election protocol. But there seems to be not enough governmental interest in that ;)
In the Bangladesh central bank case, hackers broken into their internal networks, got access to payment credentials, and issued $950 million worth of transactions.
$850 million was blocked before they went through, and about $40 million of the remaining has since been recovered.
How would a blockchain have helped in preventing or recovering from this attack? If the hackers got access to their blockchain credentials, they would have been able to issue similar transactions. It would just have been much harder to block the transactions or reverse and recover them after the fact. It seems to me that running this on a blockchain would have made things worse, not better.
I find Bitcoin already quite an impressive achievement. It is the first digital currency without central point of failure (in the physical world, gold can be used for that).
Also, consider rouleth.com, which is a provably "fair" online casino. (The odds are still against you, but you can verify that the bank did not cheat when you lose ten times in a row.)
Or imagine companies with shares on the blockchain, combined with smart contracts. That would allow you to automatically enforce all kinds of shareholder agreements (for example vesting or a tag-along right).
Maybe that's not revolutionary, but it could be quite useful and save a lot in legal anf auditing fees.
I completely agree that Bitcoin is an impressive achievement.
But I still fail to understand the attraction to corporates. By putting your blockchain in the Azure cloud, then you have a central point of failure? I agree it's an immutable record of everything that has happened (provided there's not a "hard fork" or over 50% of the resources owned by one participant, which is hugely possible with a small network) but immutable records are possible even today.
Just to clarify, this is NOT Ethereum, it is a fork of Ethereum, also referred to in that tweet reply as 'private Ethereum'. There is nothing called 'private Ethereum' - all Ethereum transactions are public. But lots of these enterprise blockchains fork from Bitcoin or Ethereum and create their private versions. This doesn't use ETH/ETC.
This is really interesting. I wonder if they would work to try to create a standard? If every bank creates their own blockchain system, that would only perpetuate or complicate inter-bank transactions.
I think this will come eventually. Ultimately I think they want to use the blockchain concept in order to make settlement easier. Ideally this should mean that a bank's retail and commercial customers should never know that settlement is taking place using a blockchain. Though there's always exceptions.
Bitcoin delivers value in that its blockchain is secured by mutual participation among miners, exchanges, buyers and sellers, etc. All of these new commercial, independent "blockchain technology" buzzword press releases can only succeed if they can attract and sustain a critical mass of participants who have mutual interest in its success. It's not for me to say that they can't do that, I'm sure they can. But there will be many offerings over the next few years before a VHS/Beta or HD-DVD/BluRay battle of titans can emerge.
EDIT: disregard most of this, according to comments elsewhere they're using Ethereum. shrug
EDIT: re-regard most of this, apparently it's a private instance of Ethereum (IMO this is similar to Bitcoin's same-PoW altcoins).
What does azure blockchain do? How is it related to Bitcoin? Isn't the whole point of blockchain the fact that it is a distributed ledger and centralizing it in one point like Azure reduces its appeal?
Basically, it is a click-to-deploy blockchain node to the cloud. Saves the time of having to set all that up for yourself when you are building blockchain apps.
Does the BofA "Azure Blockchain" have voting non-BofA nodes, or is it BofA-controlled? Suppose BofA wanted to roll back a transaction? Whose permission would they need? Is this the same blockchain as the HSBC/BofA blockchain intended for use for trade finance?
There's a use for a blockchain where the voting members are, say, the top 20 banks worldwide. It would be tough to get more than half of them to agree to change something. If half of them agree to change something, it probably really needed to be changed.
When you know all the participants you don't need to roll back the chain you can just call the other side and tell them to add the inverse transaction. If they won't do it you have the courts to make them.
I'm not really familiar with the whole blockchain topic for banks. Could anyone out there explain it to me or direct me to some resources? Thanks in advance.
I've heard buzz about "enterprise blockchains" several times, but I still don't understand what this brings that an authenticated REST service on top of an SQL database doesn't.