I heard a story of a guy in the Computer Banking industry who had heard of the term Blockchain one full year before knowing about its origin: Bitcoin. That’s right, the guy had heard all the talk about this amazing new technology called “Blockchain” without ever hearing anything about Bitcoin or any other crypto currencies for that matter. It’s only recently that he discovered its origin. Considering he was in the computer industry focused on traditional Banking, it’s sort of obvious this same industry would not be talking about a currency (Bitcoin) that can virtually eliminate a large portion of their business model, if not entirely.
Recognizing the blockchain in Bitcoin is a truly decentralized new form of database, the first question to ask is how does it compare to it, and more specifically, how is the system funded. How can any decentralized and distributed database such as a blockchain be funded? One approach is via donations but that may imply some complications on the distribution to the relevant players. Another method is using a currency embedded in the blockchain and its protocol to compensate the owners of the servers (miners). This is the method Bitcoin and other cryptocurrencies have chosen. Although a decentralized currency is the most convenient and elegant method, this poses a problem for the banking industry. They (and their central bank friends) do not intend to lose the advantage they have with a controlling stake in national currencies.
And here is where they have created a partial or hybrid solution to this problem by recreating as much as possible the features and qualities of the Bitcoin blockchain without having to create a decentralized (hence uncontrolled) currency. The following white paper explains such Blockchain created by Chain.com:
https://chain.com/docs/1.2/protocol/papers/whitepaper
One look at who funded this and we can quickly recognize big banks and credit card companies with a huge interest in keeping the existing financial paradigm:
“strategic partners including Capital One, Citigroup, Fiserv, Nasdaq, Orange, and Visa.”
I was curious to find out what the banking industry meant by the term “Blockchain” devoid of a native crypto currency, so I did a quick web search recently and discovered this document. It may not be a perfect solution, but it is however an improvement to existing traditional databases. I find it very amusing that a new technology meant to disrupt not only the computing world but the financial world as well has allowed this same financial industry to improve their sometimes archaic systems. Did you know the software on which wire transfers are executed (SWIFT system) is still running code from the 1970s?
The system proposed in this document uses what they call a federated consensus protocol where essentially an established group of servers are involved in forming a quorum to approve updates to the blockchain. So essentially a semi-decentralized system, as likely not just anyone is allowed to download the software and run a node. The term federated might be a reference to the authorized groups allowed to join this network. The following paragraph out of their document explains it:
Under the federated consensus protocol, blocks are considered accepted once they have been signed by a specified quorum of block signers. This is implemented using a consensus program that checks an “M-of-N multisignature” rule, where N is the number of block signers, and M is the number of signatures required for a block to be accepted.
An example of participants to such a blockchain may be for example, all well known major banking institutions each running a server and being part of the quorum. Since they all are users of it just as they are responsible for maintaining it, the need to reward owners becomes irrelevant. The idea does have merit, no one can argue with this. It will however, probably not be used for all good things.
They accomplish two things by leveraging this technology. First, they make their database model more efficient where multiple players are involved in sharing information. But in addition, by integrating the term “Blockchain”, they bring the legitimacy associated with the decentralized nature of Bitcoin, hence easier to fool the next public retirement fund into investing in some new scams. (View the movie “The Big Short” if you haven’t seen it yet)
Could their database have been constructed without actually being a blockchain? In this case, it could. With Bitcoin, the requirement of the proof of work and the chained series of blocks with a HASH applied one on top of the other implied the use of a chain of block. But in this case, it could have just as well have been a periodic snapshot of a static database signed by this quorum of servers. But then, it could not have been called a blockchain and hence, missing a chance to capitalize on this trending buzzword. The document does make references to the possibility of making use of proof-of-work and/or proof-of-stake as method, but I believe the core marketing idea was to borrow as many terms and concepts from Bitcoin as possible, minus obviously the decentralized currency.
On other cases though, the term “blockchain” is really overused by some entities that are actually dealing with no more than a glorified database. Take for example this latest article regarding how Finland intends to use - insert the buzzword here - to help refugees
For two years the Finnish Immigration Service has been giving asylum seekers who don’t have bank accounts prepaid Mastercards instead of the traditional cash disbursements, and today the program has several thousand active cardholders. Developed by the Helsinki-based startup MONI, the card is also linked to a unique digital identity stored on a blockchain, the same technology that underpins the digital currency Bitcoin.
The article is very short on specifics and I actually believe there is no purpose for any decentralized database in such case. After all, the players involved are the government responsible for developing the identity and the banking institutions managing the funds. Why couldn’t they be using a shared classic central database instead? The article does not say how this is being used and in which way it really is beneficial over any existing database.
I am not stating all of these claims are invalid or do not benefit in any way with a semi-centralized or even perhaps fully decentralized blockchain. Some I’m sure do benefit. But just remember, for it to be called a “blockchain” it should be a series of blocks chained together by a HASH algorithm confirming its overall integrity, secondly, it should be over a decentralized, immutable and distributed network.
Regards
Phil Champagne
http://BookOfSatoshi.com