There are many myths circulating about the Bitcoin Blockchain, most of them propagated by people that assume too much and make rapid judgments without really knowing…
Pretty normal you might think for an emerging disruptive technology to provoke such extreme reactions and opinions. It is obvious that some don’t want Blockchain to succeed and that others are still scared of it, looking only to defend themselves. And then there are the opportunists looking to make money from Blockchain by pretending they have the answers, even though 6 months ago they couldn’t spell Blockchain.
So here are some of the common myths you will hear and read about Blockchain…
ONE: Blockchain is Immutable – WRONG.
The Blockchain (ledger) itself is not immutable. It is a myth. Immutability in fact comes from the expenditure of effort (in this case power and computing resources) relating to the Proof of Work algorithm where the difficulty increases and number of Bitcoin rewards for Miners reduces every 4 years. Currently 12.5. The ultimate visible Proof of Work example is the Pyramids in Egypt, which took decades to complete and those that took on the project had to feed and water hundreds of thousands of people that in turn moved mountains. Therefore demonstrating Proof of Work completeness encompassing extreme difficulty and expenditure of resources.
Miners expend not only huge effort and resources, they also invest significant amounts of capital in Mining equipment to mine the mainstream crypto-currencies. This is very different to the Proof of Stake investment/vested approach. Miners make the investment in computing and electrical power to solve the increasingly challenging (difficult) PoW algorithm (SHA256) to try to get a match, called Hashing. This is used to verify transactions and enable a new Block to be written on (taking 10 minutes) for which they get a reward. It is a race and mining power has a direct impact on the result.
TWO: Smart Contracts are Smart and they are Legal documents – WRONG again
Smart Contracts are dumb. They are not contracts at all. They are scripts as software code that are deployed onto the Blockchain at a particular address (data store) that follow simply instructions normally triggered events, e.g. IF, THEN statements. They are normally written as a transaction instruction and rely on the Computational Capabilities of the Ethereum Blockchain.
Smart Contracts eliminate the need for individuals to handle time consuming and costly business processes. They are autonomous and once loaded cannot be stopped or altered. Like a virus they can operate alone (autonomously) or in conjunction with other Smart Contracts, Data Stores as Oracles and interoperate with other legacy systems.
Smart Contracts are not contracts in any legal sense, nor will legal contracts be part of Smart Contracts. But they are capable of executing terms (as instructions) that may reside in an agreement between parties, to make a payment or move entitlement/ownership and transfer funds. They form part of the business logic layer that links nicely with the process logic to form what become unintelligent groups of transactions.
Smart Contracts are emerging and the development and deployment is very complex. They are vulnerable to attacks/hacks and they are where most of the recent problems such as the DAO have been. Smart Contracts carry transaction instructions and become layers and groups of Smart Contracts that work together to form a new generation of Decentralised applications or Dapps.
Smart Contracts along with Keys (Public and Private digital fingerprints) play an increasing important role in the design of Blockchain Operating Models where core business processes are automated using embedded Smart Contracts. They are eventually embedded as firmware into physical things in an IoT world, with everything written to a ledger of Everything. Smart Contracts is the business logic layer that directs the transaction traffic between the participants.
A Smart Contract does not form any legal status, and the legal position is largely irrelevant. Should a Smart Contract do something the parties had not intended. Make a wrong payment? Who is responsible? Was it hacked or just poor coding?
THREE: Bitcoin network can be shut down – WRONG
Bankers and purists generally don’t like Bitcoin for the primary reason of Openness, Transparency, and because it is generally Free (micro fees), arguing anonymity allows miss-use. Bitcoin is not owned by anyone. The Bitcoin Foundation provides oversight but not control. Bitcoin is now 7 years old and last week broke through the $640USD resistance. It is already mature.
The code is Open Source and anyone can download it and set himself or herself up as a Miner to mine Bitcoin. Others may download Bitcoin as clients onto their smart phones as Bitcoin Wallets to transact Peer 2 Peer with whomever they want, passing Bitcoin tokens across the network and not via any central control or body, like a clearing bank or central authority. Frictionless and where the transaction is guaranteed and immediate.
Bitcoin is for the people, run by the people, and, like the Internet, cannot be shut down - although there are, of course, efforts to police it, with others that want to control it. It is beyond the central authorities (Regulators, Clearing Banks and some Governments) that see the Libertarian threat of Bitcoin and fear it. It is censorship resistant, without geographical boundaries. Many governments are starting to see the potential and want to be part of its evolution, as sovereign governments race to be first to issue debt on the Blockchain, and deploy their own crypto-currency. To be one of the first matters.
The other myth is that once the 21 million of Bitcoins are mined the currency will collapse and stop and people will lose their value. The last coins will be mined in 2140 and given there are 9 decimal places to play with the Bitcoin crypto-currency will do just fine.
FOUR: There are 20 or 30 Crypto-currencies in circulation – WRONG again
In fact there are over 800 crypto-currencies and within a few years there will be 5,000 to 10,000. There are many Crypto Exchanges around the world, and the number is increasing all the time with more than 20m Bitcoin Wallets now handling multi digital and fiat currencies.
The leading crypto-currencies remain Bitcoin, which has a market cap approaching $12billion, Ethereum with Mkt Cap $1billion, Ripple, Litecoin, Ethereum Classic, Monero, Dash, Augur, MaidSafeCoin, Nem, Waves, Steem, Dogecoin, Factom, DigixDAO, Lisk, Gulden, Synero, Stojcoin and many, many more. www.coinmarketcap.com is a great place to find them.
Given the purpose of a ‘digital tokenized rail’, they are based on many years of cryptography thinking, recent Innovations, and the Computer Science breakthrough that created the Distributed Ledger Technology or DLT, that for me takes the brakes of commerce. They are an integral part of the core design and their use depends on the business outcome sought.
Each Crypto currency is used for a different purpose, forming the basis of the security model. The crypto keys are part of the transaction to be validated by the Miners, and where each transaction once Hashed is held on copies of distributed ledgers held on the network nodes, where Miners hold a full copy of the Ledger giving Blockchain its Zero Downtime attributes.
Some are designed as exchange tradable digital currencies, others as tokens, some to reward and to deliver functionality as part of the forked code that attempts to deliver a specific level of performance. Zero Cash or Zcash attempt (starts mining now) to offer what Bitcoin has with more anonymity. Others are part of a forked design to improve the scaling or support a different consensus algorithm.
Many crypto-currencies will never reach the volumes required to become mainstream. ETHER or ETH was really designed as part of the Ethereum deployment to reward Miners and Coders for their computational efforts known as Gas. Hence the expression Gasing Up your Smart Contracts, as inefficient and poorly written code not only is computationally more expensive, they are also open and vulnerable.
FIVE: That Bitcoin and Ethereum are the same – WRONG
Bitcoin was designed as a Peer 2 Peer financial system using the core code based on the Satoshi papers of 2008. It was designed as a borderless financial (payment) system beyond the control and manipulation of central banks, governments and retail banks that take disproportionate fees for doing very little. Bitcoin was the first and is the largest Public Blockchain.
Ethereum forked the original open source code and went live in 2015 with its own genesis block, when Vitalik Buterin engineered it to deliver a complete development environment around a global Computational Machine, that may one day become the new Internet. Ether arrived Jan 2016 and things really took off.
Ethereum offered for the first time a Turing complete language (a development environment) to build out architecture for Smart Contracts that can run as a Blockchain Operating Model. Ethereum delivers the future of commerce and where the crypto-currency as a financial rail is a consequence and not the focus.
They share common features; they started from the same source code, they are both a network (P2P), a currency and a technology.
SIX: The Bitcoin Blockchain has been hacked – again technically WRONG
The underlying Bitcoin network has not been hacked. The Bitcoin Exchanges have been hacked - Mt Gox comes to mind - and some were run by some people whose motives may not have been open.
Smart Contracts have been hacked to change their logic outputs, in the main to divert funds to a different address, the DOA for example. However, Cold Stores holding key information have also been hacked allowing access to hackers that get access to your Bitcoin Wallet/Account and remove the coins.
People who own and trade Bitcoin and ETHER have a wide range of accounts, Wallets, and Keys to spread the risk hackers will record the key logs on Public and Private Keys. With each fork things are improving as pre-production Use Cases emerge.
SEVEN: Blockchains cannot be linked together - WRONG
Apart from a host of activity to patent aspects of Blockchain design largely by banks, much of the Blockchain community remains Open Source and committed to improving the underlying performance of the Blockchain code so that it may scale.
Many Blockchain start ups are doing amazing things to improve the performance and usability of the original code. Consensys, Eris Industries (now Monax), and Tendermint are achieving great things.
The big activity is to link Chains developed, and built in different languages and structures (consensus, voting, approaches to Identity etc) and enable the passing of Tokens (currencies/value) between each Blockchain remains complex. Two leading examples of this effort are Interledger and Cosmos Hub (Tendermint) two such projects that are linking chains together to create Blockchain eco systems and communities, very useful when deployed as an Industry Solution.
These are the popular myths. It is inevitable with any new technology that there is broad confusion, and even more so with Blockchain, which is very complex and involves very smart people designing, developing, and building a new future where the rules of trade are different and where organizational operating models function differently.
The recent Forking activity is a natural evolution process, but again those that aren’t fans point the finger at Blockchain calling it high risk, claim it can be hacked, and say Bitcoin is a turbulent currency despite it outperforming everything.
Blockchain is a set of building blocks, a development environment to be creative, to re-design commerce, and to invent new ways of solving business problems. However, for me, the most compelling thing about Blockchain is that it delivers the opportunity to build new Operating Models built for competitive advantage in terms of cost and efficiency.
Every industry, new invention, anything that people don’t fully understand, are surrounded by Myths, as non facts as facts, of non truths and definitive information. But none of this matters to Blockchain because the people that know, know and we the Blockchain community are pleased about that..!
Digital BOOM 2016 ©
Author: Nick Ayton @NickAyton