What is the decentralized web? Does the price of Bitcoin have anything to do with the underlying blockchain? How do trustless systems work? What businesses will blockchain disrupt? Can the blockchain be hacked?

I heard that Blockchain is Web 3.0. What does that mean?

Web 2.0 marked a revolution with the way web browsers interacted with web servers. Asynchronous programming models, front end javascript tooling etc. made the user experience faster, smoother without compromising the integrity of the viewed content.

Nevertheless, the basic client-server model of the web (1.0) remained untouched. Multiple clients (browsers) still spoke in their native http to a centralized server (or server farm), which processed their requests, and served content back to requesting client.

Decentralized chains turn this client server model on it’s head. There isn’t a single server or a single client.

Every node in the chain functions as a full fledged server. Every node also serves as a full fledged client. Once this central concept (no pun intended) sinks in, the rest of blockchain’s implications follow logically from this revamped, client-server model.

For a detailed Blockchain and Cloud Computing presentation, contact Anuj. All original content containing real-world blockchain implementations and PoCs on public cloud platforms.

Everything is Decentralized

Apart from the server and the client being decentralized, all storage (file and object storage) is also decentralized. Sounds far fetched?

An example of a working website that is entirely decentralized is ShiftNrg.org. The entire website is broken into chunks sitting on a decentralized network; even the DNS resolution happens in a decentralized manner. When a user requests the landing page, the website is ‘magically’ sewn together from the distributed chunks.

The ramifications of this new type of web (web 3.0) are enormous.

The idea that you can bypass central servers to get the content you desire has dozens of use cases. Think of the censoring regimes such as China or certain parts of the middle east, where web content is filtered or blocked outright. That blocking is facilitated by the fact that content resides on centralized servers. If that content’s location was distributed to a set of anonymous nodes, it’s location would be virtually undecipherable, and there wouldn’t be any mechanism to block it.

Consider VPN tunnels (already a huge business in China and the middle east) providing a tunnel through the internet. VPN providers, however, can be blocked, and risk facing the same censorship challenges from these regimes. A decentralized VPN provider, wouldn’t have a single access point, but rather a distributed set of access points. As you guessed, there are already blockchain offerings (Intense Coin ITNS), that are doing this.

What does it mean to be ‘trustless’? Why is a trustless system better than a trusted one?

This is best explained with an example. Say you and I place a bet. We bet $10 each on tomorrow’s rain outcome. Say, you lose and approach me to claim your $10. I suddenly develop a memory lapse and refuse to pay. However, given my charming smile, you forgive me and still continue to place bets…

Next time, however, you get smarter. When you place your next bet with me, you involve a middle man. A third party who acts as an escrow. Each of us puts our $10 in the escrow. Again, you win the bet and approach the middle man to collect your money.

The middle man now develops the same memory lapse – and runs away with the $20. You just can’t catch a break!

The common theme in the two examples above is that you placed your trust in a central authority, who ended up betraying it.

What if, when you were putting your money in escrow, you involved a 100 random strangers to act as watchdogs? They simply watch the transaction take place. That way, when the middleman develops a memory lapse, all you do is check with your 100 watch keepers. You ask them to vote – and as long as 51 or more agree that they saw you hand your money to the middleman, there is no way your transaction can be invalidated.

That, in essence, is how the blockchain works. Instead of trusting a single authority, you have distributed the trust to a network of individuals (nodes in blockchain parlance). As long as the majority of the network is honest, your transactions are secured. It would take over 50% of them turning rogue, to cheat you of your money. Moreover, if you provided these network nodes with an ‘honesty’ incentive (say, they were rewarded with a small fraction of all transactions), every time they honestly voted, they would have no reason to turn rogue.

While this example may sound simplistic, it is at the heart of all decentralized applications (DAPPS).

Think of any industry where ‘trust’ is an issue. It could be banking, it could be dating. On a dating app, how do you tell whether the identity of the person is real, whether it is a bot or something else? Simple – you have the chain verify the identity. As long as over 50% can vouch that this is a real person (this can come from social media, from real time face recognition etc.), then you can rest assured that you are not talking to a bot.

The use cases for trustless systems are unlimited, since traditional businesses all rely on trusted central authorities.

Does the price of Bitcoin have anything to do with the underlying blockchain?

There are two main factors that drive bitcoin price. The first is what economists refer to as Scarcity. Gold is scarce. Along with the ‘broad, general acceptance’ that Gold has value, the scarcity of gold drives it’s price up.

It is the same with Bitcoin. Satoshi Nakamoto envisioned a limited supply of bitcoin for just this reason.

However, scarcity is not the only thing responsible for bitcoin’s massive appreciation. The other factor is network reliability.

Just like a country backs the US Dollar or the Yen, there is something backing bitcoin. That something is a decentralized network. As long as this network of nodes is reliable (no fraud, no dropped transactions, no failures, no spam), the currency can be considered ‘stable’. Volatility of a crypto currency is another issue, but the underlying blockchain has proven it’s stability. At the very initial stages (2010), there was a hack that allowed a user to generate an untold number of bitcoins through a programming loophole. However, the speed at which the loophole was detected and fixed (less than 4 hours) was a feather in the cap of bitcoin.

In a sense, blockchain’s biggest success, to date, is the bitcoin protocol and the currency. Ethereum and other leading crypto currencies are additional proof as to the ultra-stability provided by the underlying blockchain

If a blockchain stores all data in a public ledger, doesn’t that come with a security risk? Isn’t private data exposed in a public ledger?

Firstly, not all data is stored on the public ledger. There are off ledger storage constructs as well as entire blockchains that are private (behind corporate firewalls).

The obvious question then is, how is that private data ‘verified’? For a blockchain to be ‘trustworthy’, it needs to be exposed to a network, which, using consensus, decides what is legit and what isn’t. If data on a chain is private, how do we reach this ‘network consensus’?

There are several innovative solutions and companies such as EverLedger have already solved this problem. Essentially, data is presented to the appropriate parties on a ‘need to know’ basis.

Doesn’t a blockchain need to talk to the outside (out of the blockchain) world ? How does it do that?

Not all data resides on a blockchain. Consider a based Experian (Credit background check), such as that promised by the startup, Bloom. In order to get your current credit history, it will still need to rely on existing, centralized databases. These databases are known as Oracles. In blockchain terminology, any external authority or source of record is known as an Oracle.

Augur, a popular forecasting cryptocurrency, relies on the existence of Oracles (external, unbiased reporters of truth).

Say, you and I place a bet on the outcome of the next Superbowl (Eagles anyone)?

Instead of betting in dollars, we each place our bet in Augurs. What odds, you might ask? With Augur, as bettors move money in and out of the pot, the odds adjust automatically. This yields publicly available statistics that should carry weight because they’re derived from the opinions of a crowd of people with a stake in the results (crowdstaking). Now, to figure out the actual outcome of the event, we would need an independent set of ‘reporters’ to report on who actually won.

We would not want to rely on anyone who already had a stake in the pool. This independent set of reporters would be the Oracles in this simple example.

What is a DAPP? What is an Enterprise DAPP? What programming platforms are available for Enterprise DAPP development?

A DAPP is simply a decentralized application. An enterprise DAPP is a DAPP that scales. One that can handle large transaction volumes and sizes. Think of a decentralized stock exchange (DEX), such as those being used to trade cryptocurrencies. These decentralized exchanges work very differently from regular stock exchanges such as Nasdaq. The trading is purely peer to peer – as in – anyone can place a sell order for a commodity (cryptocurrency) for a certain price – and you can decide whether you want to purchase it or not. The transaction, if it goes through, would be purely between you and the seller. There is no middleman, no transaction fee, no record on a centralized server. But there is a record in the blockchain. And it exists in everyone’s ledger – which means there is no way to dispute it.

There are already several such exchanges in existence – etherdelta.io being one of the more popular ones.

Blockchains do not have to be public, like the well known Bitcoin or Ethereum chains. Several companies are already developing their own private blockchains. Companies such as JP Morgan are building private chains which are an almost replica of existing, proven, public blockchains such as ethereum.

The reason companies can do this is because the tools and frameworks for building your own private blockchain have evolved considerably. The three leading frameworks today are Corda from R3, Hyperledger from Liux and Ethereum from the Core Ethereum development team. A good comparison of these can be found here.

I have heard the chain is immutable. Is that true?

By itself, the chain is not just NOT immutable, but highly mutable. Think about it. Instead of a single server – there are multiple nodes acting as servers.

Each node has the full right to submit transactions; which means, each node has the full ability to submit fraudulent (or simply incorrect) transactions.

This was one of the biggest challenges to the development of blockchain. The underlying blockchain software solves this problem of fraud and duplication in a variety of ways; the most common that you have probably heard of is ‘Proof of Work’. There are competing alternatives to proof-of-work; but the end goal is the same – ensure that no one can ‘spam flood’ the network with fraudulent transaction. And also ensure that no one can reverse or replace previous transactions with fraudulent ones.

It is safe to say that today’s leading public blockchains, including Bitcoin Core and Ethereum, are practically immutable. The effort it would take to mutate a single transaction (forget about an entire block of transactions), would require the electric power of a mid sized nation. In addition, though the initial releases of Bitcoin and Ethereum software had minor vulnerabilities (see ‘Can the blockchain be hacked’ below), not only were those caught and fixed, there hasn’t been a similar incident to date.

Can the blockchain be hacked?

Yes and no. After all, blockchain is software, and software can be hacked. While exchange hacks steal most of the publicity, blockchain hacks are not that uncommon. Two of the most famous blockchain implementations – bitcoin and ethereum – have both been hacked.

Bitcoin Protocol Hack – August 2010, Billions of additional bitcoin created; caught and remedied in record time, no harm done. All transactions that occurred in the interim were rolled back.

DAO (Ether attack) – June 2016. ($50 million worth Ethereum). Fixed with a fork that resulted in Ethereum Classic (the buggy blockchain) and Ethereum (the fixed blockchain).

As the underlying software (the core blockchain) matures, blockchain hacks are becoming harder and harder. Note that blockchain hacks are different from crypto exchange hacks; exchanges where crypto currencies are traded are notorious for getting hacked. The appendix at the end of this article provides a partial list of such exchange hacks (again, it is important to understand that even these exchanges have come a long way and the bigger exchanges such as Coinbase are pretty much hack-proof).

Industries (being turned upside down by Blockchain)
  1. Equity Markets – Nasdaq realized the need to do away with paper stock issued certificates. Through a project called Nasdaq LINQ, stocks are issued digitally and stored on a blockchain ledger.
  2. Real Estate – Digitization of Assets – Think about your land deed. It is a paper document. If you wanted to gift half your land to your son and the other half to your daughter, you would have to go through a complicated legal process, because the asset representing your land (the deed) was not digitized. If it were truly digitized, the entire land would be represented in binary (just like bitcoin), and you could simply send half a ‘landcoin’ to your son and half to your daughter. No other paperwork required! Such is the power of digitizing assets and storing them on the blockchain.
  3. Utilities – Power Generation and Distribution – Simens micro grid to turn rooftop solar panels into producers and
  4. Healthcare –
  5. Insurance
  6. Dating, Social Media and The Identity Problem fasfsa
  7. Finance and Currency Trading – Obviously, currency as we know it is undergoing a personality change. For those still on the fence about whether or not bitcoin constitutes a real currency, consider the following:
  • Microsoft, Expedia and several stores already accept bitcoin as payment
  • A soccer player recently preferred to be purchased in BTC instead of Euros

There are several other industries, far too many to list – including Farming and Agriculture (one of the biggest blockchain adopters), AI, Publishing (Copyright protection) – that are benefitting from decentralized trust based chains.

Entire Countries on Blockchain?

Smaller countries such as Estonia have adopted blockchain and crypto-currencies en-masses, to where, by some estimates, the majority of all transactions in Estonia use some form or the other of a blockchain. It has come to be known as the blockchain nation. Medical records, government contracts, real estate deeds – just about everything in Estonia happens on the blockchain.

If Blockchains so perfect, why are there so many variations of Bitcoin? Why develop Ethereum at all? Why develop LiteCoin? Why not just use the core Bitcoin software to develop all Blockchain projects?

Good question. The bitcoin system was designed to be slow, on purpose. So the system could not be flooded with transactions and so that the number of coins being generated could be controlled. You could never buy a cup of coffee with Bitcoin, since the transaction would take 10 minutes to go through. You couldn’t do it with Ethereum or LiteCoin either, though LiteCoin is far speedier than Bitcoin.

However, you could do it with Ripple, with Cardano and with Stellar Lumens. These are cryptocurrencies, also based on blockchains, which have microsecond transaction speeds.

Just like Bitcoin’s speed is an issue, Bitcoin’s privacy is somewhat of an issue. Instead of being completely anonymous, Bitcoin is pseudo anonymous. If a wallet suddenly buys or sells 10000 BTC, it is possible to trace that wallet address to ‘watch’ for when that same wallet makes similar large transactions.

Enter Monero. Instead of using your exact wallet address, Monero shuffles a group of wallet addresses, so no one can tell which one is yours. It is like – you and everyone else puts a $10 bill on the table, you shuffle all the bills – and everyone picks up a $10 bill. No one got cheated of their funds, yet, there is no way to tell which $10 came from which individual.

Basically, all the variations of Bitcoin software are focused on issues such as speed and privacy. There are many more real-world issues such as interaction with off chain data and integration with existing databases. But, you get the idea.

Summary

A lot of people are tired of hearing Blockchain this, Blockchain that – as if Blockchain will miraculously solve every major problem in the world today.

How can a technology so distributed in nature and so painstakingly slow, ever posit to be a panacea to the world’s problems?

The thing is, Blockchain’s evolution had little to do with technological problems. Existing technology platforms including centralized servers and databases are performant, reliable and scalable enough to handle most complex business processes.

Instead of technical challenges, blockchain evolved in an attempt to overcome ‘trust’ challenges within each industry. Witness the Enron scandal, the mortgage loan crisis, the demonetization of the Indian currency notes, the thriving ‘kick backs’ in just about every industry where people deal with other people.

Every financial meltdown can be traced back to trust being concentrated in a few key personnel or institutions (CEOs, AIG, Enron…), who betrayed that trust.

If trust were truly, well, trustworthy, perhaps we could avert such disasters.

Before we purchase an item on amazon, we review the average ratings from a myriad set of previous purchasers. Underlying this is the notion that a network of individuals is far more trustworthy than a single individual (or company).

The blockchain is no different; instead of relying on a single institution to be our source of trust, we prefer to rely on a network of nodes. In order for the network to be deceitful, over 50% of the nodes would have to turn rogue, just like, if over 50% of the reviewers on Amazon were ‘fake’, we could end up with a doctored product review.

So, to those still wondering if blockchain will revolutionize the world as we know it, it seems to be already doing that (see Appendix A – Blockchain tackling corruption). Perhaps on a larger scale than anyone imagined.

Appendix A – How Blockchain is Tackling Corruption

By eliminating potential middlemen, who are at the root of most corruption scandals, here are some ways in which Blockchain is reducing corruption.

  • The transit of goods and services, would be transparent and captured on the chain, so there couldn’t be any misuse
  • The flow of charity donations, development funds and other monies to third world countries can be traced all the way to the local, point of disbursal. There would not be a way for funds to be siphoned off, without being reflected in the underlying chain.
  • Campaign contributions for politicians could be traced to their original sources just by following the blockchain ledger. There couldn’t be a way to get ‘dark money’ or under the table transactions.
  • The sale of weaponry from one nation to another could be tracked. The passage of a weapon, from a manufacting facility in the U.S., all the way to Afghan rebels, could all be traced on an open blockchain ledger.

Appendix B – A chronological list of famous crypto exchange and ICO hacks

Mt. Gox Exchange Hack – March 2014 ($473 million worth BTC)

•BitStamp Exchange Hack– Jan 2015 ($5.1 million, 19,000 BTC), Employee’s were ‘phished’

•Bitfinex – Aug 2016 ($66 million, 120,000 BTC were stolen)

•CoinDash ICO – July 2017, Hacked the ICO website, alternating real address and fake (their own) Ethereum address to receive ether (in exchange for ICO tokens).

•BitConnect, EtherDelta and BitGrail have all had similar ‘incidents’

For an advanced Blockchain Cloud Presentation, contact Anuj

Anuj holds professional certifications in Google Cloud, AWS as well as certifications in Docker and App Performance Tools such as New Relic. He specializes in Cloud Security, Data Encryption and Container Technologies.

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