Quorum – JP Morgan’s permissioned implementation of Ethereum
github.com
github.com
Matt Levine, https://www.bloomberg.com/view/articles/2016-07-11/executive...
Can you explain how the property or "irreversibility" makes something easier to hack?
Why did they make a private ethereum?
- Because private blockchains are a solution to a network problem, unless everyone is working on something similar you end up back in the problem space we are in now where everyone is using different technologies
Why did they release it?
- It's a similar approach to what IBM is doing with Hyperledger, but producing and releasing the blockchain they're hoping to position themselves as the consultants that know everything about implementing this private blockchain.
Would someone mind explaining more specifically how private blockchains do anything that a traditional shared database or network doesn't already do? Without the incentives, distributed computing power, and public participation in a blockchain like Bitcoin, what does a private blockchain actually do?
If it's "private", does that imply that, like Ethereum, the blockchain could be forked at any time by those who claim ownership of it? Doesn't that essentially undermine the validity of many of the selling points associated with blockchain technology?
I've heard cases made about things like smart contracts, cryptographic authentication, and other "exciting applications", but I don't understand how these are any more effective in the context of a private blockchain than they would be directly relying on certain cryptographic primitives and traditional networks - especially in the absence of a public, globally distributed network with incentives that are aligned with improving the strength of the blockchain itself.
Proof of Work, public networks make most sense for low trust scenarios where you wish to move actual money with people you don't know or trust at all. There are other scenarios however.
A few examples:
Scenario 1: Large Banks eliminating middlemen and making settlement for more cost effective
Quoting from another comment I made:
> It takes some financial assets 3-5 days to settle after the initial transaction goes through, weaving its way through many database systems (some many decades old) and middlemen who each take a cut, e.g. clearing houses. Any established industry has lots of cruft that builds up.
> For this reason Santander estimates that banks can save $15-20bn per year collectively by using blockchain technologies to make their infrastructure more efficient[1][2]
[1] http://www.coindesk.com/santander-blockchain-tech-can-save-b...
[2] http://santanderinnoventures.com/fintech2/
From another comment:
> Since with a private banking settlement blockchain you know in advance who the players are (individually-invited banks) you can give them a percentage of the network and have each node verify the transactions across the network. You could even give nodes to regulators or consumer advocacy groups to achieve regulatory compliance or consumer oversight if required.
> As for cost, you could technically run a PoS node with a raspberry pi, a large USB drive, a wifi connection, powered by a solar panel and an old car battery on the roof of a building. Proof of stake only needs minimal computing power and a persistent internet connection.
Saving billions in costs at a time when banks are struggling to increase revenues is a powerful incentive to consider blockchains. You don't need a public blockchain because you know in advance who the players are.
Scenario 2: Streamlining KYC data, therefore improving data quality and massively reducing costs
I sat at a presentation where a startup outlined a product roadmap being offered to large financial institutions such as banks or insurance companies. A big problem is KYC data gathering- often the customer data goes stale, therefore data quality is poor, and it's expensive, costing about €200 per account to process.
In the proposed product, a private blockchain is implemented to gather and manage customer data, hosted collectively by the institutions that are interested in cost savings and efficiency improvements. The customer decides when, with who and how their data is managed - a big improvement over today. If you update your address for Bank A - then your insurance company, your second bank, etc all get your updated, verified address. If your car insurance is a 12 month contract, you can terminate access to your personal data after the contract is up. If you decide to get car insurance with a second company, you grant permission to that company, who then doesn't need to see any form of ID because your identity is cryptographically verified (technically they don't even need to know your name!)
The cost to gain access to the customer data is borne by the company getting access, a fee which they're happy to pay because it's vastly cheaper to pay that rather than gathering and securing customer data themselves, paying a company to verify your ID, and so on.
These are the early days of blockchain technology. There's lots of potential advantages of a distributed database over a SQL database, and we're only starting to figure out what those are, and what scenarios where is doesn't make sense.
Yes, but centralized databases are a solved problem. It doesn't take 3-5 days for Amazon to process an order, or for github to process a pull request. The problem is here:
> weaving its way through many database systems (some many decades old)
Right, so you could replace the entire thing with a single centralized database, and cut the processing time to ~0. And you wouldn't need to develop any new technology to do it.
> For this reason Santander estimates that banks can save $15-20bn per year collectively by using blockchain technologies to make their infrastructure more efficient
Assuming that is correct, that implies you could save even more money by using existing database technology. Right? What I'm looking for isn't an argument about why banks need to update their technology (they do), or why the existing system is almost unbelievably archaic and inefficient (it is).
What I'd like to know is why blockchains are the correct upgrade path when they appear to be strictly inferior to other existing technologies along the dimensions that banks are currently struggling with.
Of all the places blockchains make sense, an industry with universally used, completely trusted, and heavily regulated central clearing houses seems like the worst possible case. No?
True, the KYC makes slightly more sense. Even there I have to wonder though. If I was hired as the CTO for an industry consortium to design a secure way of allowing customers to store, manage, and share their PII, I can see a lot of potential problems, but none of them feel like something a blockchain would help solve.
Or to put it another way: How come Amazon never talks about using private blockchains to manage inventory or payments to their sellers? Wouldn't all the arguments in favor of blockchains among banks apply even more strongly to using them within Amazon?
It comes down to speed. We expect money to move as fast as information, but instead it moves like products.
In meat space it's OK to work with batched 30-60 day pay cycles.
But finance needs to move faster.
The complexity and cost is in verification. Electronic records have to be verified against paper records which have to be verified against records in other systems, which have to be compared between institutions. Additionally there are many instruments with varying characteristics, and all of it has to flow in real time.
It might be unsolvable without technological innovation like blockchain.
All current implementations of blockchain are inherently slower than more traditional approaches.
With the current state of the art[1], it takes several days to settle a transaction. In 2016, this is really not ideal.
> Right, so you could replace the entire thing with a single centralized database, and cut the processing time to ~0. And you wouldn't need to develop any new technology to do it.
I could think of several problems, mainly around trust. Who hosts it? How is access managed? A regular SQL database makes sense if it's within a single institution, because presumably you trust your own employees to enter trade data with the best of intentions, but this trust isn't there for external parties.
It's not the storage which is the issue, it's the verification. If you are (made up example) JP Morgan, and you've sold $500m in bonds to a mutual fund, both parties know for sure that everything went smoothly if their copy of the blockchain tells them that it went ahead (just like you know that your Bitcoin wallet contains x bitcoin, and if you send that balance to an address, that transaction is absolutely confirmed beyond doubt). The transaction and settlement happen at the same time, instead of a 3 day process which is the situation today (for stocks). They don't need an expensive, external authority to tell them that everything went smoothly, they can confirm it themselves much faster and cost effectively.
Here's a presentation by UBS, exploring possible use cases for what they call "smart bonds": https://www.youtube.com/watch?v=jgJxEHwj-XU (around 4:00 he speaks about the benefits of smart bonds)
> Of all the places blockchains make sense, an industry with universally used, completely trusted, and heavily regulated central clearing houses seems like the worst possible case. No?
I could be wrong, but I think what's being proposed with these private blockchains is that the central clearing houses' role would be reduced to being an arbitrator in the case of disputes between industry players, e.g. in a proof of stake network, the own enough % to confirm a transaction or roll it back (maybe their role is even eliminated entirely). Whether or not this actually happens will depend on legislation of course, not technology.
> Or to put it another way: How come Amazon never talks about using private blockchains to manage inventory or payments to their sellers? Wouldn't all the arguments in favor of blockchains among banks apply even more strongly to using them within Amazon?
Probably because Amazon is a hugely powerful entity, and it's sellers have no power to demand equal access to a shared database. All (most of?) the large, important transactions happen on an Amazon database, which isn't the case in the financial sector. Plus Amazon is a growing business, whereas in investment banking growing revenue is a huge struggle post-2008 with newer regulations so there is a rush to cut costs and inefficiencies.
Disclaimer: I'm not an expert, this is based on what others have told me, and research papers I've read.
[1] http://www.investopedia.com/terms/s/settlement_period.asp
And this is the problem that blockchain+proof-of-work solves so well.
Financial companies are however different beasts. They are not and do not want to be anonymous. While they don't fully trust each other, they do have significant trust in each other and they are typically regulated by a central authority. The blockchain-based solutions advocated by R3 seem to have a number of services that must be trusted by all participants, including time stamping.
Traditionally when coordination has been required between the banks (e.g. fast clearing solutions for retail banks), a new company is created that is joint owned by the members, and is therefore trusted enough by the members to run the centralized database.
To avoid the single-point of failure aspect you can run a distributed database across multiple nodes.
I still haven't heard a good explanation of why solutions like those aren't adequate.
That isn't what clearinghouses do in a legal/functional sense for participants.
I believe dperfect is asking why a blockchain is technically necessary for this. Why can't the large banks cut out the clearing houses by dealing with each other directly?
Is this really about the blockchain technology, or is it more about political cover to push for big changes in how business is done, eliminating legacy systems and killing some industries currently providing services to banks?
>> It takes some financial assets 3-5 days to settle
That 1-5 days to settle isn't due to slow and disconnected systems though, which is what many looking from a tech perspective believe. Most financial transactions are matched in settlement systems the same day they are traded. The 3-5 days is for prefunding of underlying accounts, tear ups and other asset class idiosyncratic reasons.
What does it mean to fake a transaction?
What does it mean to verify a transaction? With Bitcoin it's possible to do because the balances are public. But once you start making transactions private that deal not in value that exists on chain, but are merely promises for some externally held value, then who can verify its legitimacy?
By providing a common ledger that can be used when you desire single entry bookkeeping you don't necessarily need all the backchecking as you're using a smart contract to ensure upfront that when the money is settled the assets move.
There is little trust between organizations. Both from ethical and technical perspectives, I wouldn't trust anyone to run a central clearing database for anything. I spent 10 years in the finance industry, overconfidence caused by incompetence is the hallmark of engineers in finance.
Blockchain solves this problem by letting everyone participate in the infrastructure, and to violate the legal and ethical agreements, a majority of parties would need to collude.
This is not just "established" players however. This is something anyone that has ever transferred money via PayPal knows as well. A transfer can also take 3-5 days. And PayPal wasn't an entrenched player originally although you could argue now though that they are.
Its kind of absurd that an online transaction should take this long and this is with "known" parties on both sides of the transaction many times., i.e I transfer my buddy money to pay for a concert ticket.
What I have heard many times is that this is by design and these companies are merely playing the "float" with this artificially long turn around time.
I would be curious to hear anyones feedback/take on this.
As a Chase bank customer, I thought most of their software people were involved in banking software and online checking.
This is, basically, a crazy moonshot for my personal (if not giant) bank to make--investing time in crypto currency and block chain software development.
Except it has not worked... Not as a currency.
Instead, you're most likely to see it used as a fungible commodity that appreciates and encourages hoarding.
Bitcoin is working as a currency. You might not like, or been aware of it, but plenty of drugs users and criminals use bitcoin everyday. It works.
I've recently tried it out as a means of receiving payment for completely legitimate work. The client was in a different country. The contract was signed in USD. Client sends half at then exchange rate, which arrived very fast. After accepting the delivered work the client sends the other half, which was less BTC because the price went up by that point. But it didn't matter because the first half I was holding appreciated so it's all the same. Turned out one of my vendors likes Bitcoin so I used some of it to settle an outstanding bill with him, then sold the rest at an exchange. Opening that account for the company was a pain in the ass, though less painful that opening a typical brokerage account. I had to pay a fee to the exchange to sell and another fee for them to wire the funds to my bank. It was faster and cost less than a credit card. It was more expensive than a check, but way way way faster. It was cheaper than SWIFT overall, but a few dollars more expensive to me because I bore the costs of selling while the client only bore the tiny costs of the Bitcoin transaction fees. If the contract was for a much larger amount then SWIFT would have been better. For accounting purposes I'm just treating BTC as a foreign currency. I would accept it again, it's great to actually receive payment that fast.
The overwhelming majority use of bitcoin is speculation on Chinese exchanges - 95% of blockchain activity. Even drug users and ransomware are sideshows.
2. The amount of Futures contract in Okcoin is around $120million (that's not even capital, but the amount of leveraged futures). The total market cap of bitcoin is $12Bn which 100 times higher than that.
3. GBTC has a market cap of $190m with a 50% premium on bitcoin price. So clearly it's not only the chinese who drives the bitcoin price/economy.
edit: if you mean the drug usage as the next biggest: in 2014, darknet markets saw more use than all legitimate payment processors put together. https://www.usenix.org/conference/usenixsecurity15/technical...
No, I don't deal with drugs/criminal users.
Different. Similar, but different. It's an important difference too.
Bitcoin is all of those.
It's for this reason that the USCFTC ruled that Bitcoin is a commodity. So not because I say so; because the people whose job it is to say so, say so.
Are you suggesting that this aspiration is naive?
Now this is more a matter of dispute, but I wouldn’t say the hacker stole the funds. They simply followed the DAO contract (not the “smart-contract”, mind you, but the one put forward by the Slock.it team on their page), according to which everything that went on the blockchain according to the DAO code was legitimate.
Verification is Ethereum's Achille's heel. Everyone seems to trust that someone else will verify that the contracts they participate in will work securely as intended, and the DAO showed how well that works.
If Ethereum ever gets used as its proponents imagine, with multiple interacting contracts in progress at any given time, rolling back an error will not be nearly as easy as it was in the DAO case (and that was not particularly easy.)
As people begin to use Ethereum for real-world organizations, they will of course prefer to use popular, tested, verified implementations of these basic contract types.
I'm not sure what vision you refer to, but anyway, original visions aren't binding!
That worked out so well with the DAO. There was, of course, at least one person who did take the trouble to do his own investigation of its security ;-)
Perhaps you could point us to some verified implementations of these basic contract types (together with the arguments for their veracity, of course.)
For a weird definition of "democracy" where one person has 25% of the votes and the vote itself is badly/too quickly announced and organized to the point where almost no one votes. This doesn't even take into account the incredible amount of shitty actions or plain incompetence from the Ethereum Foundation guys at that time or since then.
A quick (tongue in cheek and quite partial in its tone, but also pretty accurate) recap of the events leading to the HF: https://medium.com/@WhalePanda/the-complete-story-of-ethereu...
I just believe that their actions basically destroyed any future that ETH (and likely ETC too) might've had - it's dead; if the initial hard fork wasn't enough to remove all credibility in the project, the circus since then (subsequent forks, attacks, incredibly mismanaged communication...) certainly is.
The rollback was (and still is) very controversial. It required the agreement of the large mining pools to support the fork, which they eventually agreed to. It wasn't quite as simple as "pressing a button".
Banks get hacked all the time, eat the loss, keep it quiet and move on, e.g. http://www.businessinsider.de/how-to-hack-a-bank-mikko-hyppo...
http://www.dataiq.co.uk/news/20141107/banks-keeping-quite-de...
Blockchain is a distributed ledger which can store _any_ information for all time. Contracts, fulfilments, ascii art, whatever.