Blockchain: A technical primer
www2.deloitte.com
www2.deloitte.com
I see this kind of explanation a lot. It's misleading at best. A block chain is most definitely not a ledger, as is claimed by too many sources to count.
A block chain is a tool allowing a group of users to produce a single, unique transaction log.
To this end, transactions are grouped into blocks. A block references two pieces of information: (1) its ordered list of transactions; and (2) its parent block. Two or more blocks may claim the same block as a parent. Therefore, a collection of blocks can be assembled into a tree with one or more children pointing to a parent.
Each user maintains its own copy of the tree. All paths through the tree are followed and scored. The path with the highest score is designated as the active chain.
The active chain is what many people think of when they use the term "Blockchain."
However, the structure of this chain is mostly boring and unremarkable. The most interesting thing about it are transactions. Like blocks, transactions link together. Additionally, transactions run programs that induce global state changes.
The secret sauce of "Blockchain" boils down to incentivizing each user to choose the same active chain in an adversarial environment. The best-tested procedure uses "proof-of-work."
If the relative order of events plays an important part in what you're trying to do, and you operate in an adversarial environment, then a block chain might help.
Otherwise, there's not much a block chain can do for you.
Journals and ledgers are where business transactions are recorded in an accounting system. In essence, detail-level information for individual transactions is stored in one of several possible journals, while the information in the journals is then summarized and transferred (or posted) to a ledger. The posting process may take place quite frequently, or could be as infrequent as the end of each reporting period. The information in the ledger is the highest level of information aggregation, from which trial balances and financial statements are produced.
https://www.accountingtools.com/articles/what-is-the-differe...
A ledger can be created from a journal (transaction log), but then again, many other kinds of things can be created from a transaction log (e.g., the "World Computer" idea for Ethereum).
This is then transferred into the ledger which is just a list of transactions. Exactly like a blockchain
The active chain is what many people think of when they use the term "Blockchain."
This is where many people falter when thinking about blockchain. When you tell them that their esoteric blockchain needs to ensure lowest possible latency between peers (nodes), they blank out. They had never heard of the terms fork or the highest amount of work (at least if the chain is secured via PoW).
As an example, in telecom there is the issue of settlement. Every phone call generates a Call Data Record (CDR) that has information about who called who, call length, etc. This is critical because every telco negotiates individual rates for voice, SMS, data roaming, etc. between every other carrier on earth (although often you negotiate with one company that provides a package rate for multiple telcos). Your "unlimited" plan obfuscates the fact that how you use your plan, what carriers the people you call are on, where you use data, reflect different levels of profitability for you as a customer.
Large companies like Amdocs[0] make billions of dollars handling settlement for telcos. Every month, a carrier has to "settle" all of their CDR's with every other carrier. Issues get sorted out because CDR's never match perfectly, and then carriers pay each other to balance out based on their contractual obligations.
A blockchain solution that all telcos agreed on would guarantee data correctness (CDR's all look alike), allow instant settlement and payment (settlement happens once a month), and eliminate the middlemen like Amdocs, Synchronoss, etc. in regards to settlement.
Obviously this is a tough problem to crack, and you'd need to get the telcos on board, but I am explaining this as an example where blockchain could provide real value.
Indeed, Maersk, the largest shipping conglomerate, is going to release a blockchain solution to move the international shipping industry away from paper and to a unified system.[1] Maersk is in a unique position to do this because they are the largest player, and most other companies just follow what they do, but I mention this as an example where blockchain can help competing companies interact more efficiently.
[1] https://www.economist.com/briefing/2018/04/26/the-global-log...
You have your choice of consensus algorithms. Most of the time when people say blockchain, they mean the public networks like bitcoin or ethereum. But if you move to a private, permissioned network model, you can use consensus algorithms that don’t need mining and have very high transaction speeds. This is the approach taken by IBM Blockchain (via the Linux Foundation’s open source hyperledger fabric project) and a few others.
Each participant has their own copy of the immutable ledger and world state.
Entries are cryptographically signed.
All interactions run through smart contracts (you can’t just insert/update).
You can form channels to engage in private transactions between a subset of the network, without divulging the existence of the transaction to the full network.
The value here (in addition to decentralized validation and consensus) is also in transparency and accountability, which disincentivizes fraud.
Or you could just say you don't know?
Ugh, there's really no need for that! I actually worked in telecom for years, including integrating cellular network gear with third-party billing and settlement systems (like Amdocs.)
Billing is hugely complicated and the third party systems cost in the millions of dollars in licensing and maintenance fees. They include thousands of rules to deal with the variety of scenarios (especially in conflict-resolution) that play out when peers settle with each other. The peers themselves work out large and complex legal contracts before they're encoded into these systems.
Yes, this is why they negotiate this stuff before the fact. Switches see different things all the time, especially when there are bugs, outages, or misconfigurations.
The lawyers come in when there is actual conflict, e.g., when fraud is suspected, or anything outside the terms of what was already negotiated.
The value of a blockchain here is that these rules (the prenegotiated ones) can be executed by verifiable smart contracts, instead of trusting a third party like Amdocs. If there is a real conflict, there will still be lawyers involved, but with the added advantage of an immutable public (to the federation) log. The bonus (which is yet to be proven) is that costs will be driven down significantly without the middleman.
Since all participants are operating with the same data store, you can flag these conflicts in real time. You might even have individual transactions to mark start and end times, such that conflicts like this become impossible.
You might escalate to human resolution. IBM Global Finance implemented a blockchain system for thousands of its business partners in order to help resolve invoicing and payment issues. By having a trusted single source of truth, the dispute resolution process was dramatically accelerated. I don’t recall the exact numbers, but they went from something like 90 days average resolution time to just 1-3 days. This resulted in reducing working capital needs by about ~$100m, thus saving a few million dollars per year just in interest charges.
However there are many scenarios where it would be infeasible to have a central party. A farmer grows an organic coffee bean in one country and it needs to get to a coffee shop in another country. There are multiple parties and industries involved: the farmer's supplier, the organic certification authorities, the trucking companies that transport the product between farmer/roaster/port/coffee shop, the foreign customs agency, the ocean shipping company, the numerous insurance companies involved, the domestic customs agency, the wholesale distributors, the coffee shops. Throw in the IoT sensors for measuring watering, pesticide use, transport climate, storage climate, and so on that report to the blockchain (which records out-of-tolerance conditions).
Let's say the consumer wants proof the product is organic, how would you do it? What if the beans arrive spoiled, who is responsible? How about if there is an accident, which of the insurance companies is responsible? Who do they pay? What if an outbreak of disease results from the coffee, how would you find the culprit?
The thing is, the world today works. We have records on paper, databases, and huge numbers of people involved in figuring out those questions (though some questions and business models are effectively impossible, like "What if the farmer wants to set the price for a cup of coffee, instead of selling to distributors, how would they do that?").
But these people don't talk to each other. What if there was a trusted business/industrial network of databases that could be integrated into business operations? What new business models, efficiencies, and products would that system enable? That is the promise of blockchain. Bitcoin and cryptocurrencies are silly toys by comparison.
Blockchain is in its infancy. By analogy, if blockchain were the internet, it would be at the stage of dialing into your local BBS by using an acoustic coupler. It is hard to imagine what the world will look like in 30-40 years when industrial/business uses of blockchain are advanced and pervasive.
Surely the executive is just using blockchain as a buzzword for database.
It's a lot of work, that's why.
When you have large industries with thousands of peering organizations all over the world, you can't just "trust" -- there is, in fact, no metric for trust and no ability to measure trust. That's why the middlemen exist.
This is especially true in finance, healthcare, and other industries where blockchains are being used.
And because there's distribution but also only a small number of semi-trusted peers, a "blockchain" would be efficient as it wouldn't have to be a proof of work, it would only need to be a signed "public" ledger (public in the sense that all companies can access and add to it). Don't think bitcoin, think a git repo with a bunch of committer signing all their commits.
Immutable garbage is still garbage.
Databases are perfectly compatible with any variety of authentication layers.
However, I think maybe you're missing one thing that is being proposed as a real thing - and that is, that blockchain has become like a distributed database - I mean, there are people proposing that they can be considered as the same kind of technology, or blockchain tech can be seen as an evolution supporting database technology.
I am still on the fence if I completely believe it, which is probably why I won't get rich building blockchain-based database technology or implementing it. But I think it is a valid consideration and we as technologists should look into what this model (blockchain as a kind of database technology) really represents.
It's another arrow in the architect's quiver, perhaps.
With a blockchain based system, what happens if two telcos send CDRs that don't match?
But there will always be transparency (even the bad CDRs will be logged) and accountability (you know who said what, so the incentive for fraud is significantly decreased.)
Also, let me know when we can fire our ops (finanace) and make billions more. Hope you guys appreciate how huge this would be, billions are spent daily to recon trades and positions. You mean to tell me some guy already figured it all out and all we have to do is write a wee bit of code.
Next we are going to get the Hasidic Jews on 5th ave to start using spreadsheets instead of little notebooks so they can price fix diamonds and settings faster.
While those are general rule in practice, it is a difficult task to pull off. The problem is not technical but rather due to people. There are tons of department in a company. And every time an input is made things change a little. It's due to human mistakes, software restrictions and lot more.
I haven't worked in teleco but here's an example on what goes wrong when data is recorded. Marketing will send out flyers to say 100 people. One of them is named ABC XYZ. This person is interested in a phone line from say AT&T.
When sales of AT&T take this up due to some problem, the name is recorded as ABC-XYZ ie with a hyphen. Now this data is human readable but doesn't make sense to a computer. So, when it comes to tallying up marketing and sales it doesn't work.
Now things get worse when a connection has been sold, the address field in sales might be smaller compared to a full fledged customer system. So, sales says address is "XYZ Street" whereas customer system says "SSS Boulervad, XYZ Street". And then this snowballs further.
To resolve this many companies try to implement a UCM - Unified Customer Management systems, a branch of MDM. But then there are people's ego, money considerations etc come in the way. So companies don't bother with it and go with settlement vendors.
Now, this is a similar situation when it comes to CDR. Different equipment means different sets of data, that's why they need a settlement company.
So, the problem is not a simple - middlemen eating money. There are lot of things going on.
If this were the case, wouldn't we see the technology in the wild more? That seems like a bold claim for something that is still being vetted and explored.
I certainly see value in blockchain but the applications that are using it today don't excite me. The hype puts me off but I am hoping to see it bloom into other areas of software that aren't ICOs or proof of concepts.
On the contrary, blockchain finds its activism among SQL-illiterate people, and certainly not the aforementioned groups. Mind that we're already a decade in.
Third parties have historically been pretty good at sussing out consensus from the two. Judicial systems, market exchanges, etc.
When you pay a middleman, you are literally paying for Trust-as-a-Service, among other things (brokerage, etc).
Blockchain also costs money to build and maintain as a service, but it's probably the fact that the enormous cost is socialized that makes it an easy pill for many to swallow.
And court cases are even more expensive.
With a SQL database, this is not an issue because SQL transactions can have constraints preventing said double spend.That is to say, the SQL database can take a lock on the row and ensure no other concurrent transaction modifies it in parallel.
Consensus solves a problem that only exists in a decentralized system.
Since SQL databases are centralized, that problem doesn't exist. Even for multi-master / distributed SQL variants, there's typically a way to wait for a write to commit across N nodes before going on, which solves the problem much more easily.
In short, I think your question makes no sense.
Um, there is still a middleman taking a cut with Satoshi's Glorious Blockchain. It's called transaction fees and they go to the miners who piss away small countries worth of electricity in order to validate a pathetically small number of transactions. You didn't think proof of work was free, right?
We're talking about private, permissioned blockchains.
I.e. "trusted". So what does this bring over existing consensus algorithms, besides the "blockchain" buzzword hype?
There is widespread experimention with blockchain technology by government, academia and industry.
For example, the majority of central banks are experimenting with blockchain/distributed-ledger technology:
https://qz.com/1083712/one-in-five-central-banks-say-they-wi...
NASA is researching using blockchain technology for spacecraft navigation:
https://www.uakron.edu/engineering/ECE/news-detail.dot?newsI...
"For example, two business parties transacting would not need to maintain their own record of the transaction and would use the blockchain as a single source of truth instead."
Ummmmmm...isn't the whole idea of blockchain that we all have a copy (our version of the truth) and a transaction is validated by several participants or miners? That's basically how we get rid of the middlemen? The sentence is clearly trying to convey that this is somehow more efficient than a current system based on a centralized authority, but there's no actual evidence that this is true.
Blockchain might bring efficiency to an industry like shipping that currently uses a VERY inefficient system, but it's disingenuous to tell others (especially if you are trying to sell something), that it is more efficient than a well implemented centralized system.
Audibly sighing. read this: https://shkspr.mobi/blog/2018/06/how-i-became-leonardo-da-vi...
It's the internet of shit in crypto, all over again. Come on. There's nothing like 50% of the swarm simply declaring your transactions null and void, but that's obviously how the blockchain is currently operating for some ... uh, criminal reason.
I guess this counts as "technical" to people at Deloitte.