What is a blockchain good for and bad for specifically?


#1

What’s the real value proposition of a blockchain? This is something I’ve been scratching my head over for the past year. A blockchain is a specialized database- it’s slow and expensive and shared. But why would you ever prefer something slow and expensive? When trust is required. For really sensitive information that you don’t want to take someone’s word on, a blockchain is great. Another way to think about this is where ever this a high incentive to counterfeit information, an application of blockchain would be perfect. Information such as money, health records, ballots. You have a high incentive to create counterfeit money because it’s like free money. It’s like creating money out of thin air. A blockchain is great because it makes everyone have a copy of the record. Blockchains get a lot of criticism for lagging performance wise, but Nick Szabo argues that blockchains make up for what they lack in tech scalability through social scalability.

I think blockchain based systems should be used for

  • public goods (money, ballots, search engine, etc.) - make something unturnoffable, uncensorable, unmutable, etc.

  • networks- align incentives for a network of people through a token and incentive structures.

  • “unmonetizable” software - launch a cryptonetwork with built-in incentives that rewards the early adopters and strongest supporters. (Bitcoin, Ethereum, etc.) We now have a mechanism for unmonetizable ideas of “web 2.0” to get funded and monetized.


AMA with Patri Friedman
#2

A blockchain is a replicated state log — in other words, a log that a set of computers maintain a copy of. This log start with a state of 0, and every time a transaction happens, the state of the log updates to some new value. Every computer must collectively come together and agree on this value and maintain a consistent copy of this log and all of its history.

The “consensus engine” for a blockchain is what ensures that this log stays consistent across every computer. We never want multiple versions of the log — that would be bad because then we wouldn’t know what the latest accurate version is — i.e. the truth.

The magic of the blockchain consensus engine is that it is completely “decentralized” — meaning that no single person or company is responsible for maintaining the latest accurate version of this log — instead, it is the collective responsibility of everyone to maintain it together. Each computer in the network simply follows the rules defined by the consensus engine and the outcome is a log that is accurately represented across every computer in the network. Anyone from anywhere in the world can look at this log and know the truth.

What can we do with a decentralized log that is guaranteed to be accurate and truthful? In the broadest sense, we can store ANY type of “state”.

Now the next question is, what type of state is most useful to manage in a blockchain rather than a closed-off central database?

Simple: any asset or data that you want ownership and autonomy over, rather than a central party owning it. Data where you want to know exactly how it’s calculated, stored, updated, and most importantly, used.

The most obvious is money. Bitcoin, for example, is a way to manage your digital money such that your ownership is protected by the thousands of computers as opposed to a centralized system (e.g. a bank or the government) that can be hacked, corrupt, or simply change its rules (e.g. fees and taxes) without your consent.

Another example is your credit score. If you can define the rules for a credit score and use the blockchain to calculate, validate, update and share your credit score, then you no longer have to be privy to evil companies like Experian or Equifax who have complete control over your financial credibility.


#3

In the era of fake news, I think a blockchain is good for:
Narrow the gap in the information (based on trustless mechanism, peer to peer network, and voting like Wiki). Because we can not solve the problem if we have wrong knowledge in the first place. After that, everything will appear step by step following the time.


#4

I’m not an expert (Baby Steps Beginner) and this thread made me ponder if complete Immutability could be a risk or cause transaction friction / cost to the assets & data on the Blockchain.

https://www.accenture.com/us-en/insight-editing-uneditable-blockchain

These concerns could at a practical level, make money or other liquid assets less Blockchain friendly? they could increase transaction friction / cost significantly for assets whose liquidity features are paramount?

Just curious :slight_smile:


#5

Great doubt.

A blockchain is a forward-moving list. A list of transactions that can only be added to, not deleted or subtracted (at at least very hard to). Immutability is the property of a blockchain that makes it forward-moving. It is what makes it hard to reverse transactions, censor transactions, counterfeit transactions. Transaction friction is the friction that makes it hard to perform a transaction. I get what you’re saying when you say transaction friction could come from immutability but if that were the really the case, then the blockchain wouldn’t be able to record anything. The transactional friction is a serious problem but doesn’t come from the immutability of a blockchain but from other sources- like the UX of the app or wallet, transaction fees, etc.

Hope that gives some clarity. If anyone else has a better explanation, feel free to jump in.


#6

Interesting perspective. However, I disagree with that article.

In the Bitcoin whitepaper, Satoshi highlighted the non-reversibility of transactions very explicitly. That IS the point:

Commerce on the Internet has come to rely almost exclusively on financial institutions serving as
trusted third parties to process electronic payments. While the system works well enough for
most transactions, it still suffers from the inherent weaknesses of the trust based model.
Completely non-reversible transactions are not really possible, since financial institutions cannot
avoid mediating disputes. The cost of mediation increases transaction costs, limiting the
minimum practical transaction size and cutting off the possibility for small casual transactions,
and there is a broader cost in the loss of ability to make non-reversible payments for nonreversible
services. With the possibility of reversal, the need for trust spreads. Merchants must
be wary of their customers, hassling them for more information than they would otherwise need.
A certain percentage of fraud is accepted as unavoidable. These costs and payment uncertainties
can be avoided in person by using physical currency, but no mechanism exists to make payments
over a communications channel without a trusted party.

What is needed is an electronic payment system based on cryptographic proof instead of trust,
allowing any two willing parties to transact directly with each other without the need for a trusted
third party. Transactions that are computationally impractical to reverse would protect sellers
from fraud, and routine escrow mechanisms could easily be implemented to protect buyers.

The fallacy in that article you linked is many-fold:

  1. It assumes we could/should use blockchain for everything. For example, the article says regulations like GDPR is a reason we don’t want immutability. As Satoshi clearly outlined in the Bitcoin whitepaper, we should not be using the blockchain for everything. The blockchain should only be used for transactions that are meant to be non-reversible.

  2. The article also mentions operational errors as a reason to not want immutability. But this is a temporary issue as the protocol is still in development and very unstable. We shouldn’t expect operational errors to happen after the protocol is more stable.

  3. The article says data storage needs is another reason to do not want immutability. But we shouldn’t be using the blockchain like a regular database in the first place. Only store the records we want immutable and do everything else in layer 2. Moreover, many people are working on scalability solutions so this feels like a non-issue in the long run.

Hope this helps @Godlvian :slight_smile:


#7

i think the pretty highlighted one good use case is , “International payments” . They could benefit in terms of service, transparency and efficiency.
Also i think before using a blockchain , it has to be checked if there is even a need of decentralised database . The cost of maintaining the data and verifying transactions is exponentially higher when compared to a traditional database. This might introduce some overhead development and maintenance cost.
And by no means i am an expert. I am very much a beginner in this field and interested in learning new stuff about it .


#8

In object oriented programming is encapsulation of computational state chained together via linked list. Blockchain definition diverge quite a bit from stakeholder because of it contextual evolution to the point that even law maker push for a blockchain definition at the congress. In reality what matter for blockchain conception is to have the genesis block that links reflexively subsequent states together, the chain modularization have to be reflexive with the service provided. For short a blockchain is a reflexive database, for the whole stack I use the term (modealization) = model + deal + globalization.


#9

Energy sector companies are exploring the use of blockchain (distributed ledgers) for a a couple of use cases:

  1. To create a market for peer-to-peer electricity trading. Here, blockchain is used to store information regarding transactions between consumers and prosumers of electricity. Say I have solar panels on my roof. I’ve generated solar power, some of which i’ll want to sell to my neighbors. A blockchain-based platform allows me to sell a unit of energy to my neighbor in exchange for tokens. The blockchain platform would would include as form of cryptocurrency, as mentioned above, but also serve as a shared database so that my neighbor and I can both access details of the transaction (i.e., units of energy sold, how much, time of transaction, source of energy, peak hour usage vs. off-peak hour usage).

  2. Oil and Gas companies are also exploring the use of blockchain to coordinate between multiple stakeholders as a unit of crude oil moves from upstream (i.e., where oil is extracted) to midstream (i.e., where crude oil gets processed) to downstream (i.e., consumed by end users). Many companies are involved in this process, across multiple geographic borders/jurisdiction. An exporting company and an importing company will both involve their respective banks to draft up a letter of credit / bill of lading as they buy and sell oil across borders (because they inherently do not trust each other, so they get their banks involved). The current process is paper-heavy, manual labor intensive, results in duplication of efforts and is highly inefficient and costly.

Blockchain can streamline much of this process by serving as a “shared” database so all the required information can be accessed by parties involved in the transaction. Here, blockchain could be used to optimize an existing process.

I should note, these efforts are ongoing, consortiums have been formed, pilots are implemented, not quite ready for prime-time just yet (enterprise deployment and production), but soon.


#10

You’re spot on in that one of the benefits of blockchain for more traditional industries like Oil or Energy or Financial services is that a shared database helps minimizes the coordination costs across the different players up and down the chain, and eliminates the need for the middlemen that act as coordinators but are grossly opaque and inefficient.

None the less, getting the different players across the supply chain to move from the existing status quo to a new one is not something that will happen overnight. I’m hopeful that there will be a few leaders in the space who serve as the catalysts for it, though.


#11

I could see Blockchain technology used for healthcare and financial transactions as a revolution in the digital world. It my not just be limited to social media of public data. It’s still yet to be streamlined on how to make it scalable for large network grids when lot more companies started using this technology.

I work for semiconductor manufacturing company with manufacturing locations globally. I think this technology is going to be very helpful in managing the product engineering drawings & other product related data more securely as this is a key asset of the company.

Lot of companies are currently switching to cloud operations from traditional databases. The next wave should be moving to the Blockchain.


#12

Blockchain can be a way to solve the issue of data silos. Data silos occur because data are held in the centralized server. Imagine HSBC’s Asian database do not automatically connect with that of its London office.

Reconciling these data silos together is a time-consuming and costly process. Since all forms of data in the world are evolving and becoming more interconnected, blockchain is capable to improve efficiency as data could be shared and connected in real-time. This synchronization of data updates creates a world of frictionless commerce.


#13

i mentioned this in another thread, only because i just learned about it, and am extremely fascinated by it! i love how blockchain can aid refugees with many of their needs, that i never really put much attention to before.

  1. their documentation. after refugees flee from their country of origin, what happens to all their documentation? i.e. birth certificate, marriage license, etc?
    with blockchain their is a solution! having this technology will enable refugees to have their information stored on this publicly distributed ledger, and the data can’t be forged.

more information regarding this is found: refugees and blockchain


#14

To me, blockchain represents the third major shift in digital technology.

First, we had the computer which taught us how to store and process data and information.
Second, we had the internet - which taught us how to transfer information between any two+ people or entities, without permission.
Now, we have blockchain - which is teaching us how to transfer value between any two+ people or entities, without permission.

While of course we can explain the internet as packets of data moving through tubes underneath the sea - that doesn’t capture why the internet is so profound. The internet changed the world because it collapsed time and space with respect to information – suddenly anyone, anywhere on this Earth could share ideas, content, words. In essence, we could form communities.

While we can explain blockchain as a cryptographically backed, immutable, replicated state log with consensus mechanisms (it is) - that doesn’t capture why blockchain is revolutionary. Blockchain stores and transfers information too, but it is changing the world because it is collapsing time and space with respect to value – suddenly anyone, anywhere on this Earth can create stores of and transfer value - dollars that can’t be censored, votes that can’t be tampered with, medical information that can be shared between hospitals, skill certificates that aren’t destroyed as you flea war-torn Syria. In essence, we can form whole economies.

Of course, all of this still needs to be proven - this is just my two cents! Happy to be here to support this fascinating community dedicated to creating an economy around critical thinking and fact checking :slightly_smiling_face:


#15

In some situations knowing the truth is not enough. There must be some institution to enforce the outcome based on this true state. (Not related to crypto-but related to truth; Everybody knows the crown price of SA has ordered the killing of Jamal K., but nobody acts on punishing him)

Who, in the real world, is going to act and enforce a situation if some dispute arises between two parties in the crypto world? Even if this dispute is unfair, and one of the parties is openly against the truth.