Blockchain, not Bitcoin?

2017 was the year of old dudes getting on TV and regurgitating the same line: “Bitcoin is a fad, a bubble, akin to tulips. Now the underlying blockchain technology on the other hand, that’s going to be something!”

Today we’re going to look into some other blockchain implementations by alt-coins and private companies. We’ll dispel some common misconceptions about Bitcoin and everyone’s favorite phrase, “Blockchain Technology”.

What is a Blockchain?

If you’re a bitconsult reader, you’re likely familiar with the concept of the blockchain as we’ve explained it thoroughly in our mining and fork articles. But here’s a quick review. A blockchain is simply a public record of transactions. Every few minutes a block is created, filled with new transactions, and then linked cryptographically to the previous published block. This creates an uninterrupted chain of blocks, publicly displaying all transactions that have been recorded on the network.

The first blockchain was conceptualized in 2008 by Satoshi Nakamoto, and implemented as Bitcoin. On the surface the concept of a blockchain may seem simple, but the power is in the details.

Storing the Blockchain

The entire history of Bitcoin, including all transactions since the first (genesis) block, is accessible for anyone to see. There are even websites that conveniently format and display the Bitcoin blockchain and provide easy access to Bitcoin data. Many Bitcoin wallets also store the entire history of the Bitcoin blockchain and are constantly updating to include new blocks as they are added to the blockchain. Wallets that store the full blockchain and also perform other important functions (which we’ll explain later) are called full nodes. One popular full node is Bitcoin Core, which can be downloaded at Bitcoin.org.

The Bitcoin Core wallet is open source, meaning anyone can view the code and tweak it to suit their needs. Bitcoin Core is also considered the reference implementation for Bitcoin, meaning it is the standard that most people choose to utilize. Bitcoin core operates as an open contributor model where anyone is welcome to contribute towards development in the form of peer review, testing and patches. While there are only a couple maintainers who can edit Bitcoin Core’s Github repository, over 400 people have contributed changes to Bitcoin Core.

Most Bitcoin nodes use some version of the core implementation (referred to as “Satoshi”), as shown by Bitnodes. However, there are a handful of other implementations used.

Anyone with an internet connection and 60 GB of hard drive space can run a full node and store a full copy of the Bitcoin blockchain. Nodes also serve other important functions. Nodes verify that Bitcoin are not double-spent, which is why they need a full history of the blockchain. In addition, nodes make sure transactions are valid, meaning that they meet the following criteria (and many others):

The transactions syntax and data structure are correct

Transactions are greater than or equal to 100 bytes

For each input, the referenced output exists and has not already been spent

Full nodes also agree to follow the longest valid blockchain. In short, nodes are key to ensuring that the rules of Bitcoin are enforced, and that all Bitcoin users are in agreement on the history of Bitcoin transactions, current balances etc. If a few nodes decide to team up and act maliciously, playing by a different set of rules, they will be outnumbered by the majority of honest nodes, which enforce the Bitcoin consensus rules and extend the longest valid blockchain.

Every node on the Bitcoin network is equal. There are no special nodes with special privileges. This helps ensure that transaction and block validation is decentralized, and spread across all users that run a full node. Running a node is easy, and can be done almost anywhere in the world on a consumer PC. There are over 11,000 Bitcoin nodes throughout the world, and developers are constantly working to lower the requirements for running full nodes in order to get more users from around the world to participate.

The key takeaway here is that Bitcoin nodes are cheap and easy to run, which has helped spur worldwide adoption. Bitcoin nodes are run around the world by users of all different cultures, income levels and interests. The Bitcoin code is open source, and users can run different full node implementations or even older versions of the reference implementation. No single node has oversized power, and there is no central authority that can change the Bitcoin code and force nodes to update.

Alternative Cyrptocurrencies

There are many other digital currencies (altcoins) that are attempting to compete with Bitcoin. Many of these altcoins are programmable or have very fast and cheap transactions. While some altcoins have multiple node implementations and decent centralization, some are very centralized. It’s important to take a good, hard look at some of these alts and determine if they are decentralized networks.

Bitcoin Cash

Bitcoin cash is a fork of Bitcoin that allows for blocks larger than 1 MB, and does not include the Segregated Witness (SegWit) feature added by Bitcoin in August 2017. Since Bitcoin Cash shares much of the same code as Bitcoin, it is considered a reliable, secure blockchain. Bitcoin Cash’s larger blocks also allow more transactions per block, which helps to reduce fees.

Bitcoin Cash has been criticized as being too centralized. Let’s explore some of the attributes of Bitcoin Cash and the impacts that these attributes have on centralization.

Software Changes

Bitcoin Cash has been criticized for a key software change in November that modified the mining difficulty adjustment algorithm (DAA). It was clear that the DAA needed to be changed, but Bitcoin Cash’s lead developer Amaury Sechet merged the change into Bitcoin Cash’s reference implementation (Bitcoin ABC) and gave users little time to update. This was a hard fork change, meaning that if users did not update to the newest Bitcoin ABC node, they would be using difference consensus rules, and hence operating on a different blockchain (now comically known as Bitcoin Clashic).

The problem here is that the merge was quickly implemented, seemingly at the will of a single developer. Compare this to changes to Bitcoin Core, which roll out slowly, go through extensive Peer Review, and are designed as “soft forks”, so users are not forced to update their clients.

Leadership

Many altcoins were created by a publicly-known person, or group of people. Ethereum’s creator, Vitalik Buterin, is hugely influential on the Ethereum project. While having a known leader has its perks, it is also a centralizing aspect. Changes suggested by the coin’s creator typically carry a lot of weight, and can strongly influence the future of the digital currency. Knowing this, Litecoin’s creator Charlie Lee recently sold all of his Litecoin in order to avoid potential conflicts of interest.

Bitcoin was created by a person, or group of people, under the pseudonym Satoshi Nakamoto. Satoshi stepped aside from Bitcoin and stopped managing Bitcoin’s code early in the project. Satoshi has not sent a Bitcoin transaction in years, and many people wonder if he/she will ever resurface. Having an unknown and detached leader also has its pros and cons. With no leader, there is no central entity to promote Bitcoin or lay out a definitive development roadmap. It instead forces changes to rise organically out of the Bitcoin community.

Bitcoin Cash, on the other hand, has a handful of very public figures. Roger Ver is an outspoken proponent of Bitcoin Cash who also happens to own the coveted Bitcoin.com. Over the past few weeks, Ver has been very vocal about his support for Bitcoin Cash and his dislike of Bitcoin. While this in itself is not centralization, Ver has straddled the lines of serving as the Bitcoin Cash leader, particularly when he states that he is the “CEO” of Bitcoin.com. Rick Falkvinge also curiously refers to himself as the “CEO” of Bitcoin Cash.

To be fair, Bitcoin Cash does a better job at decentralization that most altcoins, and has benefitted in terms of adoption and awareness by having strong leaders like Ver spreading the word about the coin. Although the DAA merge on Bitcoin ABC is very troubling, it appears that Bitcoin Cash is maturing, with more node implementations being introduced. There are many more worrying altcoins, and even worse, enterprise blockchains.

Ripple

Ripple and its native currency XRP have grabbed headlines as of late with a meteoric price rise. Many believe that XRP is the solution that will fix slow bank transfers, and Ripple has been working with banks to help bring their money transfer processes into the 21st century. Ripple boasts an impressive number of transactions per second, as seen below.

However, many cryptocurrency enthusiasts are quick to point out that Ripple is a centralized solution.

Ripple Consensus

Cypherpunk Peter Todd published a critique of Ripple and its global consensus mechanism. The XRP network has an extremely high centralization of validators, and a relatively small number of validators need to be compromised for a successful attack, which could invalidate previously valid transactions. Most validators are also running the exact same software, making it likely for backdoor/exploit attacks to successfully exfiltrate secret keys.

Ripple has argued that public validators are available, and many proponents argue that XRP is not as centralized as Peter Todd puts forward. However, in addition to the consensus mechanism, there are other worrying characteristics of Ripple.

Ripple Supply

A new Bitcoin block is mined every 10 minutes or so, and the miner is rewarded with 12.5 BTC. This is how the Bitcoin supply is maintained. There are currently 16.7 Million BTC in circulation, and there will be a maximum of 21 Million BTC fully mined by the year 2140. In contrast, Ripple’s XRP are pre-mined. There are currently 38.8 Billion XRP in circulation, and a mind-blowing 99 Billion in total supply. Ripple, the company owns 61% of the current supply. While Ripple has promised to lock up some of the supply, they can ultimately release the XRP as they please, potentially in reduced-cost batches to banks or private investors.

Cofounder and former CEO Chris Larsen has 5.19 Billion XRP in his personal holdings, pushing his net worth to over $15 Billion at current XRP valuations. Mr. Larsen’s supply hitting the XRP market could have a huge impact on the price. And, unlike publicly traded stocks, there are no laws in place to prevent insiders dumping coins. In fact, XRP has had a history of price/volume manipulation with former XRP developer Jed McCaleb rushing to dump much of his XRP holdings by manipulating XRP trade volume. XRP saw volume spikes and flash crashes as the price per XRP swung wildly during Jed’s pump and dump.

Ripple has some worrying characteristics, but it still shows some of the attributes of a decentralized cryptocurrency. However the absence of mining affects much more than XRP supply, it affects network security.

Mining and Security

As explained in our mining post, Bitcoin transactions are secure due to the massive amount of computing power dedicated to Bitcoin mining. If an attacker wants to change Bitcoin’s history, they have to control the largest super computer in the world to rewrite the most recent blocks. Rewriting blocks over 30 minutes old becomes nearly impossible. Ripple, and many other cryptocurrencies, do not use this type of Proof-of-Work (PoW) mining to secure their networks. Ripple’s consensus mechanism, as well as many proof-of-Stake (PoS) systems utilize nascent, unproven techniques to secure their network. However, even other PoW coins are less secure than Bitcoin, because they have only a tiny fraction of Bitcoin’s hashing power. This means a small percentage of Bitcoin miners can spin off from Bitcoin and attack an alt-coin by controlling over 51% of that coin’s hashpower. There are ways around this by utilizing algorithms that are ASIC-resistant, but this holds true for most cases.

Enterprise Blockchains

It’s become trendy to state that blockchain is here to stay, and that companies will utilize blockchain in many powerful ways. While this is true, many enterprise blockchain solutions are nothing more than centralized servers that help some companies improve their operations.

Baked into the word blockchain is the idea that consensus is determined by decentralized, equally-weighted nodes. These nodes must be geographically and economically diverse to prevent centralized attacks. In addition, a blockchain is only useful if it is immutable, meaning transactions cannot be frozen or reversed by a central entity or coordinated attack.

Any business blockchain implementation that utilizes PoW would have much less hashpower than the Bitcoin network, and would therefore be less secure. Many “blockchains” touted by IBM and banks also propose using nodes that are run by the company itself. This in effect is a private, centrally controlled system, more akin to a company’s “intranet” than the world-wide “internet”.

A more interesting, semi-decentralized blockchain could be an industry-wide network. This could be particularly interesting for something like the healthcare industry. If independent, competing hospitals and insurance companies all run separate validating nodes, a trustless system could be created to transact medical records in a secure manner.

Conclusion

There’s a lot of excitement over enterprise blockchain solutions and centralized blockchains. While these systems can serve some specific purposes well, it is important to separate those solutions from Bitcoin. Bitcoin is the distributed, secure, world-wide ledger that provides sound money. This money cannot be frozen, and transactions cannot be reversed by a central entity. Bitcoin transactions are immutable, which means that transactions are cemented in history, and cannot be altered. Immutable transactions and distributed consensus are the key attributes of blockchain, not speedy or cheap transactions.

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