“Blockchain scream”​ by Satoshi Munch & AI-enhanced blockchain technology

The term “blockchain” has acquired so many meanings — with some of them even being contrary to each other — that it became obvious even to the former biggest proponents of enterprise blockchains states that something is intrinsically wrong with them.

I have already covered the topic of “blockchain” term misuse a few times — for instance in the recent article “Blockchain or the Modern Frankenstein”. However, with the new wave of blockchain critics (it become so popular last days!) it is really important to separate flies from cutlets. So what is going wrong with the recently hyped industry and how it can be fixed?

First, there is no such thing as a generic “blockchain technology”. “Block chain” were just a two words (not even a term yet) used in the original work of Satoshi Nakamoto describing actually a Bitcoin technology. It was just a way of naming a sequence of transactions batched into blocks which can be ordered with a particular algorithm of consensus.

However, some “big tech & finance guys” didn’t like the idea of cryptocurrency. As well as PoW consensus. So they decided to invent some spherical horse in vacuum by taking two words out of a context or even a technical logic — and to create a quasi-technology out from a thin air. But it was void in such a way, that even a decade after every and each enterprise trying to innovate on “blockchain” all that is happening is the re-invention of something that was known a long time ago. It is the bottom line that (a) such a “blockchain” is just a distributed database without any advantages comparing to other distributed databases existing decades before and (b) all business benefits are coming down to simple digitalization of business processes. But the hype was going by its own way, and it became a “new black” to call digitalization of enterprise business processes “blockchain”. Until the hype burned down…

However, a lot of nice and cool ideas have appeared on the fields of the hype — and even much before it! Being unnoticed or intermixed into a centipede which forgets how to move its own legs in accord they are still valid and of a great importance. So let us re-iterate on some of them and put the things into their place where they can work in an efficient way on the real business cases.

Bitcoin as inalienable, un-censorable, un-inflationary digital store of value. Meaning “money”. Real money, hard money, sound money — not like the state-controlled ones. Money in a way they are existed during the whole history of humanity (except a last couple of decades) — but in a digital form. They have nothing to do with an abstract “blockchain”: they are all about PoW consensus protocol and UTXO balances — as well as about “Layer 2” payment channels (Lightning network) which while having nothing to do with a “blockchain” are still able to bring privacy, scalability and fungibility to the table — properties, that can’t be found in the “blockchain” itself. Decentralization, literally meaning “removing single points of failure”. Or, as was pointed by my colleague Olga Ukolova, “multicentralization”, meaning replacement of the single centre with multiple independent, peer-to-peer, sovereign centres. It does not require some particular “blockchain technology”! Yes, Bitcoin is decentralized, but not because of how it batches its transactions into blocks! It is decentralized because of its consensus protocol, because of its decision making and software development process based on “off-chain” (i.e. “outside of blockchain”) meritocracy, because of all the people running full nodes of the network. All of which has nothing to do with the blockchain — because decentralization has nothing to do with a “blockchain technology”. Moreover, most of the blockchain projects — especially enterprise one — were so much centralized that “blockchain” gradually becomes a surname of centralization hypocrisy. At the same time outside of blockchain a number of truly decentralized technology existed even before bitcoin and were created after: Web of Trust, Bittorrent, TOR, VPN, IPFS, Lightning Network… So decentralization != blockchain, and event decentralization ∉ blockchain, as well as “blockchain” ∉ decentralization. Basically, they have nothing in common, as of today. Smart contracts. The idea of smart contracts — i.e. agreements executed/enforced in an automatic way, not requiring any intermediary — was originally proposed by Nick Szabo in 1996, much before Bitcoin appeared. The idea is nice, and Bitcoin has implemented a limited logic for smart contracts using Bitcoin Script. If you ever set up multi-signature wallet or tried Lightning network, then you are a user of smart contracts. However, at some point, some got a “clever idea” of universally-flexible smart contracts (“Turing complete”). The idea was cut off by the Bitcoin community — however, the brave inventors went further and decided to do their own “cryptocurrency” and launched a first ICO — a mother of all ICOs. After successful fundraising, it was followed with a euphoric ICO of The DAO — where the danger of Turing-complete smart contracts was really painfully felt for the very first time. But not the last time: a lot of hacks were followed, leading to unseen thefts, losses of value and so on… But anyway, notwithstanding whether smart contracts should be Turing-complete or not, it’s quite clear that they have no direct relation to the idea of “blockchain” as a way of packing transactions into the blocks leaving everything else outside of the equation. Commoditization of funding — or de-regulation of investments — or making individuals sovereign in their financial behavior — while keeping their skin in the game. Which quickly became an ICO hype with subsequent fault — because the people were deceived by scammers since they were lacking a “natural immunity” against them — after a century of inability to invest directly with all financial market regulations and “protection of investors” coming from the government. So the idea of “let's make money on investments into bleeding-edge blockchain tech” have taken all rationality out. However, the only property of free investment decisions outside of the centralized control was not coming from blockchain anyhow — and was not related to it either: it was all about censorship-resistance of cryptocurrencies. And now, when regulators have found their way to regulate this market (i.e. censor funding), no blockchain can help people from being censored. Tokenization. That’s a really tough topic! It is again the mixture of different, independent and even controversial topics — like ICO which become the main reason for the tokenization; smart contracts as a means of it and “tokenomics” as some economical ideas behind the process. But the sad truth is that each of them is being misinterpreted so much, that “tokens” mostly become s sweating word, meaning practically everything, from securities to digital assets. In fact, with the recent SEC developments “token” became a euphemism for “being guilty in financial crime”. However, none of those meanings has nothing to do with blockchain itself. Still, there is a lot of potential use for tokenizations, and practically all of the projects miss these points. First, it is a nice cost-saving approach because to digitalization of physical assets — however, it have nothing to do with decentralization per se (assets usually have a centralized issuer etc). Second, it could potentially become a nice solution for the alignment of economical incentives in complex multiparty economic systems — the topic being poorly explored by the most of the projects except the few ones (prediction markets like Hivemind, Augur or the one we are doing in Pandora Boxchain for an AI computing). Once again, none of these applications has nothing to do with the blockchain as a technology — other than they may require some bottom layer of tech that will guaranty the agreement in a peer-to-peer network on the state of the system. Such agreement is a property of consensus protocols, which are being frequently confused and associated with blockchain, which is not the case: blockchain may be one of the data structures playing purely utility role in consensus protocol, not being crucial to it. Cryptographic technologies for maintaining privacy, or zero-knowledge tech. zk-SNARKs, zk-STARKs are among them — but not only them, but you can also look into Bulletproofs, ring signatures or Mimblewimble. We would not go into much details on them, they can easily be googled — and not so easily understood after :). Anyway, they have nothing to do with blockchain — and these do not prevent publicity and press to associate them up to indistinguishability. Reputation and accountability systems. These are important parts of economic games, especially in trustless, Byzantine fault-prone environments or networks. Reputation and accountability require an immutable history of actions, provable even in trustless setup. It’s a form of “highest court”, and linked with smart contracts it can become an efficient way for building truly decentralized –and still economically robust systems. The funning thing that “immutability of actions history” (or transaction history) is not a quality of “blockchain” — it is a quality of consensus protocol, namely its finality property. And, as we said above, consensus != blockchain.

So, we have counted 7 use cases of the industry, that are frequently come hand-in-hand. Reputation utilizes smart contracts, which are build using financial incentives — related to cryptocurrency (Bitcoin) and properly tokenized economic games. At the same time without the proper privacy, we can get a total censorship, which diminishes one of the core values of decentralization. And without open capital markets for funding, all these technologies can’t be developed for the real business cases. This mix of technologies is frequently miss-named as “blockchain technology”. However, this naming is wrong — both due to the term history and recent term misusage by the enterprise. Thus, I propose to use a term cryptotechnology — or, simply, cryptotech, to denote the abovementioned set of the driving core technologies enabling real decentralization, bringing the sovereignty back to the individuals — together with the responsibility for their actions, without any intermediaries or centralized forms of governance.