How to determine if you’ve found a real blockchain use case
Blockchains are overhyped. There, I said it. From Sibos to Money20/20 to cover stories of The Economist and Euromoney, everyone seems to be climbing aboard the blockchain wagon. And no doubt like others in the space, we’re seeing a rapidly increasing number of companies building proofs of concept on our platform and/or asking for our help.
As a young startup, you’d think we’d be over the moon. Surely now is the time to raise a ton of money and build that high performance next generation blockchain platform we’ve already designed. What on earth are we waiting for?
I’ll tell you what. We’re waiting to gain a clearer understanding of where blockchains genuinely add value in enterprise IT. You see, a large proportion of these incoming projects have nothing to do with blockchains at all. Here’s how it plays out. Big company hears that blockchains are the next big thing. Big company finds some people internally who are interested in the subject. Big company gives them a budget and tells them to go do something blockchainy. Soon enough they come knocking on our door, waving dollar bills, asking us to help them think up a use case. Say what now?
As for those who do have a project in mind, what’s the problem? In many cases, the project can be implemented perfectly well using a regular relational database. You know, big iron behemoths like Oracle and SQL Server, or for the more open-minded, MySQL and Postgres. So let me start by setting things straight:
If your requirements are fulfilled by today’s relational databases, you’d be insane to use a blockchain.
Why? Because products like Oracle and MySQL have decades of development behind them. They’ve been deployed on millions of servers running trillions of queries. They contain some of the most thoroughly tested, debugged and optimized code on the planet, processing thousands of transactions per second without breaking a sweat.
And what about blockchains? Well, our product was one of the first to market, and has been available for exactly 5 months, with a few thousand downloads. Actually it’s extremely stable, because we built it off Bitcoin Core, the software which powers bitcoin. But even so, this entire product category is still in its diapers.
So am I saying that blockchains are useless? Absolutely not. But before you embark on that shiny blockchain project, you need to have a very clear idea of why you are using a blockchain. There are a bunch of conditions that need to be fulfilled. And if they’re not, you should go back to the drawing board. Maybe you can define the project better. Or maybe you can save everyone a load of time and money, because you don’t need a blockchain at all.
1. The database
Here’s the first rule. Blockchains are a technology for shared databases. So you need to start by knowing why you are using a database, by which I mean a structured repository of information. This can be a traditional relational database, which contains one or more spreadsheet-like tables. Or it can be the trendier NoSQL variety, which works more like a file system or dictionary. (On a theoretical level, NoSQL databases are just a subset of relational databases anyway.)
A ledger for financial assets can be naturally expressed as a database table in which each row represents one asset type owned by one particular entity. Each row has three columns containing: (a) the owner’s identifier such as an account number, (b) an identifier for the asset type such as “USD” or “AAPL”, and (c) the quantity of that asset held by that owner.
Databases are modified via “transactions” which represent a set of changes to the database which must be accepted or rejected as a whole. For example, in the case of an asset ledger, a payment from one user to another is represented by a transaction that deducts the appropriate quantity from one row, and adds it to another.
2. Multiple writers
This one’s easy. Blockchains are a technology for databases with multiple writers. In other words, there needs to be more than one entity which is generating the transactions that modify the database. Do you know who these writers are?
In most cases the writers will also run “nodes” which hold a copy of the database and relay transactions to other nodes in a peer-to-peer fashion. However transactions might also be created by users who are not running a node themselves. Consider for example a payments system which is collectively maintained by a small group of banks but has millions of end users on mobile devices, communicating only with their own bank’s systems.
3. Absence of trust
And now for the third rule. If multiple entities are writing to the database, there also needs to be some degree of mistrust between those entities. In other words, blockchains are a technology for databases with multiple non-trusting writers.
You might think that mistrust only arises between separate organizations, such as the banks trading in a marketplace or the companies involved in a supply chain. But it can also exist within a single large organization, for example between departments or the operations in different countries.
What do I specifically mean by mistrust? I mean that one user is not willing to let another modify database entries which it “owns”. Similarly, when it comes to reading the database’s contents, one user will not accept as gospel the “truth” as reported by another user, because each has different economic or political incentives.
So the problem, as defined so far, is enabling a database with multiple non-trusting writers. And there’s already a well-known solution to this problem: the trusted intermediary. That is, someone who all the writers trust, even if they don’t fully trust each other. Indeed, the world is filled with databases of this nature, such as the ledger of accounts in a bank. Your bank controls the database and ensures that every transaction is valid and authorized by the customer whose funds it moves. No matter how politely you ask, your bank will never let you modify their database directly.
Blockchains remove the need for trusted intermediaries by enabling databases with multiple non-trusting writers to be modified directly. No central gatekeeper is required to verify transactions and authenticate their source. Instead, the definition of a transaction is extended to include a proof of authorization and a proof of validity. Transactions can therefore be independently verified and processed by every node which maintains a copy of the database.
But the question you need to ask is: Do you want or need this disintermediation? Given your use case, is there anything wrong with having a central party who maintains an authoritative database and acts as the transaction gatekeeper? Good reasons to prefer a blockchain-based database over a trusted intermediary might include lower costs, faster transactions, automatic reconciliation, new regulation or a simple inability to find a suitable intermediary.
5. Transaction interaction
So blockchains make sense for databases that are shared by multiple writers who don’t entirely trust each other, and who modify that database directly. But that’s still not enough. Blockchains truly shine where there is some interaction between the transactions created by these writers.
What do I mean by interaction? In the fullest sense, this means that transactions created by different writers often depend on one other. For example, let’s say Alice sends some funds to Bob and then Bob sends some on to Charlie. In this case, Bob’s transaction is dependent on Alice’s one, and there’s no way to verify Bob’s transaction without checking Alice’s first. Because of this dependency, the transactions naturally belong together in a single shared database.
Taking this further, one nice feature of blockchains is that transactions can be created collaboratively by multiple writers, without either party exposing themselves to risk. This is what allows delivery versus payment settlement to be performed safely over a blockchain, without requiring a trusted intermediary.
A good case can also be made for situations where transactions from different writers are cross-correlated with each other, even if they remain independent. One example might be a shared identity database in which multiple entities validate different aspects of consumers’ identities. Although each such certification stands alone, the blockchain provides a useful way to bring everything together in a unified way.
6. Set the rules
This isn’t really a condition, but rather an inevitable consequence of the previous points. If we have a database modified directly by multiple writers, and those writers don’t fully trust each other, then the database must contain embedded rules restricting the transactions performed.
These rules are fundamentally different from the constraints that appear in traditional databases, because they relate to the legitimacy of transformations rather than the state of the database at a particular point in time. Every transaction is checked against these rules by every node in the network, and those that fail are rejected and not relayed on.
Asset ledgers contain a simple example of this type of rule, to prevent transactions creating assets out of thin air. The rule states that the total quantity of each asset in the ledger must be the same before and after every transaction.
7. Pick your validators
So far we’ve described a distributed database in which transactions can originate in many places, propagate between nodes in a peer-to-peer fashion, and are verified by every node independently. So where does a “blockchain” come in? Well, a blockchain’s job is to be the authoritative final transaction log, on whose contents all nodes provably agree.
Why do we need this log? First, it enables newly added nodes to calculate the database’s contents from scratch, without needing to trust another node. Second, it addresses the possibility that some nodes might miss some transactions, due to system downtime or a communications glitch. Without a transaction log, this would cause one node’s database to diverge from that of the others, undermining the goal of a shared database.
Third, it’s possible for two transactions to be in conflict, so that only one can be accepted. A classic example is a double spend in which the same asset is sent to two different recipients. In a peer-to-peer database with no central authority, nodes might have different opinions regarding which transaction to accept, because there is no objective right answer. By requiring transactions to be “confirmed” in a blockchain, we ensure that all nodes converge on the same decision.
Finally, in Ethereum-style blockchains, the precise ordering of transactions plays a crucial role, because every transaction can affect what happens in every subsequent one. In this case the blockchain acts to define the authoritative chronology, without which transactions cannot be processed at all.
A blockchain is literally a chain of blocks, in which each block contains a set of transactions that are confirmed as a group. But who is responsible for choosing the transactions that go into each block? In the kind of “private blockchain” which is suitable for enterprise applications, the answer is a closed group of validators (“miners”) who digitally sign the blocks they create. This whitelisting is combined with some form of distributed consensus scheme to prevent a minority of validators from seizing control of the chain. For example, MultiChain uses a scheme called mining diversity, in which the permitted miners work in a round-robin fashion, with some degree of leniency to allow for non-functioning nodes.
No matter which consensus scheme is used, the validating nodes have far less power than the owner of a traditional centralized database. Validators cannot fake transactions or modify the database in violation of its rules. In an asset ledger, that means they cannot spend other people’s money, nor change the total quantity of assets represented. Nonetheless there are still two ways in which validators can unduly influence a database’s contents:
- Transaction censorship. If enough of the validators collude maliciously, they can prevent a particular transaction from being confirmed in the blockchain, leaving it permanently in limbo.
- Biased conflict resolution. If two transactions conflict, the validator who creates the next block decides which transaction is confirmed on the blockchain, causing the other to be rejected. The fair choice would be the transaction that was seen first, but validators can choose based on other factors without revealing this.
Because of these problems, when deploying a blockchain-based database, you need to have a clear idea of who your validators are and why you trust them, collectively if not alone. Depending on the use case, the validators might be chosen as: (a) one or more nodes controlled by a single organization, (b) a core group of organizations that maintain the chain, or (c) every node on the network.
8. Back your assets
If you’ve got this far, you may have noticed that I tend to refer to blockchains as shared databases, rather than the more common “shared ledgers”. Why? Because as a technology, blockchains can be applied to problems far beyond the tracking of asset ownership. Any database which has multiple non-trusting writers can be implemented over a blockchain, without requiring a central intermediary. Examples include shared calendars, wiki-style collaboration and discussion forums.
Having said that, for now it seems that blockchains are mainly of interest to those who track the movement and exchange of financial assets. I can think of two reasons for this: (a) the finance sector is responding to the (in retrospect, minuscule) threat of cryptocurrencies like bitcoin, and (b) an asset ledger is the most simple and natural example of a shared database with interdependent transactions created by multiple non-trusting entities.
If you do want to use a blockchain as an asset ledger, you need to answer one additional crucial question: What is the nature of the assets being moved around? By this I don’t just mean cash or bonds or bills of lading, though of course that’s important as well. The question is rather: Who stands behind the assets represented on the blockchain? If the database says that I own 10 units of something, who will allow me to claim those 10 units in the real world? Who do I sue if I can’t convert what’s written in the blockchain into traditional physical assets? (See this asset agreement for an example.)
The answer, of course, will vary by the use case. For monetary assets, one can imagine custodial banks accepting cash in traditional form, and then crediting the accounts of depositors in a blockchain-powered distributed ledger. In trade finance, letters of credit and bills of lading would be backed by the importer’s bank and the shipping company respectively. And further in the future, we can imagine a time when the primary issuance of corporate bonds takes place directly on a blockchain by the company seeking to raise funds.
As I mentioned in the introduction, if your project does not fulfill every single one of these conditions, you should not be using a blockchain. In the absence of any of the first five, you should consider one of: (a) regular file storage, (b) a centralized database, (c) master–slave database replication, or (d) multiple databases to which users can subscribe.
And if you do fulfill the first five, there’s still work to do. You need to be able to express the rules of your application in terms of the transactions which a database allows. You need to be confident about who you can trust as validators and how you’ll define distributed consensus. And finally, if you’re looking at creating a shared ledger, you need to know who will be backing the assets which that ledger represents.
Got all the answers? Congratulations, you have a real blockchain use case. And we’d love to hear from you.
tBTC Launches for the Second Time to Bridge Bitcoin and Ethereum
After a failed (but not regretted) attempt, Thesis, the blockchain development company behind Keep Network, has just released the new version of tBTC.
tBTC is simply Bitcoin tokenized in the Ethereum blockchain as an ERC20 token backed by the original Bitcoin. The initiative might seem like another one of the many projects that seek to bring Bitcoin into the smart contract chain. Still, Thesis adds a new -and exciting- ingredient: decentralization.
tBTC is Just Another Bridge Between Bitcoin and Ethereum… But Different
“As far as I know, this release is the first permissionless, censorship-resistant Bitcoin bridge on Ethereum. Anyone can mint $tBTC by connecting to the Bitcoin and Ethereum chains, and no one can censor transactions or redemptions,” said Matt Luongo, founder of Thesis, in a Twitter thread.
This means users can be assured that their funds are not being controlled or guarded by a centralized entity.
In short, tBitcoin is a Bitcoin token with the same philosophy as Bitcoin, with very similar features to Bitcoin, only it runs on Ethereum. Thus, concerns about funds centralization and the possibility of an third party exercising some kind of censorship are addressed, as Vitalik Buterin pointed out:
I continue to be worried about the fact that these wrapped BTC bridges are trusted…..
I hope that they can all *at least* move to a decently sized multisig
— vitalik.eth (@VitalikButerin) August 17, 2020
The demand for Bitcoin tokens on Ethereum is high, especially considering the growing popularity of this blockchain after the DeFi boom. In wBTC alone, a centralized but popular tokenized version of BTC, there are more than 818 million dollars or 77860 BTCs locked up.
A Long Way to Success
tBTC had a rough start. After its first release, a bug that led to the introduction of untested functions into the code led developers to pause the project when it was only two days old. The new version, which Luongo refers to as rc1, corrected this problem and added important improvements over its predecessor:
5/ There are a number of differences between rc.1 and rc.0, which we shipped in May. The big ones are
1⃣ a guarded release, including a supply cap schedule for the first 9 weeks
2⃣ additional audits
3⃣ removing the team’s ability to pause new deposits after 6 months
— Matt Luongo (@mhluongo) September 22, 2020
Luongo and his team are optimistic, but also cautious: To avoid possible damage, they decided to set up a supply cap system that will increase over time to reach the 3000 BTC enclosed. Also, Luongo assured that he would put his investment in the project to have more skin in the game.
Who said that DeFi was not for bitcoiners?
FEW Brings Out DeFi Risks: Ethereum Proponents Caught Planning to Dump on Investors
Airdrops have apparently become the next big thing in DeFi as means of “fair” distribution of tokens of fresh projects.
The first one to really catch the attention of the masses was Uniswap with their UNI governance token. Everyone who used the platform received a minimum of 400 UNI tokens. At the time, many people sold their share to cash in some “free money.”
Another project to do so was MEME Protocol that airdropped around 350 MEME tokens, currently worth about $350,000 to the first few members to join their Telegram group. As CryptoPotato reported, that stack was worth around $700,000 at the peak price of the token.
Today, a bunch of screenshots of conversations between some of the most popular ETH influencers and proponents in what was apparently supposed to be a closed Telegram group shows their plans to create a worthless token with the sole intention of pumping its price. “An experiment,” as they called it.
FEW – Bringing Crypto Back to the Wild Wild West
Crypto Twitter is exploding today with screenshots of conversations between some of the most prominent ETH proponents, such as Anthony Sassano, DeFi Dude, and many others.
The goal was simple – create a group of 50 “smart people,” airdrop a bunch of tokens to them and watch them shill it away. A few screenshots, allegedly from the conversation between some of the members reveal what was going on:
“First we get the members, then we airdrop, then – we figure out what the fu*k we’re doing.” – DeFi Dude said. Not shady at all.
Anthony Sassano was caught saying that they “need people to dump on.” Another screenshot reveals DeFi Dude answering to a message saying, “… and we pump it, legally.” Sure, there’s not much context to this, but is this the expected behavior of people who’re supposedly helping this community move forward?
The group discussed how they intended to do something like MEME because they (or at least some of them) missed it. As CryptoPotato reported, Anthony Sassano was part of the MEME Protocol airdrop as well.
Many of the people involved in the initial FEW 50 explained their actions after the fact. Anthony Sassano said that all of it was a “joke” and urged people not to buy the token as “it’s worthless.”
Further in the thread, he explained that people attacking him “is just shitty… people who know me know this is just my sense of humor and was a joke. But it’s going to circulate and be taken out of context regardless.”
Other members of the first FEW 50 largely expressed the same idea – that it was nothing but a joke.
And here’s what a lot of people have a problem with. Speaking on the matter was Udi Wertheimer, who said:
these GOD-TIER eth influencers were screaming for 2 months about how rich they became farming potatoes
how come they had to burn their reputations issuing some crappy nothingcoin NOW after making trillions of dollars?
or were they LARPing all along? hmm https://t.co/WfPBUpRWJF
— Udi Wertheimer (@udiWertheimer) September 22, 2020
The problem is that most of those people have a serious following and a lot of regular users consider their authority and reputation. Whether they wanted to be in this position of power is entirely irrelevant. Once you get to a point where your voice is heard and listened to, it’s nothing but common sense to be responsible.
Now, Sassano argues that this is the “first” joke that he made, and it will get him “cancel” without actual merits… that people are calling him out without context.
How much context do we really need, though? For me, personally, it looks like a bunch of people with serious influence over the Twitter masses attempted to create something they knew could net a lot of cash, got caught, and are now desperately trying to save their reputation.
If it truly was a joke, why not make it public from the get-go? Why wait for people to leak those screenshots before giving any explanation?
The token didn’t really reach the market, but some people created a fake and listed it on Uniswap – that’s likely irrelevant.
But what if those FEW 50 people went through with everything they planned? What if they created a token that people could purchase? What if they started talking about it on Twitter? What if its price really did explode (as they clearly intended based on their conversation)? What if their airdropped tokens were suddenly worth six figures? What if no one leaked those screenshots?
These are questions that we can’t really get an objective answer to, and each one of us has to make their own conclusions.
Sassano has since said that he burned his tokens to prove that he’s not “going to dump” on anyone.
Since this screenshot is going to circulate like crazy I want to get one thing straight – it was me making a joke when this group was just a few people.
— Anthony Sassano | sassal.eth ⛽ 🏴 (@sassal0x) September 22, 2020
He’s also said that “I was planning to donate any money that I got from it to Gitcoin (believe that or not).”
The most logical question about this is how you’d get any money if you didn’t “dump” on someone?
It’s entirely possible that all of this was a joke. It’s entirely possible that no one of those involved in this actually planned to scam people out of their money. But that’s not what matters.
What matters is the fact that reputable people with serious standing in the community shouldn’t even consider being involved in some shady, behind-the-curtain plays like this one, regardless of whether they think it’s a joke or not.
Transparency is one of the main and inherent postulates of the technology that we’re all supposedly “in it” for. And this goes against it directly.
Worst of all – these kinds of “jokes” set crypto back. It shatters the beliefs of anyone who thinks that we’re out of the Wild Wild West years of the industry when people were single-handedly moving markets. We’re right there in the center of it, it’s just a new narrative.
No one can take away the contribution of most of these people to the field. It’s just that you can’t afford to make jokes of the kind. Or, at least, you shouldn’t.
This article is entirely the opinion of the author.
Equals Takes £3.16 Million in Losses for H1 2020, Focusing on B2B
The Group’s B2C business was heavily impacted by COVID-19 restrictions.
Equals, formerly known as FairFX, has published its interim results for the first half of 2020 ended on June 30, reporting an after-tax loss of £3.16 million. The company was profitable in the similar period of the previous year with £445,000.
However, the forex provider’s loss for H2 2019 was £5.81 million, meaning there was a 46 percent reduction in after-tax losses for the latest year half compared to the past six months.
Finance Magnates earlier reported on Equals’ revenues for the same period, but the latest numbers give a much deeper understanding of the company’s performance.
The total revenue of the e-banking and international payments group stood at £13.8 million. Though, the revenue generated from the B2B streams was £9 million and the rest from B2C businesses.
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Compared to the reported numbers from the first half of the previous year, the company’s B2B revenue increased 32 percent year-on-year while the B2C revenues went down by 29 percent. This decline in the B2C business was mainly due to the impact in this sector by the uncertainties caused by the Coronavirus.
Moving from B2C to B2B
The Group also highlighted that it is shifting its focus from the legacy B2C travel money business to the B2B revenue streams.
Additionally, the company pointed out that its international payments business remained resilient in Q3 of 2020 with £3.8 million, compared to the previous quarter’s £3.5 million.
“We believe it is testament to the quality of the business and the resilience of our B2B focused model that we are reporting both an increase in revenue and decrease in underlying expenditure against the headwinds posed by a combination of Covid-19 and the changes forced upon the business as a result of the demise of Wirecard,” Equals Group CEO, Ian Strafford-Taylor said.
“Our revenues continue to grow against this unprecedented backdrop and we have not yet completed our exercise of cost savings which will benefit the second half of the year.”
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