Four key differences between blockchains and regular databases
If you’ve been reading my previous posts, you will know by now that blockchains are simply a new type of database. That is, a database which can be directly shared, in a write sense, by a group of non-trusting parties, without requiring a central administrator. This contrasts with traditional (SQL or NoSQL) databases that are controlled by a single entity, even if some kind of distributed architecture is used within its walls.
I recently gave a talk about blockchains from the perspective of information security, in which I concluded that blockchains are more secure than regular databases in some ways, and less secure in others. Considering the leading role that centralized databases play in today’s technology stack, this got me thinking more broadly about the trade-offs between these two technologies. Indeed, whenever someone asks me if MultiChain can be used for a particular purpose, my first response is always: “Could you do that with a regular database?” In more cases than you might think, the answer is yes, for the following simple reason:
If trust and robustness aren’t an issue, there’s nothing a blockchain can do that a regular database cannot.
This is a key point on which there is so much misunderstanding. In terms of the types of data that can be stored, and the transactions that can be performed on that data, blockchains don’t do anything new. And just to be clear, this observation extends to “smart contracts” as well, despite their sexy name and image. A smart contract is nothing more than a piece of computer code which runs on every node in a blockchain – a decades-old technology called stored procedures does the same for centralized databases. (You also cannot use a blockchain if this code needs to initiate interactions with the outside world.)
The truth about blockchains is that, while they have some advantages, they also have their downsides. In other words, like most technology decisions, the choice between a blockchain and a regular database comes down to a series of trade-offs. If you’re blinded by the hype and deafened by the noise, you’re unlikely to make that choice objectively. So I hope the following guide might help.
Disintermediation: advantage blockchains
The core value of a blockchain is enabling a database to be directly shared across boundaries of trust, without requiring a central administrator. This is possible because blockchain transactions contain their own proof of validity and their own proof of authorization, instead of requiring some centralized application logic to enforce those constraints. Transactions can therefore be verified and processed independently by multiple “nodes”, with the blockchain acting as a consensus mechanism to ensure those nodes stay in sync.
Why is there value in this disintermediation? Because even though a database is just bits and bytes, it is also a tangible thing. The contents of a database are stored in the memory and disk of a particular computer system, and anybody with sufficient access to that system can destroy or corrupt the data within. As a result, the moment you entrust your data to a regular database, you also become dependent on the human organization in which that database resides.
Now, the world is filled with organizations which have earned this trust – governments and banks (mostly), universities, trade associations, and even private companies like Google and Facebook. In most cases, especially in the developed world, these work extremely well. I believe my vote has always been counted, no bank has ever stolen my money, and I’m yet to find a way to pay for better grades. So what’s the problem? If an organization controls an important database, it also needs a bunch of people and processes in place to prevent that database being tampered with. People need hiring, processes need to be designed, and all this takes a great deal of time and money.
So blockchains offer a way to replace these organizations with a distributed database, locked down by clever cryptography. Like so much that has come before, they leverage the ever-increasing capacity of computer systems to provide a new way of replacing humans with code. And once it’s been written and debugged, code tends to be an awful lot cheaper.
Confidentiality: advantage centralized databases
As I mentioned, every node in a blockchain independently verifies and processes every transaction. A node can do this because it has full visibility into: (a) the database’s current state, (b) the modification requested by a transaction, and (c) a digital signature which proves the transaction’s origin. This is undoubtedly a clever new way to architect a database, and it really works. So where’s the catch? For many applications, especially financial, the full transparency enjoyed by every node is an absolute deal-killer.
How do systems built on regular databases avoid this problem? Just like blockchains, they restrict the transactions that particular users can perform, but these restrictions are imposed in one central location. As a result, the full database contents need only be visible at that location, rather than in multiple nodes. Requests to read data also go through this central authority, which can accept or reject those requests as it sees fit. In other words, if a regular database is read-controlled and write-controlled, a blockchain can be write-controlled only.
To be fair, many strategies are available for mitigating this problem. These range from simple ideas like transacting under multiple blockchain addresses, to advanced cryptographic techniques such as confidential transactions and zero-knowledge proofs (now being developed). Nonetheless, the more information you want to hide on a blockchain, the heavier a computational burden you pay to generate and verify transactions. And no matter how these techniques develop, they will never beat the simple and straightforward method of hiding data completely.
Robustness: advantage blockchains
A second benefit of blockchain-powered databases is extreme fault tolerance, which stems from their built-in redundancy. Every node processes every transaction, so no individual node is crucial to the database as a whole. Similarly, nodes connect to each other in a dense peer-to-peer fashion, so many communication links can fail before things grind to a halt. The blockchain ensures that nodes which went down can always catch up on transactions they missed.
So while it’s true that regular databases offer many techniques for replication, blockchains take this to a whole new level. For a start, no configuration is required – simply connect some blockchain nodes together, and they automatically keep themselves in sync. In addition, nodes can be freely added or removed from a network, without any preparation or consequences. Lastly, external users can send their transactions to any node, or to multiple nodes simultaneously, and these transactions propagate automatically and seamlessly to everyone else.
This robustness transforms the economics of database availability. With regular databases, high availability is achieved through a combination of expensive infrastructure and disaster recovery. A primary database runs on high-end hardware which is monitored closely for problems, with transactions replicated to a backup system in a different physical location. If the primary database fails (e.g. due to a power cut or catastrophic hardware failure), activity is automatically moved over to the backup, which becomes the new primary. Once the failed system is fixed, it’s lined up to act as the new backup if and when necessary. While all this is doable, it’s expensive and notoriously difficult to get right.
Instead, what if we had 10 blockchain nodes running in different parts of the world, all on commodity hardware? These nodes would be densely connected to each other, sharing transactions on a peer-to-peer basis and using a blockchain to ensure consensus. End users generating the transactions connect to (say) 5 of these nodes, so it doesn’t matter if a few communication links go down. And if one or two nodes fail completely on any given day, nobody feels a thing, because there are still more than enough copies to go round. As it happens, this combination of low cost systems and high redundancy is exactly how Google built its search engine so cheaply. Blockchains can do the same thing for databases.
Performance: advantage centralized databases
Blockchains will always be slower than centralized databases. It’s not just that today’s blockchains are slow because the technology is new and unoptimized, but it’s a result of the nature of blockchains themselves. You see, when processing transactions, a blockchain has to do all the same things as a regular database, but it carries three additional burdens:
- Signature verification. Every blockchain transaction must be digitally signed using a public-private cryptography scheme such as ECDSA. This is necessary because transactions propagate between nodes in a peer-to-peer fashion, so their source cannot otherwise be proven. The generation and verification of these signatures is computationally complex, and constitutes the primary bottleneck in products like ours. By contrast, in centralized databases, once a connection has been established, there is no need to individually verify every request that comes over it.
- Consensus mechanisms. In a distributed database such as a blockchain, effort must be expended in ensuring that nodes in the network reach consensus. Depending on the consensus mechanism used, this might involve significant back-and-forth communication and/or dealing with forks and their consequent rollbacks. While it’s true that centralized databases must also contend with conflicting and aborted transactions, these are far less likely where transactions are queued and processed in a single location.
- Redundancy. This isn’t about the performance of an individual node, but the total amount of computation that a blockchain requires. Whereas centralized databases process transactions once (or twice), in a blockchain they must be processed independently by every node in the network. So lots more work is being done for the same end result.
The bottom line
Naturally there are other ways in which blockchains and regular databases can be compared. We could talk about codebase maturity, developer attractiveness, ecosystem breadth and more. But none of these issues are inherent to the technology itself. So when it comes to a long-term decision on using a blockchain, the question to ask is this: What’s more important for my use case? Disintermediation and robustness? Or confidentiality and performance?
When examined in this simple light, many of the use cases currently under discussion do not make sense. The biggest problem tends to be confidentiality. The participants in a fiercely competitive marketplace will naturally prefer the privacy of a centralized database, rather than reveal their activities to each other. This is especially true if a trusted central party already exists and can provide the neutral territory in which that database can reside. Even though there may be some cost associated with this central provider, this is more than justified by the value of the privacy retained. The only motivation for a shift to blockchains would be aggressive new regulation.
Nonetheless blockchains do have strong use cases, where disintermediation and robustness are more important than confidentiality and performance. I’ll write more about these in a subsequent post, but the most promising areas we’ve seen so far are: (a) inter-company audit trails, (b) provenance tracking, and (c) lightweight financial systems. In all three cases, we’ve found people building on MultiChain with a clear view to deployment, rather than just curiosity and experimentation. So if you’re looking for ways in which blockchains can add genuine value to your business, they might be a good place to start.
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Market Watch: Bitcoin Around $11K As ETH Eyes $400
Most of the cryptocurrency market has been relatively calm in the past 24 hours. Bitcoin trades around $11,000, and Ethereum jumps by 2% to $385.
Most of the attention went to Uniswap’s governance token (UNI) that launched yesterday. After listings on the most prominent digital asset exchanges, UNI trades at $5.3.
Bitcoin Remains Below $11K
As reported yesterday, the primary cryptocurrency attempted to overcome the $11,000 mark. It seemed successful initially, but the move rapidly reversed, driving Bitcoin’s price below the coveted level.
The price dip continued in the next few hours, and BTC reached its intraday low of $10,750. However, the asset has recovered since then and trades at $10,950.
Bitcoin still has to overcome the first resistance at $11,000 decisively before having a chance to further rise in value. If successful, BTC has to fight off the next resistance lines at $11,150 and $11,400.
In contrast, if the support at the 0.382 Fibonacci level ($10,800) can’t contain Bitcoin in case of a price breakdown, the asset can rely on $10,660, followed by $10,450.
UNI Gains Traction While Larger-cap Alts Chill
Most larger-cap altcoins have remained stagnant on a 24-hour scale. Ripple, Litecoin, and Binance Coin are less than 1% up, while Polkadot, Bitcoin Cash, and Chainlink are about 1% down.
Ethereum’s 2% increase to above $385 is the most impressive price move in the top ten. This could be attributed to the developments with Uniswap’s governance token launched yesterday.
Upon the UNI release, the popular DEX protocol announced that it will airdrop 15% of the token’s total supply to anyone who has used the platform. Thousands of users received 400 free UNI tokens each. However, to claim the coins, the user had to utilize the Ethereum network. This rush for free tokens led to record-high fees.
Those who lacked ETH tokens to pay the gas fees had to purchase some, increasing the demand, and ultimately driving ETH’s price higher.
In any case, most eyes were on UNI yesterday (and today). The protocol’s popularity urged exchanges such as Coinbase Pro and Binance to list the native token almost immediately. This brought massive attention and a price surge. At the time of this writing, UNI trades at $5, and its total market cap of $850 million places it in the top 30 coins.
Other impressive price increases include ABBC Coin (28%), SushiSwap (18%), Solana (15%), Neo (15%), and Loopring (13%).
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Worth Over $1 Billion: Tokenized Bitcoins on Ethereum Tops 100,000
Bitcoins are being tokenized at a rapid rate for use on the Ethereum blockchain. Just ten days back, BTC supply’s on the world’s largest smart contract development platform was 73,000. Now that number has hit 100,000. Consequentially, the valuation of Bitcoin’s supply on Ethereum has topped $1 billion.
Bitcoin Supply On Ethereum Tops 100,000
As per data from Dune Analytics, a free Ethereum analytics provider, the tokenized bitcoin number on the second-largest blockchain network has hit the 100,000 mark. This corresponds to ~0.5 percent of the total BTC supply. As a result, bitcoin on Ethereum supply valuation has topped $1 billion.
Wrapped BTC (WBTC) and RenBTC rule the Bitcoin market on Ethereum with token circulations clocking almost 70,000 and 20,000, respectively.
This represents a 1684 percent appreciation in just three months since Elias Simos first launched the Bitcoin on Ethereum dashboard on the Dune platform.
As reported by CryptoPotato on September 8, the supply of tokenized bitcoin on Ethereum stood at almost 73,000. In just ten days, the figure has grown 36 percent.
This demonstrates the fact that BTC investors who are bored by the top crypto asset’s recent lackluster price action are putting their holdings to use to get in on the animated DeFi market action.
How Is It Happening?
Users are employing two main ways to tokenized their Bitcoin holdings on Ethereum – custodial and non-custodial. Through the custodial process, BTC holders send some or all of their bitcoins to a centralized custodian. And receive an equivalent amount of tokenized BTC in return.
The other solution involves a decentralized escrow feature, where a smart contract accepts the original bitcoin collateral and mints the corresponding numbers of tokenized BTC coins. The escrow keeps the funds locked until the user retrieves them back in return for their deposited bitcoins.
In the first method, there’s a risk of misappropriation of funds by the centralized party, and the second one might cause users to lose their BTC by courtesy of human errors during transactions.
Ethereum Is Becoming The Leading Layer 2 Solution for BTC
Despite the presence of well-discussed layer two solutions for Bitcoin like the Lightning Network and Liquid Network, Ethereum is rising in prominence as the dominant off-chain transactional layer for BTC.
Will this benefit Ethereum? Let’s say if a lot of bitcoins (read tokenized versions of BTC) are transacting on the public blockchain network, then that could increase the utility of Ethereum as a global network for value transfer.
Also, as per a blog post by cryptocurrency exchange Binance, the DeFi ecosystem could itself greatly benefit from the rapid proliferation of Bitcoin on Ethereum.
There could be decentralized financial services based on tokenized bitcoin. BTC-based DEXes, lending marketplaces, liquidity pools, and whatever else exists in DeFi could all be denominated in BTC. The success of tokenized bitcoin could also encourage other types of assets to migrate to the Ethereum network.
Most of the projects are still in very early stages, and the technology behind them has a lot of room to improve. Still, there are certainly exciting developments to come on this front, the blog read.
Buying the Wrong Uniswap (UNI): UNICORN Token Skyrockets 500,000%
There’s never a dull day in the cryptocurrency market. From food-based meme coins that attract billions of locked value and generate extremely high yield, to a likely mistake that caused the price for a token to surge half a million percent in a few hours – there’s something for everyone.
Buying the Wrong UNI
UNI (the latest one) is the governance token of the largest decentralized exchange protocol and automated market maker, Uniswap.
As CryptoPotato reported yesterday, the token generated tremendous buzz in the industry, especially as everyone who used Uniswap before September 1st received 400 UNI tokens that currently trade at a price of $5 each.
This had a serious effect on Ethereum’s network as fees took for the sky, and miners generated as much as a million dollars in transaction fees in an hour.
But that’s not the most bizarre thing that happened. A token, carrying the same ticker as Uniswap’s token but called Unicorn Token, surged an amazing 500,000% before crashing back to the abyss it came out of.
Unicorn token’s price surged from approximately $0.001 to a whopping $5 in a matter of minutes and actually traded at this astonishing rate for a while before crashing back.
A Human Error?
A human error appears to be the most obvious and probable explanation of what happened. Confused investors might have rushed to the market in hopes to purchase Uniswap’s new UNI token, without paying much attention to details.
It’s also worth noting that the token was mostly traded on a relatively lesser-known cryptocurrency exchange and generated a 24-hour volume upwards of $46 million. To compare, the only other exchange that supports the token accounts for less than $5,000 of the 24-hour volume.
In any case, other tokens with the same ticker, such as Universe Token, have also seen a slight increase in their value, likely for the same reason.
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