
Maybe Blockchain Really Does Have Magical Powers - elaineo
https://www.bloomberg.com/view/articles/2016-09-01/maybe-blockchain-really-does-have-magical-powers
======
lhl
I'm all for deflating blockchain hype, but I found the overall tone of the
article pretty disagreeable, and more importantly, wholly missing the point.

"In other words, the only thing previously stopping the standardization of
reconciliation processes was the unwillingness of financial institutions to
collaborate."

No, actually, the one thing the blockchain provides, which was literally
unsolved before pre-Nakamoto, was a working implementation of "trustless"
consensus. Turns out fraud prevention is kind of a big deal shuffling around
billions or trillions among numerous third parties, but I'm sure that's just
because they're "security-conscious egoists."

~~~
the_mitsuhiko
> No, actually, the one thing the blockchain provides, which was literally
> unsolved before pre-Nakamoto, was a working implementation of "trustless"
> consensus.

That's the part banks do not care about so I think it's largely irrelevant in
the context of this article.

~~~
coderzach
> That's the part banks do not care about so I think it's largely irrelevant
> in the context of this article.

I have no idea where you got that idea, but it's not true. Which is why any
deal that happens between institutions (and sometimes intra-institution) has
an army of middle men who are responsible for verifying, monitoring,
reporting, etc etc.

~~~
brians
But you still need them in a Blockchain world, and still need to trust them.

~~~
wmf
Or you could convince some other banks to vouch for your transactions if you
vouch for theirs and then get rid of the middlemen.

~~~
Ar-Curunir
Isn't this similar to the cryptocurrency Stellar

~~~
kordless
You can use Stellar to build a gateway to another store of value, including
bitcoin, dollar, mpesa, rai stone or, my favorite analogy, barn doors you have
sitting in a shed somewhere.

------
jcoffland
> The technological innovation of a blockchain is that it combines
> cryptographic signatures with a fault-tolerant distributed database.

This is the naive view that has allowed the financial industry to ditch
Bitcoin and run with blockchain. The problem that Bitcoin solves and private
blockchains do not is called the Byzantine generals problem which did not have
a known solution until Bitcoin came along.

Private blockchains cannot solve the Byzantine generals problem because they
cannot ensure that one of it's limited number of parties is not employing
massively more computing power in order to cheat. Bitcoin only works because
an unlimited number of players are mining as hard as they can making it
improbable that a single entity can exceeded 50% of the total hash power. With
private blockchains it will always be reasonable to assume that cheating would
be with in reach.

~~~
IshKebab
> making it improbable that a single entity can exceeded 50% of the total hash
> power

Not that improbable: [http://www.coindesk.com/ghash-io-never-
launch-51-attack/](http://www.coindesk.com/ghash-io-never-launch-51-attack/)

~~~
CyberDildonics
Keep in mind that a 51% attack doesn't guarantee anything, it just increases
the likelyhood that you can reorder transactions.

------
jhallenworld
The example clarifies my feeling about blockchain: How would the example
provided (avoiding the clearing house) work without the banks accepting
something like a mining-backed crypto-currency like bitcoin?

With bitcoins, there is no possibility for dispute: bank A gives bank B the
money during the transfer.

Any other scheme involves a promise (a legal contract), so you will not know
for sure that bank A really had the money to give to bank B. The solutions to
this are all in use today:

(1) Bank A previously gave B money (they have a correspondence account in B).
So the transfer is really between accounts at bank B.

(2) Bank A gives bank B physical money.

(3) Bank A transfers money to B between accounts at some other bank (or the
fed). It means A had money in the other bank to begin with.

(4) Bank B gives credit to bank A (i.e., Bank B trusts Bank A) and accepts
IOUs from them. The banks could cancel out each others IOUs. The IOUs become
new money. This used to be done in the old days, but the basis for trust was
each bank's gold reserves.

~~~
gbarc888
In scenario (4), they're bank-backed crypto-currencies. Banks are trying to
build their own settlement coins: [http://www.coindesk.com/utilities-
settlement-all-about-banks...](http://www.coindesk.com/utilities-settlement-
all-about-banks-not-blockchain/)

~~~
bachback
other approach is issued ColoredCoin by banks - Lykke.com does this. then you
get pricing of assets. fiat money are already "settlement coins", the question
is about liquidity, risk and openness.

------
kfk
Can somebody explain me how we deal with the increasing size of a blockchain?
I get moore's law etc., but other than that? I mean, it's trillions of
transactions we are talking about. Federated servers? We break the chain in
some way?

~~~
pipermerriam
Any blockchain client for any chain (Bitcoin, Ethereum, Dogecoin, ...) could
very easily implement a storage layer for the underlying blockchain data using
a protocol like IPFS.

[https://ipfs.io/](https://ipfs.io/)

In this model, individuals would not need to store the entire chain as they
could lazily fetch parts of the chain as they are needed. This would allow
individuals to store very little of the historical blockchain data if their
use case doesn't require them to access that historical data.

There are nuances to this solution. IPFS can be thought of as one giant
torrent, and with torrents, someone must have the part you need for you to be
able to fetch it. There is a theoretical failure mode in this model where
_everyone_ happens to delete the same part of the blockchain thinking that
they won't need it and if they do they'll get it from someone else. In this
case, this portion of the chain history would be lost. This failure mode
should be simple to mitigate, especially since many people participating in
the network need access to significant portions of the historical data, and
everyone won't use the IPFS based storage layer so, when a chunk is not
available over IPFS, the client can just fetch it over normal means.

~~~
valkea
How would you ensure the validity of the part of the blockchain you are
reading from IPFS?

~~~
DSMan195276
You may be aware, since you're asking the question, but you really can't
without some other information.

If you have block D, and want to fetch block A, you don't actually know if
it's the real block A unless you also have blocks B, and C. Block D (which you
have) contains the hash of block C, which contains the hash of block B, which
contains the hash of block A. You need the hash of block A to be able to
verify that it is indeed the real block A.

Of course, because of things like SSL/TLS, you can be sure nobody tampered
with the block on it's way from the server to you. With that in mind, ensuring
you receive the real block just requires you to trust the server giving you
the blocks, which may or may not be worth it depending on how much time/space
it saves you. In some ways, the server would become your 'central authority'
on the block-chain.

In reality though, I can't really imagine there's much they could do. Sending
you fake blocks may work for a while but would fail if the client caches them
and asks for the surrounding blocks (Their fake block isn't going to match the
hash of the real block). I think it would be a bit hard to pull off for any
length of time.

~~~
tromp
> unless you also have blocks B, and C.

It suffices to have the headers of blocks B and C. Which, at only 80 bytes per
header, is quite manageable.

~~~
thefreeman
Are you sure? The header for C will tell you the hash of B. How will you
verify the header given for B if you cannot hash the entire block and compare
it to the hash you got in the header of C?

~~~
pash
Each block's header contains a hash that is the root of a Merkle tree [0] of
the transactions in the block. The Merkle-root hash effectively summarizes all
of the block's transactions, which allows the overall block hash to be a hash
just of the constituents of the header.

Thus if you have the header, you do indeed have everything you need to produce
a hash and verify that it matches the hash referenced in the succeeding block.
You do not need the information describing individual transactions.

0\.
[https://en.m.wikipedia.org/wiki/Merkle_tree](https://en.m.wikipedia.org/wiki/Merkle_tree)

------
andrewfromx
"the only thing previously stopping the standardization of reconciliation
processes was the unwillingness of financial institutions to collaborate.
Financial institutions spend $65-80 billion on back office reconciliation
every year. The employees working in back offices probably offered lots of
excellent reasons why their roles couldn’t simply be standardized away."

------
drum
Being a general ledger, the Blockchain also can be used as a more professional
way of proving you made a prediction at a certain time. Sure, as an
individual, I can tweet where I think the P/E of Amazon will be in a year and
refer back to it to prove my point, but is that the best way for a financial
institution? Having an entry in the blockchain has a more business oriented
feel to it.

~~~
spullara
Neither one of these is compelling to me as you have to prove that this was
the only prediction you made and you aren't cherry picking the correct ones.

~~~
Kinnard
Why can't you place multiple bets? Hedging?

~~~
spullara
Goes back to an old stock prediction scam. You choose 1024 and send 512 the
prediction that a stock will go up and 512 the prediction that the same stock
will go down. Each day you repeat this process only with the group where you
were right. So, 512 -> 256 -> 128 -> 64 -> 32\. Eventually you have a small
number of people that think you can predict the future and you can ask them
for money that you will invest on their behalf.

~~~
twblalock
This also happens in the sports betting world. People use this method to
convince others that they can consistently predict the outcome of games, or
the spread, or the other stuff people want to bet on.

~~~
coriny
Nicely demonstrated in Derren Brown's "The System":
[https://www.youtube.com/watch?v=9R5OWh7luL4](https://www.youtube.com/watch?v=9R5OWh7luL4).

Though we've rather ruined the twist ...

------
Avalaxy
We keep seeing a lot of examples of how Machine Learning can really innovate
and reinvent all sorts of processes (i.e. the vegetable sorting we saw on HN
yesterday), but when it comes to blockchains, it seems that it's mostly talk
about how it could potentially change everything, but so far I haven't seen
many very useful examples that couldn't have been done without using a
blockchain (the whole blockchain thing often seems to be used just for the
coolness factor).

Can anyone provide some ideas of how I, as a solo entrepreneur, could improve
software by using a blockchain? I get how it might provide tremendous values
for bigcorps, but I'm not part of that audience.

~~~
heliumcraft
[http://dapps.ethercasts.com/](http://dapps.ethercasts.com/)

~~~
Avalaxy
Are any of these dapps really in use and making a difference? It seems to me
that the listed dapps are mostly technical proof of concepts. For example: a
decentralized actuary sounds great, but I find it highly unlikely that the
industry is really accepting it. Same goes for flight insurance and option
exchanges.

~~~
heliumcraft
Yes and no. Basically there was and still are major obstacles to widespread
adoption. For example, VERY recently stuff like
[https://metamask.io/](https://metamask.io/) and Mist has been released, which
make this sort of apps more accessible to the average user. light clients
protocol are still under development, there is lots of important scalability
improvements on the roadmap (proof of stake, instantaneous transactions,
unlimited txs, etc..). Decentralized storages such as swarm, IPFS, maidsafe
etc.. are still under development. Overall, there is a lot of experimentation
and throwing stuff at the wall to see what sticks. If you want to develop
production ready stuff that your grandma can use today, you might be better
off waiting 2-5 years until it's sufficiently mature and all the use cases are
obvious. If you like to experiment with new paradigms, new architectures, and
explore new business models then it's an exciting field to be in.

~~~
Avalaxy
Yea that last point is where I'm struggling with. I've done quite a bit of
software dev in the Bitcoin space. I built at least 5 different wallet apps
(mostly contracting), but I'm still struggling with how I can use blockchains
to build other stuff than payment systems. The distributed storage definitely
sounds interesting and I can see how that would benefit certain scenarios.

~~~
heliumcraft
Have you given a look at ethereum? Generally the community there doesn't care
too much about wallets, that should tell you something :)

For usage, one of the mains advantages would be for systems that you don't
want to use a centralized system anymore - for whatever reason from privacy to
control over your data to simply infrastructure reasons (i.e you want 100%
uptime and no censorship), and want to transform it into a decentralized
system.

------
andrewfromx
tldr; this whole breakthru in technology called the blockchain isn't a new
idea at all. Banks have known about "shared" ledgers since 1800s. But because
everyone is talking about Blockchain now in 2016, banks are finally ready to
embrace some standards.

~~~
jnbiche
> tldr; this whole breakthru in technology called the blockchain isn't a new
> idea at all

I haven't read the article, and I been tired of blockchain hype for multiple
years, but if this is an accurate tldr of the article, it isn't true at all.
Blockchains are far more than simple shared ledgers. They're _trustless_
shared ledgers, which is a huge leap forward from simple shared ledgers, and a
pretty big deal for financial institutions, for whom dealing with trust issues
is a major headache.

~~~
zby
The point is that the _trustlesness_ is not needed for the applications
mentioned in the original report.

Also they probably don't want Proof of Work for its wastefulness.

~~~
wpietri
Or, I'm sure, its relative slowness. LMAX can do millions of transactions per
second. [1] Bitcoin is doing, what, 3 TPS? And I don't mean 3 million, just 3.
(I get that from ~1600 transactions per block [2] and 1 block per 10 minutes.)

Back when I was doing trading systems, my traders would have murdered me if my
response time graph looks like the Bitcoin one does. [3]

[1]
[http://martinfowler.com/articles/lmax.html](http://martinfowler.com/articles/lmax.html)

[2] [https://blockchain.info/charts/n-transactions-per-
block](https://blockchain.info/charts/n-transactions-per-block)

[3] [https://blockchain.info/charts/avg-confirmation-
time?timespa...](https://blockchain.info/charts/avg-confirmation-
time?timespan=all)

------
jsprogrammer
>The 130-page report reminds me of those old Coca-Cola ads that promised to
cure everything from headaches to exhaustion. The ads worked because nobody
really knew what was in a Coke bottle.

I would have thought it was the coca.

>Similarly, the term “blockchain” has been so misappropriated that no one
knows what it means anymore.

Thankfully, those who no longer know can just grab the paper at
bitcoin.org/bitcoin.pdf and get a refresher.

