I normally don't blog about technologies or systems which I have not personally designed and involved in the development ,and hence have an in-depth understanding, so if anything in this blog is not technically accurate, please contact me and I will correct.
Here goes..
I keep hearing that "blockchain" and other distributed consensus technology can revolutionise the payments, clearing and settlement infrastructure of the financial system and that, no, the existing bitcoin blockchain just won’t do. (which suits bankers fine, as few were ever anything to gain from bitcoin the world’s most popular crypto currency, outside of the control of any bank).
Then enter the marketing and media guys and almost every day, there is yet another committee, seminar, or incubator announcement, using the bitcoin blockchain?
What’s going on!?
My conclusion is that most of the people discussing bitcoin haven’t actually looked under the hood, and have very little knowledge about how bitcoin actually works. It reminds me of the whole "Digital Signature" exercise all over again, people with vested interests push technologies they don't understand.
I've also noticed that enthusiasm for bitcoin tends to be inversely related to one’s understanding of it, and of course that famous "white paper" by yes an faceless, anonymous person, so lets start there.
A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution. Digital signatures provide part of the solution, but the main benefits are lost if a trusted third party is still required to prevent double-spending. We propose a solution to the double-spending problem using a peer-to-peer network. The network timestamps transactions by hashing them into an ongoing chain of hash-based proof-of-work, forming a record that cannot be changed without redoing the proof-of-work. The longest chain not only serves as proof of the sequence of events witnessed, but proof that it came from the largest pool of CPU power. As long as a majority of CPU power is controlled by nodes that are not cooperating to attack the network, they’ll generate the longest chain and outpace attackers.
Hmm a system in which anonymous, programmers and crypto geeks are required to always act honestly for the sole good of the bitcoin community. Yep in the sense of securities settlement it is all built on a house of cards, but lets dig a bit deeper, so we can understand why..
It has been known for a long time, at least two decades from my memory, that cryptographic signatures and public keys can be chain-linked to form a set of
unforgeable records (its known as a X.509 certificate chain, and in use by almost everyone daily via SSL)). This same cryptographic chain of signatures can be applied to any records or set of transactions for, say, digital cash (or any ledger record for that matter). Counterfeiting ledger assets is impossible, and theft or misappropriation cannot happen without gaining access to the asset owner’s private key.
If I give you crypto-proof that some asset belongs to me and that I just transferred it to you, you have no way of knowing that I haven’t already done that with someone else, unless we can both refer to a definitive ledger of timestamped and crypto-signed transactions. Let’s say this ledger is maintained and hosted by some trusted third-party. The third-party cannot forge any ledger entries, as each entry is signed by each party, so what’s the problem with this setup?
There are three problems:
- The third party could delete a transaction, reversing history
- The third party could censor a transaction, refuse to enter it into the ledger
- The third party could forge a transaction, create or alter a transaction.
And it’s not just the third party itself who has this power, it’s also the government who regulates the third party, or the hacker who infiltrates the third party. For bitcoin, using a trusted third party for this task loses some of the “main benefits” of the crypto framework as real world third parties have a real-world identity (a registered business, an IP address, etc) and if known, these third parties can be censored by governments, shut-down, fined or imprisoned. One of the key design goals behind bitcoin is censorship resistant digital cash.
First, bitcoin is a
peer-to-peer network. It is
architecturally decentralised or P2P, it is not distributed (it seems like no-one has actually read, or understands, Paul Baran 1964 paper)
. It is a fact that there is no single "bitcoin server" where those chain-linked blocks of transactions (transactions that are themselves also chain-linked via crypto signature) are stored. Instead, the transaction record is stored (well distributed, replicated) across all of the P2P nodes on the network. There is still only a "single" bitcoin block chain in existence, which is a shared resource of the P2P network. Over an extended period of time, currently about six block counts from any transaction. Anyone can be a node on the P2P network anonymously. This is what’s meant when people say that bitcoin is a “permission-less” network. This single blockchain resource "replicated"across potentially an unlimited number of P2P nodes is also an architecture defect, what is required for any scalable solution is a fully distributed architecture, just like the internet, where "data and processing" is fully distributed; but lets leave this discussion for another day..
Most people understand a timestamp to mean something generated by an accurate clock. But this, is a peer-to-peer network, so it doesn't have a "clock". The nodes on the network have clocks, but since these nodes could be anyone, you can hardly trust the timestamp of any given node. So how does exactly does the bitcoin network “timestamp transactions”?
What bitcoin means by ‘timestamp’ is in fact the
ordering of blocks of transactions. This block of transactions came immediately after that block of transactions. It is in this sense that the “network timestamps transactions”. And it does this in a very cleaver way, “by hashing them into an ongoing chain of hash-based proof-of-work.”
This is the point where many people get lost. Before moving on, lets trash all mention of any link between bitcoin and Gold mining they are simply not relevant concepts within bitcoin and simply trend the discussion down rat holes. Done...lets move on..
The basics are quite simple, we just need to first agree a few concepts firstly. A “hash-based proof-of-work” is a solution to a problem, a hash problem. The “hash” refers to a branch of mathematical functions called “cryptographic hash functions”. They have a neat feature that whatever data you put into one of these functions, they effectively return a pseudo-random number of the same bit size. You can’t really predict what value the function will return given a certain input, without actually computing the function. Between inputs and outputs, there is no easily predictable correlation or pattern, The SHA256 bit function chosen by bitcoin is good at this, sometime simply watch the outputs change, a single bit input change will typically produce a full 256 bit output change, very cool... I digress, sometimes technology is just cool.
In bitcoin the hash
problem is like “input into the hash function a (1) bunch of transactions along with (2) the hash of the previous block of transactions and (3) an arbitrary number N; if the hash function returns a value below some number D, problem solved, if not, increment N and repeat.” There’s no way to solve this problem except through iteration. So you set your computer to the background task of running billions of hash computations until it solves the hash problem. No rocket science here...
And that’s why it’s called “proof-of-work”. The problem is hard to solve, it requires
work (consuming MIPS, and electricity). But once it’s solved, you can
prove to someone else that you did the work to solve it. Just show them the data (a bunch of transactions plus the hash of the last block) and that winning number N and let them calculate the hash. If the hash value is the same below-D number that you say it is, they have proved that you solved the problem. The problem is hard-to-solve but the solution is easy for others to verify.
So this is how the bitcoin network timestamps transactions. The nodes on the network (“miners”) , actually "hashers", but not nearly as cool a name, collect transactions that bitcoin senders broadcast and each hasher, works at solving the hash problem over a set of transactions. Whenever a node solves the hash problem, it broadcasts the
block of transactions along with the proof-of-work. The other nodes verify the work and start hashing on top of that block (i.e., including its hash in the input of the hash problem).
And this is what bitcoin means by “forming a record that cannot be changed without redoing the proof-of-work.” Nodes on the network build on top of the “longest chain” of blocks. If an attacker wanted to reverse the history, say, 5 blocks back, he would have to redo the proof-of-work of those 5 blocks before other nodes would start accepting that his version of history is
the version (because it’s the longest chain). And that’s no mean feat. We will simply forget the issues with forks and how a single blockchain is generated, also a separate topic sometime, but for now a single blockchain is being built, typically 6 blocks ahead of an actually confirmed transaction..
This is a neat result. If every node follows the rule that the chain-linked set of blocks with the most work behind it is
the blockchain, then every node’s local copy of the blockchain will be exactly the same. And if an attacker wished to maliciously replace part of the “sequence of events witnessed” by the network (eg, one where he made a big payment to someone) with an alternative version of history (eg, one where he didn't make that payment), he would have to redo the latest work of the longest chain, and do this work at a faster rate than the rest of the network combined. Hence, he needs to control in excess of 30% of the network’s total MIPS power. Of coucs there is an obvious defect in the above logic, as the block chain must grow, it becomes computationally infeasible (time taken) for any independent observer to actually download its own copy of the "total" block chain and verify all of the blocks and transactions from the "genesis" block, to the current transaction, but also a topic for another day.. let stick to the main thread of this blog..
And that, in a nutshell, is bitcoin’s security guarantee. If you’re comfortable believing that an attacker is unlikely to ever pull together more than a third of the network’s total computing power, you can trust in the blockchain’s record of transactions. Unlike with the case of a database hosted by a third-party, there’s no easy way for record entries to get “deleted” from the blockchain. As you can see there is no fancy maths behind the security of bitcoin at all. The only reason that a cryptographic hash function is used is that a hash-based proof-of-work problem has the property of being hard-to-solve-but-easy-to-verify. Any function which has asymmetry in solution/proof would do just as well. Without this asymmetry the network would grind to a halt if everyone had to redo everyone else’s work. But with a hash problem you can easily prove that you did the computational work to solve it, even though the solution is utterly useless maths. Hence it is now obvious that the the security behind proof-of-work is not “based on maths” at all.
If one takes nothing else from this blog, it should be that "bitcoin" is NOT backed by maths...
This is an
economic model of security, not a cryptographic one. Proof-of-work requires an attacker to make a substantial
capital outlay to have any chance of pulling it off. You have to buy the computing MIPS, pay the electric bill ect. In fact today, bitcoin mining is in more like a computing oligarchy than a computing democracy. Sorry.. bitcoin "hashing", there is absolutely no Gold anywhere in bitcoin.
In bitcoin you have no way of authenticating the real-world identity of any node, this allows a single attacker to masquerade as a bunch of different identities and gain control of the network, no-one can tell whether 1000 nodes are really 1000 different people/entities or just one guy behind them all pulling the strings.
Computing power alone equals voting rights in bitcoin. Now in the original bitcoin world, authentication wasn't an option, because if the real identities of the nodes are known to all, governments or criminals could compel those nodes to censor transactions and KYC/AML transaction senders.. or just criminalise the whole thing and arrest the operators behind the nodes.
Hence the bitcoin protocol is not only architecturally decentralised, it is also
politically decentralised. The network has no gatekeepers, you don’t need permission to join. The only admission criterion to contributing to the network’s consensus is access to computational power. One could discuss the whole concept of the Global "decentralised collaborative organisation" which bitcoin has effectively created, yes there lots of cool "social engineering" stuff within bitcoin, but also a topic for a another day.
As long as a majority of CPU MIPS power is controlled by nodes that are not cooperating to attack the bitcoin network, they’ll generate the longest chain and outpace all attackers.” But if an attacker has access to more than 30% of the network’s computing power, all bets are off!.
As at May 5, 2015, there were four major bitcoin pools each controlling at least 10% of the mining mining power. Together, they control 58% of the mining power. That means that if the four individuals operating these pools decided to work together, they could rewrite the bitcoin blockchain! And this assumes that each address is an independent group, which may not be a factual assumption.
Note there are some alternative to bitcoin systems proposing a "proof-of-stake" and slight modifications to this, as an alternative to "hashing power, but these all have the same underlying issue, its simply a matter of the point they all become "centralised".
Hence we are back at my opening remark, "bitcoin is a system in which the total security is based upon anonymous, programmers and crypto geeks, or anyone who has CPU MIPS, to always act honestly for the sole good of the bitcoin community".
The main protecting force of bitcoin today has been people's good will and lack of sophistication, and the fact that there is no real risk/reward in attacking the bitcoin mining network. We are still seeing the "early" adopter skewed rewards which still make mining disproportionally attractive. Some 80% of all mined bitcoins todate are still being hoarded. Where bitcoin value is "concentrated" and the rewards of a successful attack are higher, such as Mt Gox, millions were lost; bitcoins response, do nothing. I have seen posts where, the position is, any loss has nothing to do with bitcoin. Perhaps a valid comment for a group of crypto geeks, but not for mums and pops using bitcoin.
This is security 101, where risk is proportional to "one time loss", threat source capability and probability of success. The greater than 30% of network computing power threat is actually directly related to the probability of success. Additionally the poor bitcoin tps is forcing lower block chain counts to confirm transactions, which increases this risk, as does the proposal to increase the bitcoin blockchain header size,and reduce the rate at which "hashing" is successfully.
If billions of dollars worth of securities are represented through meta protocols on the bitcoin blockchain, as some are eagerly trying to push..will result that attackers will have a way of constructing a
scalable payoff for attacking the network. Acquiring a substantial portion of the network’s hashing power is not an insurmountable goal. What’s required is a sufficiently large
monetary incentive to execute the attack. Putting billions of dollars worth of financial assets on the bitcoin blockchain materially changes an attacker’s incentives. Basically it increases the Risk of a loss. Managing risks is a fundamental part of any payment or securities exchange, they have teams of people that do nothing else, there is zero risk management within bitcoin.
As an example, in real world commercial applications, consider that many, single mainstream finance deals routinely outsize the entire market cap of all of the cryptocurrency currently in existence; this begs the question of how to properly incentivise transaction verification in the “trustless” model when a particular deal has more value than the entire market cap of the system.
Bitcoin transactions can then be reversed if the attacker is willing to make the capital outlay to acquire the hardware and expertise and pay the electricity bill required to pull it off (bribing a couple of large mining pools is probably the path of least resistance). For all we know, criminals may already be in the bitcoin mining community. If the attacker is successful, the attack in theory costs nothing, as the attacker collects the mining award of the blocks he solved that “replaced” the original transaction history, blocks that he made into a fork that is now the chain with the most work behind it.
It might seem crazy to the uninitiated that this “append-only” distributed ledger which is the bitcoin blockchain, by design, contains an avenue for deleting history. After all, everyone saw those blocks of transactions before they were overtaken by the attacker’s fork. Nobody will be fooled that the protocol’s “network timestamp” corresponds to the ordering of transactions that
actually occurred. But that’s how the protocol works:
the bitcoin blockchain is the chain of blocks with the most work behind it, this is bit coin voting in action. This is the price you pay for the censorship-resistant design.
Indeed, in the case of bitcoin, crypto-geekery offers nothing like an escape from the power dynamics within our society. One merely escapes to a different set of rules, not one controlled by ‘politicians’ or large corporates, but one in the hands of programmers and those in control of computing power. In fact there is no need for any real entity to be associated with any mining operation, it can simply be spawned MIPS based upon a set of "evolutionary" programming rules.
It is only when we think in these terms that we start to see bitcoin not as a realm ‘lacking the rules imposed by the state’, but as a realm imposing its own rules. It offers a form of protection, but guarantees nothing like ‘empowerment’ or ‘escape’. The concept of truly anonymous transactions are also not a fact within bitcoin.
When disassociated from the programmers who design them, trust-less MIPS based block chains floating above human affairs contains the spectre of "rule by algorithms". end soapbox.
The Facts
To serve as a replacement for the legacy technology implementing book-entry assets, a distributed ledger of financial assets will have to ensure a tight correspondence between what the ledger and the law say is the state of who-owns-what. This is obviously incompatible with a protocol based on anonymous transaction validators; the law will not treat a ledger record as authoritative if everyone knows that the current longest chain contains blocks generated by an anonymous attacker who replaced a bit of history that was chronologically prior. But the bitcoin protocol has no mechanism for dealing with this scenario, no mechanism for bringing ledger state and legal state back into alignment. How could it…remember bitcoin’s design goal.
The financial system and its regulators go to great lengths to ensure that something called
settlement finality takes place. There is a point in time in which a trade brings about the transfer of ownership–definitively. At some point settlement instructions are irrevocable and transactions are irreversible. This is a core design principle of the financial system because ambiguity about settlement finality is a systemic risk. Imagine if the line items of financial institution’s balance sheet were only probabilistic. You own X shares of Y with 97.5% probability. That is, effectively, what a proof-of-work based distributed ledger gives you. Except that you don’t know what the probabilities are because the attack vectors are based not on provable results from computers science but
economic models. Do you want to build a settlement system on that premise?
Of course not. And you don’t have to because there are many ways to design distributed, shared ledgers, depending on your goals. And I’ll venture to guess that censorship resistant securities transactions is not the reason why financial institutions are looking at distributed consensus technologies. Their goals are rather different from bitcoins’s. Increased transparency is one, largely driven by the belief that regulators will grant concessions on capital charges for trades cleared through settlement systems that offer this. Efficiency through automating the back office is another. But probably the main goal is increasing the
speed of trade settlement.
Now a few more facts, bitcoin is currently globally processing ~ 4.8 tps over the last six months I looked for this blog, and has a theoretical maximum of 7 tps. Yes this is less than 10 tps to run a global securities settlement system on, so why is there any discussion linking bitcoin and securities settlements? Do these proponents actually understand what they are suggesting, or is it the "dot com" boom/bust cycle all over again.?
Nothing in what I have said here is meant to take away from the inspired, solution that bitcoin implemented for censorship resistant digital cash. There is no reason why society should not have a digital cash that replicates the same anonymous and permission less properties that we already enjoy with physical currency, be it with higher risks. The point of this blog is to demonstrate why bitcoin is not suitable for assets with significant value and hence one time loss i.e Risk.. and in particular is not suitable to "anchor" any of these transactions, via abstraction.
The ongoing proposition that security interests and other property titles should also be cast in the same bearer asset needs to stop. Few actually want this, and, anyway, few jurisdictions will actually allow it. (In fact, it’s looking increasingly likely that few jurisdictions will even grant bitcoins bearer asset status.) This is not a serious idea.
If you are prepared to use trusted third parties for authentication of the
counterparts to a transaction, I can see no compelling reason for not also requiring identity authentication of the
transaction validators as well. By doing that, you can ditch the gross inefficiencies of proof-of-work solution that is not only tens of thousands of times more efficient, but also places a governance structure over the validators that is far more resistant to attackers than proof-of-work can ever be.
Scalability, Consensus and bitcoin blockchain stuff...
Scalability is now at the forefront of the technical discussion in the bitcoin scene, and it has not yet being used, in a "commercial" sense. This is one fundamental issue with all bitcoin derived or variants designs that needs to be addressed. Out of all of the various proof of work, proof of stake and reputational consensus-based blockchain designs that have been proposed, not a single one has managed to overcome the same core problem: that every single full node must process every single transaction. Having nodes that can process every transaction, even up to a level of thousands of transactions per second, is possible; centralized systems like Paypal, Mastercard and banking servers do it just fine. However, the problem is that it takes a large quantity of resources to set up such a server, and so there is no incentive for anyone except a few large businesses to do it. In bitcoin all of the resources are being focused on useless "hashing". Should this happen, then those few nodes are potentially vulnerable to profit motive and regulatory pressure, and may start making theoretically unauthorized changes to the state, like giving themselves free money. All other users, which are dependent on those centralized nodes for security, would have no way of proving that the block is invalid since they do not have the resources to process the entire block.
Additionally a simple analysis of these approaches will easily show they, they all deprecate to a "centralised" solution at some point, the concept of distributed consensus is an illusion, and cannot be relied upon to form the basis for any block chain security.
Risks
Below is just a quick set of risks, I considered after a couple of hour looking into bitcoin; these are not meant to be a definitive, or complete set of residual risks within bitcoin, they simply illustrate the lack of basic "commercial, and security considerations" which existing security settlement solutions have gone though over the last 20 years. Some of them can be ready addressed in future evolution of bitcoin, others not so sure.. the point is they were not considered, and potentially many more exist today, which can be exploited, leave that task to the "bitcoin" experts.
Some are fundamental security policy issues, others are just basic design defects, and yet others are normal commercial considerations, which any bank or market participant or exchange would traditionally consider, as part of any due diligence on any new protocol.
Transaction Ids and Transaction malleability risk?
Due to a basic design flaw in the bitcoin network.. a lone programmer with nothing else to do, decided in the first week of October to attack the bitcoin network, by exploiting the transaction malleability defect.
"
Whether amaclin is telling the truth is hard to verify. But the fact that he could be telling the truth, the fact that a networkwide attack on the Bitcoin network could be carried out by a bored individual with some coding skills, is probably quite telling in itself."
Gosh, one cannot "trust" every programmer in the world, who would have thought?
"
Additionally, amaclin argues that Bitcoin is fundamentally broken. He specifically points out that the incentive structures of Bitcoin’s development process do not align well, as users are not incentivized to reward developers for their work building and maintaining Bitcoin. By attacking the network, amaclin believes he is revealing that only a small number of developers can fix the issue, while most Bitcoin users expect them to do so for free. That is an unsustainable proposition, amaclin says."
Probably the truth?
Front Running?
If a malicious miner sees a big buy order coming into the market that would move the price significantly, they can engage in front running - the buy order could be pushed to the back of the queue or even left out until the next block, while the miner buys up all of the current stock and re-lists it at a higher price to turn a profit. Remember typical security exchanges operate at light speed compared to bit-coin. Alternatively, when they see there is a high market pressure coming in, they can buy the orders up one by one by using their power to include any number of their own transactions into a block for free, and similarly re-list them for people to buy up.
Smart Contracts?
The miners could also try to influence some time-sensitive contracts - maybe some contract deadline is about to come up and the miner stalls the transaction by one block? That could change the outcome of the contract.
All in all, there is a lot more a malicious miner can skew in their favour within an asset system than they could do in a traditional currency system like bitcoin.
Terms of Service?
There is no terms or service, which "hasher's" follow?
Who are you going to call when that "fat finger" moment occurs, well no-one!, as everyone is anonymous..
Legal Risk?
Any existing legal system will likely never recognise a system of property titles that can be reversed by anonymous or pseudo anonymous "validators". In a number of proposals I have looked at it is impossible to quantify the probability of a history-reversing attack ( as it is economics based security, not technical).
Regulatory Risk?
An unregulated payments and currency system with no AML, why is it still operational?
The real answer is straight forward, as shown below, this may all change when bitcoin moves from the too-small-to-care into the too-large-to-ignore space?
Sacrificing safety over liveness and fault tolerance
The Fischer Lynch Paterson impossibility result (
FLP) states that a deterministic asynchronous consensus system can have at most two of the following three properties: safety (results are valid and identical at all nodes), guaranteed termination or liveness (nodes that don’t fail always produce a result), and fault tolerance (the system can survive the failure of one node at any point). This is a proven result. Any distributed consensus system on the Internet must sacrifice one of these features.
What happens when consensus is not reached: A fork in the ledger.
Security
Any security
professional knows that crypto is != to security. Trust (security) is only as good as its weakest link, in the case of bitcoin there is no security policy at all, anyone can do anything including storing "keys" on insecure Operating Systems, the very first real crypto currency Mondex, back in 2001 understood this basic fact, yet some how in the intervening years this fact have been forgotten. Existing cash, which bitcoin is trying to replace always has had minimal security mechanisms, yet none exist in bitcoin. Like every existing payments system today, at a minimum all keys must be protected within a HSM, pretty basic stuff.
Algorithm Agility, have we not learned anything from the 20 years of electronic payments experience? The cost associated with the DES->3DES->AES changes were enormous as no thought went in originally to the longevity of crypto.. Any block chain ledger must from day one be Algorithm Agile, not only to future proof the system, but also to support different "risk" profiles.
This is the same issue with the payments block chain as well as any secure block chain..
Hash Codes
I keep seeing people confuse "hash" with encryption in almost every bitcoin discussion; but the more worrying usage is the growing use of hash chains as security enforcing functions. There is a reason why digital signatures are used, and not just hash chains alone. This usage is becoming wide spread in "side chains" and other applications linking to the bitcoin block chain, one such group claims this security "vulnerability" as a "feature". Hash chains, like their precursor hash tables, have there usage; but not in this context, the reasons are two fold a) hash values are not unique, they have collisions, when used in a hash table or chain they have limited scoipe to prevent the effect of any collisions, b) hash chains can easily be changed (recalculated), see asymmetry in POW above. This vulnerability was one of many reasons, why digital signatures are used rather than hash values or even chains alone.
Same old collective amnesia in action again. Hash collisions is the exact vulnerability which was exploited in the successful bitcoin transaction malleability attack above.
Point two, to take away "Hash" values are Not guaranteed to be unique, they only guarantee that a single bit change in input will produce a different resultant hash output.
Commercial Risk
Bitcoin miners can simply stop processing any transactions from any bank they believe does not act in their, or there perceived community interest, this is currently happening in bitcoin today where some miners are ignoring single low value transactions, there is nothing in the bitcoin protocol that required any transaction to actually get onto any block in the block chain.
"
About a week ago, lead Bitcoin developer Gavin Andresen quietly introduced a patch that would add a fairly significant change to the transaction propagation rules: any transaction with any of its outputs less than 5430 satoshis (0.00005430 BTC) would be classified as non-standard, and will not be included or further propagated across the network by default miners."
The code could be modified to say all transactions with Address of say ANZ, CBA, or Westpac, will not be processed, there is no one in control of bit coin, anything is possible. Similarly groups using bitcoin to "anchor" other assets, could simply find they are "removed" from the network. Many bitcoin developers already object to "coloured" coins usage of the bitcoin block chain..
Also today, for less than 2BTC in fees an actor can disrupt and clog the bitcoin network for hours..
Control/Ownership Risk
Its a simple fact, all banks, market participants ect, want to own and control the block chain ledgers which underpin their business. They have shown they are willing to let a third party like SWIFT handle cross boarder, low level connectivity networks but that is about as far as it goes..
The concept of any bank or participant all using a single "uncontrolled" public bitcoin block chain or anything that relies on it, is commercially flawed, and will not fly.
All Banks and exchange participants, "need" to own and control all aspects of the Block Chain Ledger Technologies, without any fear of patent infringements..
System Risk
A settlement system, is much more than just a blockchain. What is required is a complete eco-system which has all the resources to make and keep it secure.
At a minimum it needs
- HSM backed keys
- BYOD mobile device management, loss, theft, compromise
- Secure Identity, with optional full AML/KYC
- Scalable, distributed solution for at last 1 Million transactions per day per settlement node.
- Support for real-time "liquidity" viability
- Support various risk profiles, via selectable algorithms, must be able to address future quantum computing advances without destroying any past transaction.
Where to now?
Ok, so the above is a bleak picture for all those groups, blindly linking applications, other than bitcoin to the bitcoin block chain today..
In short DONT!
KISS to the rescue..
A solution to all of the bitcoin issues above, is very simple to understand and commercially available today, and yes, can support ~ 10,000 tps per distributed node. These Block Chain Ledgers are based on well understood accounting principles such as "
Triple Entry Accounting", which is an evolution, not revolution of double entry accounting, and good old cryptographic "Block Chain". Block Chains and Ledgers have existed for at least three decades, nothing radical here. These Block Chain Ledgers use tried and tested, for at least the last 20 years algorithm suites (not the one in bitcoin), are algorithm agile, and can transparently adapt to future threats. Expect to see these delivered as total eco-systems i.e "settlement-in-a-box" which can be owned and operated (including patent protection) by various parties, which run in conjunction with existing settlement systems. The existing system will never change, its is not commercially viable..
See just one such solution, the first
Payments-> Public Block Chain Ledger.
Lighter side..
As an English speaking person, the correct description is Block Chain, not blockchain.. the noun is "chain", and the adjective is "block".. see history below...Life is too short sometimes..
History before bitcoin:
- Double Entry Ledgers, from 1299
- Hash functions, from 1970's
- Chain of hash entries, BSD rtable, 1977
- Merkle tree, Ralph Merkle 1979
- Cipher Block Chain (CBC), 1981
- Concept of electronic cash, invented by David Chaum, 1983.
- Byzantine Generals Consensus algorithms, 1983.
- Elliptic Curves, discovered by Certicom in 1985.
- First citation of "block chains" Open-Architecture Computer Systems, 1987.
- X.509 certificate chain (chain of hash, signed records), 1988
- FinTech, from 1990.
- First commercial cryptographic based currency, Mondex 1994
- Block Chain Ledger, Patented 2000
- Bitcoin, 2009
Acknowledgements
http://web.cs.ucla.edu/classes/cs217/Baran64.pdf
https://en.wikipedia.org/wiki/Proof-of-work_system
http://www.slideshare.net/MrCollectrix/the-distributed-ledger-landscape?related=5
http://www.technologyreview.com/news/525676/academics-spy-weaknesses-in-bitcoins-foundations/
http://www.cs.cornell.edu/~ie53/publications/btcProcFC.pdf
http://www.cs.cornell.edu/~ie53/publications/btcPoolsSP15.pdf
http://www.technologyreview.com/news/540921/the-looming-problem-that-could-kill-bitcoin/
http://www.technologyreview.com/news/537486/leaderless-bitcoin-struggles-to-make-its-most-crucial-decision/
https://www.youtube.com/watch?v=Lx9zgZCMqXE&feature=player_embedded#t=7
https://erisindustries.com/components/erisdb/
http://arxiv.org/pdf/1311.0243v5.pdf
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