Blockchain

mwpt

Generali wrote: »

Cheers mwpt.

If my wages are going to be paid into a system then I would quite like to understand how I can turn those wages into food, shelter, paying tax and other liabilities and perhaps hold some of the ledger entries as savings for an uncertain future.

If there is nobody keeping the ledger or at least setting the rules underlying the ledger then how can I be sure that the ledger is legit?

Well, again, that's a different question to "what is blockchain". When a real ledger exists, there must be some implementation of the blockchain technology, ie. bitcoin. We need to get that concept clear in order to answer the question above.

And the entire point of the technology is that the ledger is not owned by a single person. There are articles explaining this, which will do a better job than I can. But if I can try, because it is also something I'm interested in and it helps me think it through.

Let us examine bitcoin, as a use of blockchain. I'm going to examine the utopia that bitcoin supporters would like to exist (or some of them):

Bitcoin becomes widely adopted. It essentially replaces fiat. Your employer transfers bitcoin to you each month. You landlord accepts bitcoin, you transfer bitcoin to her each month. The local supermarkets accept bitcoin, you shop for food using bitcoin. The government accepts bitcoin and your employer deducts tax and pays them or you do your tax return and pay them.

Now, in this utopia, everyone is running the bitcoin software on their machines. The ledger is on every single machine on the network. Everywhere. And in order to modify this ledger difficult mathematical calculations must be done. I'm going to skip a bit here that is interesting but complex and detracts. Once a modification is made to the ledger, other nodes are notified which will verify the calculations. If they agree, they write the entry to their own ledger. If they disagree, they simply discard the transaction. Once over 50% of the network agrees, you have a consensus and the transaction is real. So you can't force another users computer to update the ledger with a fake transaction unless you hack their computer. In the utopia, it's impossible to hack > 50% of all the nodes, so this is why it's called a distributed but secure ledger. So in theory, your bitcoin is safe in this sense.

On the other hand, you also must keep your bitcoin somewhere. This is often done in a highly secured virtual wallet, either on your PC or online somewhere. This is prone to a completely different sort of attack, plain old theft and so comes with a different set of problems.

You may have heard of the guy who had 7500 bitcoin on an old hard drive which he threw out when the price of bitcoin was miniscule.

Almost certainly I've got some of that wrong, I'm not an expert and I'll deliberately avoided going too deep. Better explanations elsewhere.

Generali

mwpt wrote: »

Well, again, that's a different question to "what is blockchain". When a real ledger exists, there must be some implementation of the blockchain technology, ie. bitcoin. We need to get that concept clear in order to answer the question above.

And the entire point of the technology is that the ledger is not owned by a single person. There are articles explaining this, which will do a better job than I can. But if I can try, because it is also something I'm interested in and it helps me think it through.

Let us examine bitcoin, as a use of blockchain. I'm going to examine the utopia that bitcoin supporters would like to exist (or some of them):

Bitcoin becomes widely adopted. It essentially replaces fiat. Your employer transfers bitcoin to you each month. You landlord accepts bitcoin, you transfer bitcoin to her each month. The local supermarkets accept bitcoin, you shop for food using bitcoin. The government accepts bitcoin and your employer deducts tax and pays them or you do your tax return and pay them.

Now, in this utopia, everyone is running the bitcoin software on their machines. The ledger is on every single machine on the network. Everywhere. And in order to modify this ledger difficult mathematical calculations must be done. I'm going to skip a bit here that is interesting but complex and detracts. Once a modification is made to the ledger, other nodes are notified which will verify the calculations. If they agree, they write the entry to their own ledger. If they disagree, they simply discard the transaction. Once over 50% of the network agrees, you have a consensus and the transaction is real. So you can't force another users computer to update the ledger with a fake transaction unless you hack their computer. In the utopia, it's impossible to hack > 50% of all the nodes, so this is why it's called a distributed but secure ledger. So in theory, your bitcoin is safe in this sense.

On the other hand, you also must keep your bitcoin somewhere. This is often done in a highly secured virtual wallet, either on your PC or online somewhere. This is prone to a completely different sort of attack, plain old theft and so comes with a different set of problems.

You may have heard of the guy who had 7500 bitcoin on an old hard drive which he threw out when the price of bitcoin was miniscule.

Almost certainly I've got some of that wrong, I'm not an expert and I'll deliberately avoided going too deep. Better explanations elsewhere.

Well AIUI, and if we use Bitcoin as an example, a group called BTC has a little over a third of the ledger between them. Now that group has (supposedly) voluntarily stopped becoming bigger.

It's not that much of a leap from 33% to 50%+1. Once you get to 50%+1 you control the ledger.

How about the Chinese Government was to subsidise mining for the BTD network (that currently exists only in my mind) just to get to 50%+1. They just chipped in a bit of the computing power needed to get over the line for each new block.

mwpt

Generali wrote: »

Well AIUI, and if we use Bitcoin as an example, a group called BTC has a little over a third of the ledger between them. Now that group has (supposedly) voluntarily stopped becoming bigger.

It's not that much of a leap from 33% to 50%+1. Once you get to 50%+1 you control the ledger.

How about the Chinese Government was to subsidise mining for the BTD network just to get to 50%+1. They just chipped in a bit of the computing power needed to get over the line for each new block.

This is why I said it was a utopia. In the utopia, everyone runs a node and it's impossible to hack. In reality, there is very very little take up of bitcoin and big players control a lot of the calculations and so it is closer to being vulnerable.

There are lots of problems with bitcoin. Some modifications of blockchain apparently solve them but those are different currencies. So which currency should a person back? Why bitcoin, just because it was first and is the biggest? History proves this is hardly a good decider.

Bitcoin may or may not end up being widely used but at the moment there is no advantage to it for me in my everyday life so I don't use it. Most people who own it don't use it either, they hoard it in the hope that they can become rich in the future.

princeofpounds

Interesting points.


I haven't been following blockchain at all (apart from the sometimes amusing stories that have accompanied the rise and fall of bitcoin).


But with regards to the original point, I think there is indeed a difference between the capabilities of blockchain and the necessities of a transaction system.


It works very well as a ledger (in stock market terms, something between a depository and custodian perhaps), but I'm not sure it would function properly as a clearing house.


Mind you, I don't know the technicalities but would the clearing function itself need to be distributed? and if it did, could it not be coded that way? I assume there is a general principle of distributing information behind blockchain and similar things.