Today, it’s widely common to find the term “Blockchain” completely abused and being stretched to unprecedented areas that actually has nothing to do with “Blockchain”.
In this article, I’ll try to give sense to that term as I see it, and provide logical tools to correctly evaluate how much of a “blockchain” a particular project is.
First thing first, what is the original definition of a “Blockchain”?
This terms was initially conceptualized by Satoshi Nakamoto in 2008 when he introduced Bitcoin, the peer-to-peer digital cash system that successfully achieved double-spending prevention solution.
The term used to describe a unique data structure where each data object is linked to the previous one and that one to the one before it, hence the ‘chain’. This unique structure is only a glimpse from the whole technological solution Satoshi crafted into Bitcoin.
Later on, the term got coined to generally describe the whole technical combination/stack that assembles into a unique platform of a network.
So, the common spread consensus is to regard the term “Blockchain” as to the whole technical stack, not only the actual linked data blocks.
For instance, BTC (Bitcoin) and BCH (BitcoinCash), the 2 famous forks of the original Bitcoin, are fundamentally the same “Blockchain” from technical perspective, although the represents completely different digital assets.
[To be more specific BTC is the original chain, BCH is a fork out of it. From the moment the fork happened, both project also progressed in different directions from development perspective, so they were technologically identical until certain point in time].
Today there is a huge amount of “Blockchain” variations, each attempts to solve different problem from different perspective. Some are empty as an inflated ballon full of empty decelerations.
So the best way to break down the term in order to better understand it is to reference to the original one, Bitcoin.
Let’s get dirty and break down “Blockchain”, while referencing to the original concept.
Blockchain properties mainly are:
- History Dependant Data Structure (aka, the actual chain of blocks):
Compared to traditional databases, where each new piece of data is completely independent of it’s previous, blockchain data has to be linked to it’s preceding history for it to ‘seal past events’ and how we got to the present (current state). For this linkage to make sense, it cannot be sequential (like 0,1,2) as it does not prove the integrity of its pieces. Creating a unique fingerprint identifier and interweave pieces by it will introduce data-integrity. The linkage will play double role; dependancy and integrity, while both promote the irreversibility property. Any attempt to tamper the history will break the linkage between those data pieces altogether, as well allowing other participants in the network to easily validate whether the suggested data is corrupted or legitimate.
- Consensus Algorithm:
If we were talking about a traditional centralized solution, the above scheme would play a pretty good role for providing strong data-integrity protection mechanism. But once the goal is to be decentralized (a term that should be clarified by itself, but for sake of simplicity let’s treat it as “without any single point-of-failure and self-verifiable”), it is needed to provide a mechanism that will allow each independent participant, that holds it’s own local source of truth, to verify and agree on the next piece of truth.
Now, since potentially anyone and anywhere in the world could suggest a ‘truth’, the mechanism should be able to allow participants to suggest new truths, propagate to the other participants, vote on it and as well allow at any point in time to easily verify it’s correctness.
This is very challenging computer-science problem to solve, a distributed-system architecture without any single central authority. This field was researched decades before “blockchain” was introduced, and the way Satoshi figured out how to deal with this challenge is fascinating by itself, but out of scope of this article.
This nature of distributed systems allows every participant to be his own validator that can verify correctness without relaying/trusting any party.
I won’t got into details about Bitcoin’s Proof-of-Work consensus algorithm, as in this scope it’s enough to understand that PoW is the solution to solve the said problem. Given a new ‘brand’ blockchain, it should be tested and asked how it is solving this problem, as it’s isn’t particularly interesting that “this project will save the planet from Bitcoins’s PoW”, it should show the eligible alternative and how it compensates the said challenges.
- Asymmetric Cryptography:
It is essential to understand what it is and why is it so important. It’s so important as it is actually the heart of the whole concept.
Asymmetric encryption is a phenomenal mathematical ‘trick’ which enables two parties to seal a secret message and exchange it between them and at the same time to verify that the message is authentic and wasn’t tampered while on the way.
The ‘trick’ is that each participant generates a unique pairs of keys, where one can be safely shared with the public and the other has to be kept secret. The public key can be used to encrypt a message, while in order to decrypt it one has to use the matching private key. On the other hand, the private key can be used to encrypt a message, that anyone can decrypt it. But wait, what’s the idea to encrypt something that anyone can open? That is where the magic happens. Using this trick, one can declare that he owns a public key, and in order to allow others to verify his claim, he’s encrypting a message that anyone can decrypt with the exact said public key. This technique is heavily used as “digital signature”. And this is the heart of any blockchain, especially Bitcoin. From a ‘ledger’ perspective, this trick allow public verification of private efforts.
Being able to know check authenticity and verify that someone is who/what he declares he is, is the fundamental concept of “Identity”. Identity may come in many forms, as physical natural identity (face, voice, fingerprint, etc.) or authority-issued document. In digital space, identity is a possession of a unique intangible document, the “private key”.
This identity is used to allow you, and only you, to be able to control the pieces of data that were assigned to you. And nobody else, by any chance.
The brilliance of “Blockchain” is the ability to use the said ‘trick’ to split a data into two parts; a completely transparent and public data, and yet be manageable only by a private entity. This fundamental ‘split’ allows the distributed pieces of data to be computable and verifiable, while yet untamperable without breaking the cryptographic seal.
All the above are forming a disruptive paradigm shift in the way of thinking about digital systems, when combined together. But yet, it’s not enough to create a self-sustainable eco-system. It is debatable, but I believe Bitcoin could have ended up as a nice open source project with nothing really so unique about it. Most, if not all, of all the mentioned properties were already proposed/used in various experiments in the past. When individually, they are nothing special. But once combined they create a picture that makes sense. Though, the picture would not be complete without a clear and unique set of incentives to keep the system rolling without anyone pushing it to exist.
Enter crypto-economics. Bitcoin, specifically, was carefully crafted with economic rules that define it’s digital asset to have finite supply, controlled distribution, and managed & decreasing inflation, where, and compared to existing monetary systems (i.e, governmental banks), does not require any intervention from any governance. Participants are incentivized to take part in the system by rewarding them with newly minted assets, and making them as an elegant vehicle of distribution at the same time.
Those are the main elemental properties that make up a “Blockchain”.
Now that we’ve laid out the main characteristics and their role in the “Blockchain”, it should be easier to ask better questions about newly suggested blockchains.
- A blockchain that claims to avoid using “clogged chain of blocks” — how do they achieve data integrity?
- A blockchain that claims to have much faster throughput or less computational power — how do they compensate the challenges of any distributed system, specifically in terms of network propagation and natural partitioning?
- A blockchain that claims to avoid using “complicated private keys management” — how do they compensate the identity and authenticity properties?
- A blockchain that claims to be “fair and avoid concentration of funds in small groups” — How do they compensate self-sustainability and incentivises the pioneering individuals?
This is how I see it and I hope this pragmatic breakdown could shade some light on this so misused term.