sidechains

Blockchain needs to become technically boring

boring-content1

 

Clay Shirky, in Here Comes Everybody, writes:

“Communications tools don’t get socially interesting until they get technologically boring.”

Two examples of boring technologies having a big impact on Fintech are QR Codes and Prepaid Cards.

Blockchain is definitely not boring. It will probably have a bigger impact than QR Codes and Prepaid Cards, but it may still fade into the sunset of overhyped technologies. It is exciting because that is a huge delta – change the world or dustbin of history.

I incline to the former – that Blockchain will change the world.

However, that promise won’t be fulfilled until Blockchain becomes technologically boring. This post looks at why that is true and at efforts to make it technologically boring.

War is exciting too, but not productive

The internecine wars among Blockchain technologists are really exciting for those on the front lines. For the rest of us, who cannot say anything technically profound about SegWit and Lightning Network and Proof Of Stake, it is alienating. Could we just get a product we can use?

The answer is no, not really, not yet. In this post we looked at the scaling challenges. TL:DR: there is still technical risk here. Or to put this another way, build a proof of concept, attend hacktahons and conferences, issue Press Releases, but don’t bet your company’s future on this – just yet.

The technical debates are pretty ugly. It is like watching Blue and Red states in America. There is no middle ground and a lot of dialogue of the deaf – if I shout louder maybe you will hear me and agree with me. The Bitcoin scaling debate has rightly been compared to a Civil War within the Bitcoin community.

The reason that there is so much heated debate is that this is no longer just a cool computer science open source project. Real money is at stake. That makes people cautious. Yet it is broken today – as it stands, Bitcoin cannot scale.  So there is technical debt and legacy code and innovators dilemma. Welcome to the real world.

Boring is good for employer, not employee

Java, the Cobol of the modern era is a good example. It is boring and for an employer that is a good thing. Java coders are abundant and inexpensive. As an employee, the words abundant and inexpensive signal bad news. It is much more profitable to be an expert in an obscure but hot language. Even better to be an expert in Blockchain. So few people really understand it technically and yet because the upside & downside for huge enterprises is massive and existential they have been spending multi-million $$$$ on Proof Of Concept projects.

The Multi-Million $ Proof Of Concept

Blockchain will make tea for you in the morning. Blockchain will also make you a better lover. Back in the real world, most of the systems that Blockchain is being proposed for could use standard database technology (aka boring technology).

The reality is that in 2016, just the word “Blockchain” unlocked enterprise budgets.

It is a good time to be a Blockchain guru. For companies looking to avoid the Blockbuster fate a pitch that “this could be how we become the next Netflix” is beguiling enough to unlock multi-million $$$$ budgets for Proof Of Concept projects. These projects cannot grow beyond POC, because there is still technical risk around scaling, but the prize is big enough so the budgets get unlocked. The POC is simply an option on the future.

You can take two views on this:

A. It is all nuts, all the money going into POCs is wasted because Bitcoin/Blockchain will never scale.

B. The scale of the opportunity/risk is so great that some wastage is normal and the cost of doing nothing is worse.

I incline to B but also think it could be done more efficiently.

Three Months and Six Figure POCs

Three months and budget in 6 figures is the normal rule for a POC if you cannot use the magic B word to unlock multi-million $$$$ budgets for projects lasting 12 months or more. Coding a prototype to show stakeholders is easy – it can be done in days or weeks. Before that some work to determine business strategy and the level of technical risk is needed. The key job is EAU (Education Awareness Understanding) for senior stakeholders. The ones making the big decisions need to understand Blockchain beyond the simplistic “it’s a distributed ledger” mantra. There is too much at stake to simply leave these decisions to technical people without any understanding of how it really works.

Two things to make Blockchain technologically boring

One should be able to:

A. Create smart contracts aka Blockchain apps as easily as building a mobile app with lots of free components and standard tools that millions know how to use.

B. Deploy to any Blockchain with any cyber currency with any validation scheme (Proof Of Work, Proof Of Stake etc) as easily as deploying to AWS or Azure or any other cloud service.

I can see enough progress both within Bitcoin (Segwit, Sidechains and Lightning Network) and Ethereum to feel confident that this will happen and while I cannot see exactly when this will happen, I do believe it will mostly happen in 2017. If not, then Bitcoin and Blockchain will disappear into the dustbin of history. Yes, there is a lot at stake in those technical debates!

It’s OK, we are Blockchain not Bitcoin

Then there is the enterprise wing of the Bitcoin party. Their line is:

“We don’t need Bitcoin.  That can be a failed experiment and it won’t matter to us because we just need to scale to enterprise level and that is easy”.

Yes, it is easy to scale a Blockchain system to enterprise level, but why bother? This handy decision chart helps you figure out whether you need a Blockchain.

Blockchain Decision

In the vast majority of cases, the answer is no. In those cases, enterprise tech companies like Oracle will happily sell you the technology that gives you what you need without any Blockchain. For a skeptical take on Blockchain by Oracle, read this. Moving from POC to enterprise deployment puts $ billions at risk. That won’t happen while there is technical risk.

That is why the “we don’t need Bitcoin because we are enterprise” line is baloney. If Bitcoin fails, it will drag Blockchain along with it. Technically we can insert a “better cyber currency” but if Bitcoin fails, the sentiment crash will kill Blockchain projects and Altcoins as well. The naysayers on the project approval committee will have a field day.

Google Deep Mind AI and Immutable trust without Blockchain

Boy is that a tough headline guaranteed to lose clicks! The headline where I saw this was in the Guardian and it did draw me in with “Bitcoin-like” in the headline. The use case is healthcare, but it applies also to banking as we will see later.

“Google’s DeepMind plans bitcoin-style health record tracking for hospitals”

Hat tip to famed Femtech leader Efi Pylarinou for sharing this in her Twitter feed.

However when you dig below the surface of the headline, as is our habit at Daily Fintech, you get a more nerdy conclusion that reflects back to our core thesis that enterprise Blockchain is a passing phase that will lead to maybe 1% of the current enterprise Blockchain POCs turning into large-scale deployments.

This was great tech reporting by the Guardian. They related some deep tech to a concern shared by millions – privacy of medical records.

“Google’s AI-powered health tech subsidiary, DeepMind Health, is planning to use a new technology loosely based on bitcoin to let hospitals, the NHS and eventually even patients track what happens to personal data in real-time.

Dubbed “Verifiable Data Audit”, the plan is to create a special digital ledger that automatically records every interaction with patient data in a cryptographically verifiable manner. This means any changes to, or access of, the data would be visible.

DeepMind has been working in partnership with London’s Royal Free Hospital to develop kidney monitoring software called Streams and has faced criticism from patient groups for what they claim are overly broad data sharing agreements. Critics fear that the data sharing has the potential to give DeepMind, and thus Google, too much power over the NHS.”

To understand the tech, dive into the blog post by the Google Deep Mind team to understand how verifiable data audit sounds like Blockchain but does not use a decentralized trust-less consensus mechanism to verify transactions.

What you will see sounds like Blockchain:

– immutable, append only: check

– Verifiable aka transparent in real time: check

– Merkle like tree structure: check

But it does not use a decentralized trust-less consensus mechanism to verify transactions. This makes it more efficient. There are no proof of work miners. Nor are there any as yet unproven consensus mechanisms such as Proof Of Stake.

The cost is some level of trust in institutions.

That pitch will resonate with the CXO suite at these institutions.

This is why I was writing as far back as November 2015 that the permission enterprise blockchain was a mirage beguiling both banks and IT vendors. This is like the Intranet phase of the Content Internet.

Commercial break: get these kind of insights ahead of the pack by subscribing to Daily Fintech – its free.

The big debate about PSD2, which we cover a lot on Daily Fintech, is who owns your banking data – you or the bank. Translate that to healthcare – where consumers care more about personal data and you have what Google is offering. Google is smart to launch first in Europe where consumers (and regulators) are more concerned with data privacy.

It’s binary. Bitcoin (and Blockchain) will either change the world or fade into the dustbin of history. When it does change the world (I think it will), then being a Blockchain guru will be about as exciting as being an HTML or TCP/IP guru today.

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Canadian crypto battle between Montreal with Sidechains & Toronto with Ethereum

What is it about Canada with its radical blockchain technology? Is it the need to think different to compete with its giant southern neighbor?

Within Canada, the two cities of Toronto and Montreal are in opposite sides of the big debate over whether blockchain technology can be separated from bitcoin the currency.

In Toronto, where Ethereum was conceived, the view is that yes you can have applications using blockchain without using bitcoin.

In Montreal, where Blockstream created the Sidechain technology, the view is that bitcoin is the currency to be used for all blockchain transactions.

Of course, that is over simplifying. There are people in Toronto who favor Sidechains and people in Montreal who are fans of Ethereum.

My 101 guide for those who don’t follow this debate closely;

Ethereum does not rely on bitcoin. In other words, there are no bitcoin miners verifying the transactions. This enables more complex applications to be created, not limited by things like bitcoin block size or the time taken for miners to verify transactions. Blockstream uses Sidechains as a two-way peg with bitcoin. Complex transactions go off to a different blockchain and then come back to the bitcoin network.

My take is simply that it is horses for courses. Some use cases will be more suited to Ethereum and others will be more suited to Blockstream.

I have one concern about Blockstream which is that they have raised $21m from VCs and yet they have not said how they plan to make money. There is debate in places like Reddit, but I cannot find any official company statement on this. I understand that in the social media phase, many ventures postponed even thinking about monetization until they reached scale. I understand that can work well if the monetization is some form of advertising. However in a tech platform that pitches to developers, entrepreneurs want to know before committing. In ye olden days it was simple – you just paid license fees. Blockstream has now released an open source version, but developers have learned to be wary of building apps on top of platforms such as Twitter that can unilaterally change the rules.

I am sure Blockstream will reveal their plans and will get traction with developers who believe that the best way to verify distributed transactions is to use the mining infrastructure that comes with bitcoin. The big picture is that developers are spoiled for choice and that is why we are starting to see more end user facing applications appear. We have covered two user centric blockchain ventures. One – Augur – uses Ethereum. The other – Lighthouse – uses bitcoin (although it is unclear whether they use Sidechains). This indicates that this is not a winner take all battle. Some use cases and some developers will favor Ethereum and other use cases/developers will favor Blockstream.

The TCP/IP Of Money Mirage #ripple #stellar #blockstream #ethereum

“Strange days have found us
Strange days have tracked us down
They’re going to destroy
Our casual joys
We shall go on playing
Or find a new town”

The Doors.

Strange Days Stories:

  • # 1 Ethereum raised about $15m using crowdfunding, without Angels or VCs in a matter of weeks before they had built a product (ie the real Seed stage).
  • # 2 Blockstream has $21m of VC funding and the VCs have to at least proclaim that they don’t expect economic returns.

Then there is Ripple. Nobody has declared Ripple dead, but it’s founder has left saying he got it wrong. OK, so that is failed Bitcoin bet, nothing new there. Actually the funding history does look strange. There were two rounds billed as Angel, but all the investors are institutions. Then after two Angel rounds, there is a Seed round. I now officially declare:

“the names given to funding rounds are utterly meaningless and should be relegated to the dustbin of history”.

 

Then there is Stellar, which is billed as Ripple done right. The same guy who built Ripple and then declared it a failure got backed in a big round to “get it right this time”. Tolerance of failure is a good thing; it is a key factor in the success of the Silicon Valley model. However one expects at least a decent interval when the entrepreneur is “out in the wilderness” learning and reflecting.

The mirage that is beguiling investors is a logic that goes like this:

  • The winners at the bottom of the stack are the big wins. Look at Microsoft and Intel.
  • In the Internet era, the bottom of the stack is TCP/IP.
  • Bitcoin is the TCP/IP of money.
  • We cannot invest in the underlying Bitcoin technology, because it is open source.
  • So we will find something else at that layer to invest in.

I call this a mirage for the simple reason that we will never have anything like the Wintel era (i.e. a whole generation of technology controlled by two companies with proprietary technology). Nobody controlled TCP/IP.

 

Nobody will control the TCP/IP of money.

 

Although nobody controlled TCP/IP, $ billions of value was created at layers above TCP/IP. The same will be true of the TCP/IP of money. This layer will be totally free and open source. Almost everybody understands this. You can create huge economic value at the layer where you add value to merchants and consumers (eg Coinbase and Bitpay). So why are VCs even bothering at this lower TCP/IP like layer? The only logical reasons I I can see are:

  1. The lottery ticket approach – a small bet on the remote chance of a massive outcome. This seems to explain the bets on Ripple and Stellar. The conversation here seems to be:

“It is unlikely that we can control the TCP/IP of money layer, but if we did the payoff is so massive that it is sensible to bet a few $ million on the possibility of that outcome”.

 

  1. The Deus Ex Machina approach. This seems to explain the Blockstream investment. The conversation here seems to be:

“The Bitcoin ecosystem is threatened by fundamental issues related to mining (such as the 51% attack”). That could put the $ billions in value creation at risk. By putting in a few $ millions we protect the ecosystem and our ability to make money further up the stack and by working at this layer of the stack we create unique insights and connections”.

 

The Deus Ex Machina approach is no stranger than a BigCo like IBM contributing to open source in the knowledge that they make money at the layer above. I believe the Blockstream investors are sincere in wanting to protect the ecosystem because they have a lot at stake in that ecosystem.

I think Ethereum is the platform to bet on. It is clearly not yet delivered, so the proof of the pudding will be in the eating. However their direction is right and they have the developers and funding to deliver on the promise. Ethereum is totally open source and their funding means they don’t have to deliver economic returns to shareholders. This means that developers can build on top without worry. Ethereum is more than platform for payment networks. That is certainly one very big use case. but it is also a platform for any kind of transaction. Fundamentally, Ethereum is a platform that enables the Internet to get back to its decentralized roots and the implications of that are big and not confined to Fintech. The fact that Ethereum was funded through a currency sale is a non-issue in my opinion. Ether (that currency) is only used to buy resources on the decentralised Ethereum network and Ether is convertible to Bitcoin. Nobody views Ether as a rival to Bitcoin.

The debate will continue. A lot of that debate is highly technical and obscure to most people. However at core the issues are economic and driven by developer motivation. The debate will shape the services that consumers and businesses will use years in the future.