When chains and blocks serve no useful purpose
About 18 months have passed since the finance sector woke up, en masse, to the possibilities of permissioned blockchains, or to use the more general term, “distributed ledgers”. The period since has seen a tsunami of activity, including research reports, strategic investments, pilot projects, and the formation of many consortia. No one can accuse the banking world of not taking the potential of this technology seriously.
Naturally, the explosive growth in blockchain projects has driven the development of permissioned blockchain platforms, on which those projects are built. For example, our product MultiChain has tripled in usage over the past year, whether we measure web traffic, monthly downloads or commercial inquiries. And of course, there are many other platforms, such as BigChainDB, Chain, Corda, Credits, Elements, Eris, Fabric, Ethereum (deployed in a closed network), HydraChain and Openchain. Not to mention still more startups who have developed some kind of blockchain platform but have not made it publicly available.
For companies wishing to explore and understand a new technology, an abundance of choice is generally a good thing. However, in the case of blockchains, which still remain loosely defined and poorly understood, this cornucopia comes with a significant downside: many of the available “blockchain” platforms don’t actually address the core problem they are meant to solve. And what is that problem? Allow me to quote the succinct video definition by Richard Gendal Brown, CTO of R3, in full:
A distributed ledger is a system that allows parties who don’t fully trust each other to come to consensus about the existence, nature and evolution of a set of shared facts without having to rely on a fully trusted centralized third party.
To take an extreme example, consider a bunch of Lego bricks tied together with string. If we use the term “block chain” to describe this fashion item, who’s to say that we’re not describing it accurately? And yet, that particular chain of blocks will not help multiple parties to safely and directly share a database without a central intermediary. Similarly, many “blockchain” platforms do something related to chains of blocks, but also lack the necessary properties to serve as the basis for a peer-to-peer database.
Another chain of blocks that does not help with database sharing – source.
Minimum viable blockchain
In order to understand the basic requirements of a distributed ledger, it helps to clarify how these systems differ from regular databases, which are controlled by a single entity. For example, let’s consider a simple system for tracking who owns a particular company’s shares. The ledger, as implemented in a database, has one row for each owner containing two columns: the owner’s identifier, such as their name, and the corresponding quantity of shares.
Here are six crucial ways in which this system could fail its users:
- Forgery: Transferring shares from one person to another without the sender’s permission.
- Censorship: Refusing to fulfill someone’s request to transfer some shares elsewhere.
- Reversal: Undoing a transfer that took place at some point in the past.
- Illegitimacy: Changing the total quantity of shares in the system without a corresponding action by the issuer.
- Inconsistency: Giving different responses to inquiries from different users.
- Downtime: Not responding to incoming requests for information at all.
Because of all these possibilities, the shareholders must maintain a high level of trust in whoever is managing this ledger on their behalf. Building and running an organization worthy of that trust comes with substantial hassle and cost.
Blockchains or distributed ledgers remove the need for this kind of central database operator, by allowing the users of a database to interact directly with each other on a peer-to-peer basis. In our example, the stockholders could safely hold their shares on a blockchain which they collectively manage, and make transfers to each other instantly over that chain. (The disadvantage is a significant loss of confidentiality between the chain’s users, which we won’t address here but I’ve previously discussed at length.)
All this brings us back to the question of blockchain platforms. In order to serve as a viable basis for peer-to-peer database sharing, a blockchain has to protect its participants against all six types of database failure – forgery, censorship, reversal, illegitimate transactions, inconsistency and downtime. While many products in the market fulfill these requirements, quite a few of them come up short. I call these blockchains “half-baked” because they may address some of these risks, but not all. In some respects at least, the database’s users remain dependent on the good behavior of a single participant, which is precisely the scenario we want to avoid.
These half-baked blockchains come in any number of varieties, but three archetypes stand out as the most common or obvious. I’m not going to name individual products because, well, I don’t want to offend. The blockchain startup community is small enough that most of us know each other through conferences and other meetings, and the interactions tend to be positive. Nevertheless, if blockchains (in the sense of useful peer-to-peer databases) are ever going to emerge as a coherent product category, it’s important to distinguish between half-baked and real solutions.
The one validator blockchain
One pattern we’ve seen a few times is a blockchain in which only one participant can generate the blocks in which transactions are confirmed. Transactions are sent to this one node instead of being broadcast to the network as a whole, so their acceptance is subject to this party’s whims rather than some kind of majority consensus. Still, once a block has been built by this central party, it is broadcast to the other nodes in the network, who can independently confirm the validity of the transactions within, and record the new block locally and permanently.
To return to our six forms of database malfunction, this type of blockchain is far from useless. Transactions must be digitally signed by the entity whose funds they move, so they cannot be forged by the central party. They cannot be reversed because each node maintains its own copy of the chain. And transactions cannot perform illegal operations like creating assets out of thin air, because every node independently validates each transaction for correctness. Finally, each node maintains its own copy of the database, so its content is always available for reading.
Unfortunately, four out of six is not enough. The validating node can easily censor individual transactions, by refusing to include them in the blocks it creates. Even if the operators of this node are honest, a system or communications failure can render it unavailable, causing all transaction processing to come to a halt. In addition, depending on the setup, the validating node may be able to transmit different versions of the blockchain to different participants. In terms of censorship and consistency, the database still contains a single point of failure, on which all the other nodes rely.
One platform offers a twist on this scheme, in which blocks are centrally generated by a single node, but a quorum of other designated nodes signs them to indicate consensus. In terms of the risk of inconsistency, this certainly helps. The nodes in the quorum will only lend their signatures to a single version of the blockchain, which can therefore be considered as authoritative. Nonetheless, the quorum nodes cannot help if the block generator censors transactions, or loses its connection to the Internet. Ultimately, this type of blockchain still uses a hub-and-spoke architecture, rather than a peer-to-peer network.
The shared state blockchain
Technically speaking, there are many similarities between blockchains and more traditional distributed databases such as Cassandra and MongoDB. In both cases, transactions can be initiated by any node in the network, and must reach all the other nodes as part of a consensus about the database’s developing state. Both blockchains and distributed databases have to cope with latency (communication delays which stem from the distance between nodes) and the possibility of some nodes and/or communication links intermittently failing.
Distributed databases have been around for a while, so any blockchain platform developer would do well to understand their consensus algorithms and the strategies they use to globally order transactions and resolve conflicts. Nonetheless, it’s important not to take the comparison too far, because blockchains must contend with a crucial additional challenge – an absence of trust between the database’s nodes. Whereas distributed databases focus on providing scalability, robustness and high performance within a single organization’s boundaries, blockchains must be redesigned in order to safely traverse those boundaries.
To return to our six types of database risk, a node in a distributed database need only worry about downtime, i.e. the possibility of other nodes becoming unavailable. Nodes can safely assume that every transaction and message on the network is valid, and are not concerned with forgery, censorship, reversal, illegitimacy or inconsistency. Their worst problem is dealing with two simultaneous but valid transactions, initiated on different nodes, which affect the same piece of data. Solving these conflicts is by no means trivial, but it’s still a lot easier than worrying about “Byzantine faults“, in which some nodes deliberately act to disrupt the functioning of others.
A database can only be shared safely across trust boundaries if nodes treat all activity on the network with a certain degree of suspicion. For example, every transaction which modifies the database must be individually digitally signed since, in a peer-to-peer architecture, there is no other way to know its true point of origin. Similarly, every incoming message, such as the announcement of a new block, has to be critically assessed for its content and context. Unlike in distributed databases, nodes must not be able to immediately and directly modify another node’s state.
Some “blockchain” platforms have been developed by starting with a distributed database, and sprinkling some features on top to make them more blockchainy. For example, by grouping transactions into blocks and storing hashes (digital fingerprints) of those blocks in the database, they aim to add a form of immutability. But unless each node can be sure that its list of hashes cannot be modified by another node, this type of immutability is easily gamed. The standard response to these criticisms is that every security problem can be solved with sufficient time and coding. But this is rather like holding some prisoners in an open field, and trying to stop them escaping with tripwires and ditches. It’s far safer to use a purpose-built concrete structure, whose doors are locked and whose windows are barred.
The one cloud blockchain
By far the strangest phenomenon I’ve seen is blockchain platforms which can only be accessed through their developer’s cloud-based platform-as-a-service. To be clear, we’re not talking about some of a blockchain’s participants choosing to host their nodes on their cloud provider of choice, such as Microsoft Azure or Amazon Web Services. Rather, this is a blockchain which can only be accessed through APIs exposed by the servers of a company “hosting” it.
Let us grant, for argument’s sake, that a centralized blockchain provider genuinely has a group of nodes running under its control. What difference does this make to the users of the system who are sending API requests and receiving responses? The participants have no way of assessing if everyone’s transactions have been processed without omission or error. Perhaps the central service is malfunctioning, or perhaps it is censoring or reversing some transactions deliberately. And if you believe the blockchain provider has no reason to do this, why not use them to host a regular centralized database instead? You’ll get a more mature product with better performance, and suffer none of the risks of working with new technologies. In short, centralized blockchains are about as useful as Lego on a string.
Solving the mystery
We’ve now seen three types of platform which market themselves as “blockchains”, and indeed make some use of a chain of blocks, but which don’t solve the fundamental problem for which these systems are designed. To recap, this is to enable a single database to be safely and directly shared across trust boundaries, without a central intermediary.
Apart from pointing at this peculiar phenomenon, I believe it’s instructive to consider what might underlie it. Why are so many blockchain startups building products which don’t fulfill the promise of this technology, often achieving no more than traditional centralized or distributed databases? Why are so many talented people wasting so much of their time?
I can see two main classes of explanation – technical and commercial. To start with the technical, it is rather tricky to create distributed consensus systems which can tolerate one or more nodes behaving maliciously in unpredictable ways. In the case of MultiChain, we somewhat cheated, by using bitcoin’s battle-hardened reference implementation as a starting point, and then replacing proof of work by a structurally similar consensus algorithm called “mining diversity”. Teams developing a blockchain node from scratch have to think deeply about asynchronous and adversarial processes – a combination which few programmers have experience of. I can certainly understand the temptation to take a shortcut, such as using a single node to generate blocks, or piggybacking on an existing distributed database, or only running nodes in a trusted environment. Choosing any of these undoubtedly makes life easier for developers, even if this undermines the entire point.
As for commercial reasons, every startup seems to be approaching the blockchain opportunity from a different angle. Here at Coin Sciences, we’re focused on becoming a (database) software vendor, so we’re distributing MultiChain for free while developing a premium node with additional features. Other startups want to sell subscription services, so they will naturally build a platform which customers cannot host themselves. Some are hoping to centrally control a blockchain or help their partners to do so (an odd ambition for a disintermediation technology!) and are naturally drawn to consensus algorithms that rely on a single node. And finally, there are companies whose primary goal is to sell consulting services, in which case their platform need not function at all, so long as its website brings in some large customers.
Perhaps another issue is that some blockchain companies are being run by people who are undoubtedly bursting with talent, but lack a deep understanding of the technology itself. In startups carving out a new field, it’s probably vital for strategic decisions to be taken by people who understand the nature of that field and how it differs from what came before. Not a few blockchain startups appear to have painted themselves into a corner by pursuing a product vision which is attractive to their customers, but cannot actually be built.
As a user of blockchains, how can you avoid being caught by these fallacies? When evaluating a particular blockchain platform, be sure to ask whether it fulfills the six requirements of safe peer-to-peer database sharing: prevention of downtime and inconsistency, as well as transaction forgery, censorship, reversal and illegitimacy. And beware of explanations that consist of too much mumbling or hand waving – they probably mean that the answer is no.
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IDO Bots Responsible for Solana’s 18-Hour Network Outage, Team Explains
The team behind Solana yesterday gave a detailed report on how its validators from all over the world rescued the network from an outage that lasted nearly 18 hours.
IDO Bots Responsible for Solana’s Downtime
According to the report, the network outage was a result of Grape Protocol’s IDO, which launched on the Raydium exchange in the early hours of September 14th.
While trying to manipulate the rules of the IDO, several traders used bots to generate limitless transactions, causing the Solana blockchain to experience a memory overflow.
Since Solana’s mainnet is still in beta, it lacked prioritization of network-critical messaging, which caused it to start forking and slowed down transaction processing.
What the project thought could be fixed in a few minutes lasted for hours, as the continuous forking caused several validators to crash, and the network subsequently went offline.
Solana Restarts After Network Upgrade
All steps to resolve the issue, including a proposal by the validator community to restart the network at its initial stage, did not yield any positive results as transaction volume continued to surge.
Upon successfully diagnosing the problem, the community proposed a hard fork, which required at least 80% stakes to come to a consensus before the upgrade can be implemented.
The consensus prompted engineers to write codes from their various locations across the globe to mitigate the issue before the network was fully restored in about 18 hours after the lag started.
Blockchain Better than Amazon Web Services
Commending the efforts of its validator community, Solana noted that the development further buttressed the benefits of blockchain over centralized networks like Amazon Web Services (AWS).
According to Solana, when decentralized blockchain entities experience outages of such magnitude, the “validators are individually responsible for recovering the state and continuing the chain without relying on a trusted third party.”
The consensus of the community helped Solana to bring the network to its right state in less than 24 hours.
However, when similar technical problems occur on AWS, users will have no option but to completely rely on the company to solve the issue, which may most likely take days to weeks.
The benefits of blockchain cannot be overstated. The technology, which powers cryptocurrencies, has been widely adopted across various sectors, including finance, health, and politics, among others.
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Indian government cautious about crypto-adoption, CBDC is a possibility
Indian traders and exchanges might be bullish about the crypto market, but the Indian government doesn’t seem keen on rushing into the scene. At least, not until studying its homegrown fintech industry and the anti-Bitcoin protests in El Salvador.
Tracking global news
Indian finance minister Nirmala Sitharaman in a recent interview with Hindustan Times explained why the country seemed to be falling behind when it came to crypto adoption.
Though she admitted, El Salvador wasn’t “the best example,” Sitharaman said,
“You’d think common people don’t care about digital currency; but the public took to the streets against the move. It’s not a question of literacy or understanding – it’s also a question of to what extent this is a transparent currency; is it going to be a currency available for everyone?”
Sitharaman referred to CBDCs as a “legitimate” cryptocurrency and admitted there could be a “possibility,” in hat regard. She noted that India held the “strength of the technology” and acknowledged the need to formulate a Cabinet note. However, Sitharaman wondered if India was ready to follow El Salvador’s way.
Facts on the ground
Though accessibility is a pressing concern, more Indians have discovered crypto than perhaps expected.
Nischal Shetty, CEO of the Indian crypto exchange WazirX – a subsidiary of Binance Holdings – has stated that WazirX sign-ups from India’s tier-two and tier-three cities overtook those from tier-one cities this year. Even so, sign-ups from tier-one cities themselves saw a 2,375% rise. Furthermore, WazirX added one million users in April 2021 alone.
Compared to few years ago, today people better understand crypto classification
Crypto is not just a currency but also utility & asset. There are new use cases emerging every day
India has over 20M people in Crypto now. It’s a great time to BUIDL 🚀#IndiaWantsCrypto
— Nischal (WazirX) ⚡️ (@NischalShetty) September 19, 2021
Adding to this, the cost of electricity and Internet data in India are relatively cheaper, which could boost both crypto trading and mining in the future. However, at the last count, there was only one Bitcoin ATM in the whole country.
As per data by Useful Tulips, which combined data from Paxful and LocalBitcoins, India saw transfers worth around $4,502,369 in the last two weeks.
Could anti-Bitcoin protests happen in India?
There is evidence to support both sides. India has a strong history of mass protests, with the farmers’ protests against the government’s agricultural laws being one such example. The 2016 demonetization of part of the country’s paper currency still haunts many, and Internet penetration is yet to cross 50%.
However, India also has the largest diaspora in the world, with approximately 18 million people living outside the country. Crypto innovation could lead to hundreds of millions of dollars being saved on remittance charges as money is sent across borders.
But for the time being, it seems India’s urban residents are more bullish about crypto than its government.
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Assessing the odds of Solana dropping below $100 soon
A $100 investment in Solana a year back would have led to a $5000 return on investments right now. The digital asset has undoubtedly taken the market by storm and over the past couple of months, its valuation has parabolically risen.
However, thanks to a major invalidation on the daily chart, a correction is possibly due for the token now. Especially since bullish momentum is collectively taking a hit across the industry.
Solana is no longer rallying on its own. And, according to recent developments, it might undergo a period of correction over the next few weeks.
Levels to keep track of during Solana’s correction
Analyzing the current market structure of Solana, the asset hit an all-time high of $215 on 9 September. However, it was unable to hold a position above the $200-level for long. With Bitcoin consolidating strongly between $45,000 and $50,000 during that period, Solana may have found it relatively easy to continue on its bullish path since liquidity and capital flows were evident across the industry.
However, with bearish dynamics coming into play now, it is important to understand the liquidity pools presently evident for the asset. One major invalidation faced by Solana at press time was the crossover between the 20-Simple Moving Average and 20-Exponential Moving Average.
The SMA moving above the EMA on the daily timeframe is considered a strong bearish signal. At the time of writing, for instance, the asset was well away from any form of recovery.
Now, in terms of identifying levels, Solana’s previous trend suggested that the asset has a tendency to bounce back from the 0.618 Fibonacci level. During the early 2021 rally, the asset went up to $64 before dropping down to $23 in the month of July. A similar reciprocation of trend would see Solana drop below the $100-mark, with the current 0.618 Fib line residing around the $96-mark.
As far as support is concerned, the previous high of $64 is a strong weekly level. It might get tested if bearish pressure persists across the ecosystem.
Institutions can still rescue its plot
Besides market corrections, Solana hasn’t been followed by positive development since its network witnessed a 17-hour downtime following a DDOS attack. The downtime has been speculated to be one of the primary reasons for the 35% collapse last week.
However, to be fair, SOL‘s credentials were already shaky above $200, and profit-taking was at large.
On the contrary, according to Coinshares‘ digital asset fund report, institutions have overlooked Solana’s minor hiccup as the asset class registered another $4.8 million in capital inflows.
While that is positive, it is important to note that such capital investments are made with the future in mind. Not immediate returns. Hence, recovery on the basis of this investment may or may not unfold since profit-taking on the retail side of the market controls the larger market.
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