Why blockchain detractors are missing the point
And so it goes on. From popular posts to contemptuous tweets to predictions about the future, the world and its mother are lining up to throw tomatoes at private blockchains, before even understanding what they are.
Saying that a private blockchain is just a shared database is like saying that HTML and HTTP are “just” distributed hypertext. It’s wrong in two ways. First, the semantic one: private blockchains are a technology that enables shared databases, like pens enable writing and HTML/HTTP enable distributed hypertext. The bitcoin blockchain and its primary application cannot be meaningfully separated, because one could not exist without the other. But this equivalence does not apply to private blockchains at all.
The second mistake is the use of the word “just”. Just? Were HTML and HTTP just a way to do distributed hypertext? Hypertext was invented decades earlier, so are these technologies a minor footnote in computer history? Oh but let me count the ways in which they earned their place: (a) a simple markup language that any layperson could learn, (b) a hierarchical addressing scheme that works both with TCP/IP and our conceptual model of place, (c) a simple protocol for the state-free retrieval of content, and (d) both client and server software that brought the whole thing to life. We might as well say that Newton was just a scientist and Dostoyevsky just a writer.
So let’s make this perfectly clear: Yes, private blockchains are just a way to share a database. But they enable a new type of shared database, with huge implications for the financial world and beyond. And if you’re willing to read on, I’m going to tell you exactly why.
What is a database?
A database is a repository of structured information, organized into tables. You can think of it as a collection of one or more Excel spreadsheets, which can optionally be linked together. Each table contains information about a set of entities of a particular type, with one entity per row. Each table also has one or more columns, which describe different aspects of those entities. For example, the table for WidgetCo’s internal staff directory might have columns for employee ID, first name, last name, department, internal phone number and room number.
One of the important ways in which databases go beyond spreadsheets is that they contain rules about the data stored within. These rules help ensure that the information remains sane and consistent for the benefit of the entire organization. In today’s most popular databases, the rules take a number of common forms:
- The database schema defines what kind of information is permitted in each column. For example, the phone number must contain 4 digits and cannot be left blank (“null”).
- Unique keys which state that a particular column (e.g. employee ID) must have a different value in every row.
- Check constraints which enforce relationships between the column values in each row. For example, if the department is “Procurement” then the room number must start with a 3 or 4.
- Foreign keys which enforce relationships between tables. For example, if the database contains another table used for payroll, there might be a rule that every employee ID in the payroll table must also exist in the staff directory.
A transaction is a collection of changes to a database that is accepted or rejected as a whole. Every time a transaction modifies the database, the software ensures that the database’s rules are followed. If any part of a transaction violates one of these rules, the entire transaction will be rejected with a corresponding error.
There are other more esoteric rule types I could list, but they all have one thing in common. They answer the question: Is the database in a valid state? In other words, they act as a constraint on the database’s contents when viewed at a single point in time. And this works just fine for a database which sits inside a single organization, because the main job of the constraints is to prevent programmer error. If one of WidgetCo’s internal applications tried to insert a 3-digit phone number into the directory, this wouldn’t be due to malice, but rather a bug in the developer’s thinking or code. The ability of a database to catch these mistakes is undoubtedly handy, and helps prevent bad information propagating within an organization, but it doesn’t fix problems of trust. (Constraints can also help simplify application logic, for example via foreign key cascading or on-duplicate clauses, but these are still just ways to help developers.)
Now let’s think about how WidgetCo’s internal staff directory might be shared with the outside world. In many cases, there is no problem providing shared read access. The directory can be exported to a text file and emailed to customers and suppliers. It can be posted on the Internet, just like this one. It can even be given an API to allow searching by external code. Shared read is a technical doddle, a question of deciding who can see what.
But things start getting stickier when we think about shared write. What if WidgetCo wants an external entity to modify its database? Perhaps the phones are being replaced by PhoneCo, who will then update the phone numbers in the staff directory. In this case, WidgetCo would create a new “account” for PhoneCo to use. Unlike accounts for WidgetCo’s internal use, PhoneCo’s account is only permitted to change the phone number column, and never add or delete rows. All of PhoneCo’s transactions are processed by WidgetCo’s database system, which now applies two types of restriction:
- Global rules which apply to all database users. For example, the phone company can’t change a number to contain only 3 digits, and neither can anybody else.
- Per-account rules restricting what PhoneCo is permitted to do, in this case only modifying the phone number column of existing rows.
So far, so good. We have a shared write database. It works because WidgetCo is in charge of the database and the phone company gains access by virtue of WidgetCo’s good grace. If PhoneCo started setting phone numbers randomly, WidgetCo can shut down their access, terminate their contract, and restore some old data from a backup. And if WidgetCo started misbehaving, say by reversing the new phone numbers entered by PhoneCo, well that would be entirely pointless, since it would only harm WidgetCo themselves. The phone company would consider WidgetCo to be a peculiar customer but not particularly care, so long as they paid their bill on time.
But now let’s see what happens if two or more parties want to share a database which (a) none of the parties controls, (b) can be written to by any party, and (c) can be relied upon by everyone. To make things worse, let’s say that these parties have different incentives, don’t trust each other and may even be fierce competitors. In this case, the solution has always been the same: introduce a trusted intermediary. This intermediary manages a database centrally, provides accounts to all of the parties, and ensures that all operations are permitted according to a known set of rules. In many cases, especially financial, every party still maintains its own copy of the data, so everyone spends a lot of time checking that their databases agree.
It all gets rather messy and cumbersome. But if we’re talking about a shared write database in an environment of limited trust, there is currently no alternative. That’s one of the main reasons why financial transactions go through central clearing houses, why you use Google Calendar even in a small workgroup, and why the crowd-sourced wonder that is Wikipedia spends millions of dollars on hosting. Even as the user interface of the web moves to the client side, centralized servers continue to store the data on which those interfaces rely.
Real shared write
So let’s say that we wanted to allow a database to be shared, in a write sense, without a central authority. For example, several competing companies want to maintain a joint staff directory for the benefit of their mutual customers. What might that actually look like? Well, it would need a number of things:
- A robust peer-to-peer network that allows transactions to be created by any party and propagated quickly to all connected nodes.
- A way to identify conflicts between transactions and resolve them automatically.
- A synchronization technology that ensures all peers converge on an identical copy of the database.
- A method for tagging different pieces of information as belonging to different participants, and enforcing this form of data ownership without a central authority.
- A paradigm for expressing restrictions on which operations are permitted, e.g. to prevent one company from inflating the directory with fictitious entries.
Whew. That’s a tough list right there, and it’s simply not supported by today’s off-the-shelf databases. Current peer-to-peer replication technology is clumsy and has a complex approach to conflict resolution. Those databases that do support row-based security still require a central authority to enforce it. And standard database-level restrictions like unique keys and check constraints cannot protect a database against malicious modifications. The bottom line is this:
We need a whole bunch of new stuff for shared write databases to work, and it just so happens that blockchains provide them.
I won’t go into too much detail about how blockchains do these things, because I’ve covered much of it before. Some key elements include regular peer-to-peer techniques, grouping transactions into blocks, one-way cryptographic hash functions, a multi-party consensus algorithm, distributed multiversion concurrency control and per-row permissions based on public key cryptography. A long list of old ideas combined in a new way. HTML/HTTP, if you like.
In addition to all of these, shared write databases require an entirely new type of rule, to restrict the transformations that a transaction can perform. This is an absolutely key innovation, and makes all the difference if we’re sharing a database between non-trusting entities. These types of rules can be expressed as bitcoin-style transaction constraints or Ethereum-style enforced stored procedures (“smart contracts”), each of which has advantages and disadvantages. Perhaps there are other better ways waiting to be discovered. But they all share the property of tying together the database’s state before and after a transaction takes place. In other words, they answer the question: Was that a valid transaction? This is fundamentally different from asking whether the database is valid at a single point in time.
If you’re wondering if this type of database has useful real-world applications, well that’s a fair question. But you might note the intense interest in private blockchains from one sector at least, because of their potential for simplifying processes and reducing costs and delays. Financial institutions are heavy users of today’s database platforms, and those platforms do not enable a shared write scenario. This is what banks are looking for.
This problem and its solution have absolutely nothing to do with bitcoin and the idea of censorship-free money. In fact, the only connection to bitcoin is the technical similarity between the bitcoin blockchain and how some of these private blockchains are implemented today. One key difference is that private blockchains don’t need proof of work mining, since blocks are created by a closed set of identified participants. Over time the two worlds may well diverge further, because their requirements are completely different. Whether you like financial regulation or not, the simple fact is that private blockchains are potentially useful in a regulated world, whereas for now at least, public blockchains are not.
If I may finish with an analogy, the UN Declaration on the Principles of International Law does not tell countries that they can hold any territory they want, so long as it’s surrounded by a clearly-marked fence. Rather, it states that “No territorial acquisition resulting from the threat or use of force shall be recognized as legal”. In other words, it’s a rule regarding the legitimacy of changes, not just of situations. And the UN declaration, which seems so obvious to us now, was a complete revolution in international law. It meant a world no longer based on unilateral power and authority, but one where differences can be resolved by mutual consensus.
When it comes to shared databases, private blockchains do exactly the same thing.
Bitcoin Falls Below $1 Trillion Market Cap Following Bloody Week: The Crypto Weekly Recap
This week saw a serious correction in the total cryptocurrency market. This has resulted in Bitcoin falling below the $1 trillion market cap level. The price corrected by more than 20% at one point as it lost around $13,000 from the recent all-time high before correcting to where it currently trades at around $48K.
In all fairness, Bitcoin’s downturn followed that of the entire legacy market. As we reported earlier, NASDAQ saw the biggest slump since October last year as government bond yields gave the market a jolt, and investors favor companies that would benefit from a broader economic recovery throughout the rest of the year.
In any case, the correlation between the traditional financial markets in the face of some of the largest indices, such as the NASDAQ Composite and the S&P 500, is more than evident. Nevertheless, the cryptocurrency market, in general, took a beating over the last week as it saw more than $300 billion wiped off its capitalization.
Not every coin is in the red, though. Cardano’s ADA doesn’t seem to care much about the rest of the market and continues to increase. It managed to overtake Tether’s USDT stablecoin and became the third-largest cryptocurrency by means of market capitalization. Interestingly enough, a large Dubai-based investment fund said that it would sell $750 million in Bitcoin to buy more ADA and Polkadot’s DOT.
To no one’s surprise, MicroStrategy continues to buy Bitcoin at an accelerated rate. The company announced yet another $1 billion BTC buy this week which came after the convertible senior notes offering.
In any case, it might be the case that the recent correction was a healthy one. The truth is that this bull run had almost no serious corrections on the way up, and it’s entirely natural for investors to take profit. In addition to that, the market was overly leveraged, which caused a cascading effect of long liquidations on the way down, adding more fuel to the fire.
Let’s hope that the worst is over, and let’s see what the next week has in store!
Market Cap: $1494B | 24H Vol: 233B | BTC Dominance: 59.6%
BTC: $47,820 (-7.8%) | ETH: $1,525 (-21.3%) | XRP: $0.442 (-17.1%)
3 Possible Reasons Why Bitcoin Plunged Over 15% in 24 Hours. Bitcoin dipped by more than 15 in less than 24 hours and took the entire market down with it. With this in mind, we take a look at three of the possible reasons for the most recent downturn in the market, which resulted in the loss of more than $300 billion in its capitalization.
The Laser Eyes Meme: Not a Coincidence That This Marked a Local Top for Bitcoin (Opinion). The laser eye meme on Twitter is spreading like wildfire as some of the most prominent crypto proponents and people outside of the industry change their profile pictures to include the beams. This might have been one of the signals that the market is in a state of euphoria.
Crypto Investment Fund to Sell $750M in Bitcoin for Cardano and Polkadot. A Dubai-based cryptocurrency investment fund that has more than $1 billion of assets under management (AUM) thinks that the value of Polkadot and Cardano will be higher than that of BTC in the years to come. It has announced that it will sell $750 million of its BTC to buy more ADA and DOT.
JP Morgan: Put 1% In Bitcoin as a Hedge as Demand is ‘Massively Outstripping’ Supply. JP Morgan has supported the narrative that investors should allocate 1% of their portfolio in BTC as a hedge. This was asserted by strategists of the multinational investment bank as more and more people seem to add fuel to the merit that bitcoin could protect assets against the inflating fiat currencies.
Someone Just Moved 100 Bitcoins Now Worth $5M That Only Cost $8 in 2010. An early bitcoin adopter who has mined 100 BTC back in 2010, which then had a face value of no more than $8, has moved them for the first time in over 11 years. Currently, the bitcoins are worth around $5 million.
MicroStrategy Completes Another $1 Billion Bitcoin Buy. MicroStrategy, the company, spearheaded by one of Bitcoin’s most vocal proponents, Michael Saylor, has bought another $1 billion worth of the cryptocurrency. This comes shortly after they conducted a convertible senior note offering to raise the money.
This week we have a chart analysis of Bitcoin, Ethereum, Ripple, Polkadot, and Chainlink – click here for the full price analysis.
PrimeXBT Special Offer: Use this link to register & enter CRYPTOPOTATO35 code to get 35% free bonus on any deposit up to 1 BTC.
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Cryptocurrency charts by TradingView.
Galaxy Digital co-president explains two things deterring institutional crypto buying
In recent months, companies such as MicroStrategy and Tesla have picked up sizable positions in Bitcoin. This trend has not yet become the norm for most companies, however. Damien Vanderwilt, co-president of Galaxy Digital, believes security and taxes may be acting as deterrents for crypto investing.
“When we think about the conversations we have with corporates, and institutional clients, and any part of those constituencies considering investing in the sector, the first order problem is safety and are the assets that they’re buying going to be safe and available and secure,” Vanderwilt told Bloomberg in an interview on Thursday.
“The second order problem, particularly for the corporates, is tax treatment and the way that particularly under gaap accounting in the U.S., Bitcoin is viewed as an intangible asset,” he added.
The Bloomberg interviewer noted that “5% of finance executives” are considering Bitcoin purchases. This 5% figure came from a report recently published by research firm Gartner, detailing February survey results from 77 finance executives. “Just 5% of Finance Executives Polled in February 2021 Said They Planned to Hold Bitcoin as a Corporate Asset in 2021,” said a Feb. 16 public statement from Gartner on the report.
MicroStrategy, MassMutual, Tesla and Square have all allocated millions of dollars to Bitcoin. MicroStrategy spent more than $1 billion on the asset, and put an additional billion into BTC recently. Square also recently announced adding $170 million worth of Bitcoin to its stack. The firm spent $50 million on the coin last fall.
“They’re not unsolvable problems or things that companies can’t get comfortable with, but it does take a little bit of time,” Vanderwilt said of the two issues he mentioned.
Price analysis 2/26: BTC, ETH, ADA, BNB, DOT, XRP, LTC, LINK, BCH, XLM
Every bull market witnesses periodic pullbacks, where the weaker hands sell anticipating a top and the stronger hands accumulate for the long term. Data from Coinbase Pro shows two large Bitcoin (BTC) outflows this week, suggesting that institutions are likely continueing to buy the current dip.
Comparing historical data, on-chain analytics resource Whalemap, recently said that previous macro tops in Bitcoin in 2017 and 2019 coincided with thousands of large Bitcoin transactions worth $5-7 million. However, the researchers believe there is “no such FOMO in sight for BTC.”
JPMorgan strategists Joyce Chang and Amy Ho recently endorsed a 1% allocation to Bitcoin in multi-asset portfolios “to achieve any efficiency gain in the overall risk-adjusted returns of the portfolio.”
With gold and the S&P500 both seeing a downturn in the short term, investors looking to hedge their portfolios may look for alternatives such as cryptocurrencie, which may limit the downside for Bitcoin.
While data suggests that the downside is limited, let’s analyze the charts of the top-10 cryptocurrencies to determine where buyers may step in.
There is a tug of war currently going on between the bulls and the bears. The bulls attempted to resume the up-move on Feb. 25, but could not sustain the higher levels. Bitcoin reversed direction and broke below the 20-day exponential moving average ($48,159), which shows selling by the bears at higher levels.
However, the long tail on today’s candlestick shows that bears are not able to sustain the price below the 20-day EMA. This suggests traders are buying on dips.
The flat 20-day EMA and the relative strength index (RSI) near the midpoint suggest a possible consolidation in the near term. The support of the said range could be at $41,959.63, which is just above the 50-day simple moving average ($40,914).
If bears can sink the price below the 50-day SMA, the selling could intensify and the pair could even drop to $28,850.
Conversely, if the bulls can propel the price above $52,040.95, a retest of $58,341.03 may be on the cards.
Ether (ETH) could not rise above the 20-day EMA ($1,686) on Feb. 24, which suggests the bears are defending this level. The biggest altcoin turned south on Feb. 25 and fell to the 50-day SMA ($1,498).
Although the price dipped below the 50-day SMA today, the bears could not break the Feb. 23 intraday low at $1,350. This shows a lack of selling pressure at lower levels.
The bulls have pushed the price back above the 50-day SMA. If they can sustain the momentum and propel the ETH/USD pair above the 20-day EMA, it could enhance the prospects of retesting $2,000.
On the other hand, if the price again turns down from the 20-day EMA, it will suggest a change in sentiment from buying the dips to selling the rallies. If the bears break the $1,350 support, the pair may drop to $1,000.
Cardano (ADA) is in a strong uptrend and has broken into the top-three cryptocurrencies by market capitalization for the first time. The bulls attempted to push the price above $1.20 on Feb. 25 but failed. However, the bulls successfully flipped $0.9817712 to support today, which suggests aggressive buying on every minor dip.
The buyers have driven the price above the $1.20 overhead resistance, indicating the resumption of the uptrend. The altcoin could now rally to the next target objective at $1.25.
Both moving averages are sloping up and the RSI in the overbought territory, suggesting that bulls are in control.
This bullish view will be invalidated if the ADA/USD pair fails to sustain the breakout and sharply reverses direction, breaking below the 20-day EMA ($0.92).
The failure of the bulls to push Binance Coin (BNB) above the downtrend line on Feb. 24 may have attracted another bout of profit-booking by traders. The altcoin has pared most of the gains made on Feb. 19.
If the current rebound sustains, the bulls will make one more attempt to push the price above the downtrend line. If they succeed, it will suggest that the short-term correction could be over. The BNB/USD pair may then rise to $300 and then to $348.6969.
The upsloping 20-day EMA ($192) and the RSI in the positive zone suggest bulls have the upper hand. Falling below the downtrend line and the 20-day EMA would invalidate this bullish scenario. Such a move could pull the price down to $118.
Polkadot’s (DOT) sharp recovery on Feb. 23 faltered on Feb. 24 as the bulls could not push and sustain the price above the resistance line of the ascending channel. This may have attracted profit-booking from the dipbuyers.
The buyers are currently attempting to defend the 20-day EMA ($30.30). If they manage to sustain the bounce, the DOT/USD pair will again try to break out of the resistance line of the channel and retest the all-time high at $42.2848.
Conversely, if the pair again goes down below the resistance line of the channel, the bears will try to sink the price under the 20-day EMA. If they succeed, the pair may drop to the support line of the channel.
The 20-day EMA is gradually sloping up and the RSI is above 61, indicating a minor advantage to the bulls.
The long tail on the Feb. 23 candlestick shows buying on dips, but the bulls could not keep up the momentum and push XRP price above the 20-day EMA ($0.048) on Feb. 24. This showed that demand dried up at higher levels.
The price has again dipped back to the 50-day SMA ($0.40). A lack of a strong rebound could attract further selling and the XRP/USD pair may drop to $0.359. A break below this support could clear the path for a fall toward $0.25.
Contrary to this assumption, if the pair sustains the current bounce, the bulls will make one more attempt to push the price above the $0.50 overhead resistance. If they succeed, the pair may consolidate between $0.65 and $0.359 for a few days.
Litecoin (LTC) rallied above the 20-day EMA ($192) on Feb. 25, but the bulls failed to sustain the higher levels as seen from the long wick on the day’s candlestick. This suggests that traders are booking profits at higher levels.
However, the long tail on today’s candlestick suggests that bulls are buying the dips to the 50-day SMA ($166). If the bulls can push the price above the 20-day EMA and the $205.186 overhead resistance zone, the LINK/USD pair may rise to $230.
Contrary to this assumption, if the bulls fail to sustain the current rebound, the pair may U-turn and drop below the 50-day SMA and the uptrend line. If that happens, the pair may slide to $120.
Chainlink (LINK) could not climb back into the ascending channel on Feb. 24, attracting profit-booking from the aggressive bulls who may have purchased the dip on Feb. 23. The altcoin turned down on Feb. 25 and dipped back to the 50-day SMA ($24.70) today.
The downsloping 20-day EMA ($28.80) and the RSI in the negative zone suggest bears have the upper hand. If the price slips below the 50-day SMA, the decline could extend to the critical support at $20.111.
Contrary to this assumption, if the current rebound off the 50-day SMA sustains, the bulls will make one more attempt to push the price above the 20-day EMA. If they succeed, the LINK/USD pair may begin a new uptrend.
The relief rally in Bitcoin Cash (BCH) could not even rise to the 20-day EMA ($578) on Feb. 24 and 25, indicating a lack of urgency among the bulls to buy at these levels. The price turned down on Feb. 25 and dropped to the uptrend line.
The downsloping 20-day EMA and the RSI in the negative zone suggest bears are in control. If the sellers sink the price below the uptrend line, the BCH/USD could start a deeper correction to $370.
On the contrary, if the bulls can build up on the current rebound off the uptrend line, the pair may rise to the 20-day EMA. A breakout of this resistance could push BCH price to $631.71.
Stellar Lumens (XLM) could not rise above the 20-day EMA ($0.430) on Feb. 24 and 25, which shows the bears are selling on rallies to this resistance. The altcoin pulled back on Feb. 25 and fell to the critical support level at $0.35.
The downsloping 20-day EMA and the RSI in the negative territory suggest advantage to the bears. If the sellers can sink the price below the support line of the descending channel, the XLM/USD pair may decline to $0.23.
Conversely, if the bulls can sustain the current rebound off $0.35, the pair may rise to the 20-day EMA. A breakout of this resistance will suggest the bulls are back in the game. The pair could then rally to the resistance line of the channel.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.
Market data is provided by HitBTC exchange.
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