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.
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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A Deep Dive Into The Bitcoin Wallets Of U.S Congress Members, And Why Bitcoiners Are Strongly Against Them
- U.S. Congress’ split disposition towards cryptocurrencies raises concerns among market participants.
- Bitcoin proponent, James Loop goes digging into the financial disclosures of Congress members.
- His findings revealed only three Congress members have ever disclosed that they hold Bitcoin.
The United States is a key base for innovation and adoption in the cryptocurrency industry. According to data from Crunchbase, there are at least 1,135 organizations founded in the U.S. that provide various cryptocurrency-related services.
Despite the broad adoption of the asset class by the country’s citizens, the government is still divided on opinions about the growing cryptocurrency industry. This can be seen in the U.S. Congress where members of Congress are split between those who support and those who do not support Bitcoin, the most prominent cryptocurrency.
This polarised disposition of Congress has been a pain point for Bitcoiners. Bitcoin market participants have pointed out several issues that emanate from the fact that there are still members of Congress who have not shown themselves to fully understand Bitcoin.
The sentiment is that Congress members who do not fully understand the asset, having not used it, should not be responsible for making laws about it. Additionally, market participants also think it will be a conflict of interest if members of Congress who oppose Bitcoin are found to be holding Bitcoin or if those who support it do not own any.
Jameson Lopp, the co-founder, and chief technology officer of Casa – a leading provider of Bitcoin self custody solutions, has gone digging into the United States Senate Financial Disclosures portal. The investigation was carried out to identify Congress members who have declared holdings of cryptocurrencies, and Bitcoin in particular, in their portfolios.
His findings paint a dismal picture as the majority of the members of Congress who have been vocal in supporting Bitcoin have not held the asset at all according to their financial disclosures for the year ending 2020.
According to his findings, only 3 Congress members have disclosed that they own Bitcoin. The now-retired Representative Bob Goodlatte of Virginia was the first Congressman to disclose the ownership of Bitcoin, doing so in 2017 even before laws were passed to make disclosure mandatory. According to his disclosure, he owned between $1,000 and $15,000 of Bitcoin at the time.
Among currently seated Congress members, only Senators Cynthia Lummis and Pat Toomey have reported Bitcoin holdings in their portfolios in 2020. Senator Lummis reported owning $100,000 – $250,000 of bitcoin in 2020 making up between 0.6% and 2.75% of her net worth. Similarly, Senator Pat Toomey reported purchasing $1,001 – $15,000 of GBTC in June 2021. The GBTC investment is between 0.01% and 0.7% of his net worth.
The sleuth however concedes that he did not have the time and resources to go through the financial disclosures of all 535 congressional members. Nonetheless, it is telling that of the ones he checked, even members of caucuses in Congress that are affiliated to cryptocurrency and members that have drafted bills that will provide clarity for the industry do not hold Bitcoin or other cryptocurrencies as their financial disclosures show.
PlatoAi. Web3 Reimagined. Data Intelligence Amplified.
China Again? — Why The Crypto Market Lost Over $300 Billion In Hours And What To Expect
- Crypto-market records over s$1 billion worth of Crypto liquidations in hours.
- Liquidated long positions significantly surpass shorts.
- Fundamental factors pose serious threat to the market, but the road to recovery is near.
The crypto market has been hit with yet another massive liquidation. Within the last 24hrs, a whopping $1.03 billion worth of long and short positions have been liquidated, as reported by the aggregate derivative exchange platform ByBt.
When traders are long on a particular asset, they are simply gaining exposure to the cryptocurrency in question, in hopes that prices will surge significantly at a later time. It appears that a lot of investors were bullish on crypto for the most part, as long positions were significantly higher than shorts. Precisely $946.10 million worth of crypto was liquidated, while $6.56 million short positions were liquidated.
Liquidations usually take place in the crypto market when a trader’s leveraged position is forcefully sealed by an exchange when the trader’s initial margin is partially or totally lost. Futures and margin trading is usually where liquidation is common.
Many market pundits have warned against over-leverage, which they point to as the case of repeated liquidation. However, despite cryptocurrencies being high-risk due to the intense volatility, leveraging provides an opportunity for investors to generate significant profit. For this reason, liquidations are imminent.
On a larger spectrum, the question at hand is how the market will be affected going forward. Although no one can accurately predict, recent events hint that the dip could go even deeper, no thanks to fundamental factors like the ongoing Evergrande crisis.
“The Hong Kong stock market plummeted, triggering a decline in global markets and cryptocurrencies. The main reason is Evergrande, China’s largest real estate company with nearly 2 trillion debts.” wrote Chinese journalist Colin Wu.
Thus far, leading assets like Bitcoin, Ether, Solana, Cardano, and many others have dropped in price value and are, at this time, still going downwards. Bitcoin has plummeted to $42,928. While losing more than 7% in value today. Ether, XRP, SOL, DOGE, and Cardano are likewise seeing an extensive decline.
In response to the dip, analysts have responded to their previous sentiments on Bitcoin especially, saying that the expected floor price for this month remains at $42,000 and that a bounce will follow a while later. Altcoin analysts are also keeping their fingers crossed to see how the next 24hrs play out before predicting the market’s trajectory.
PlatoAi. Web3 Reimagined. Data Intelligence Amplified.
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