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The Types Of Blockchains

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The Rise & Rise Of Bitcoin

8 years in numbers

• Price - 10,000 BTC per pizza to ~$7200 per BTC
• Market Cap of $200 Bn
• ~$0  financial loss on the chain itself

The Secret Of Bitcoin's Success (?)

Is not :-

• Efficient consumption of resources
  • ​BTC mining consumes ~400 MW of electricity - enough to power ~300,000 average US homes
• Computational efficiency
  • Only 3-4 transactions per second, as compared to Paypal, VISA etc which can do 2000 tps.

Social Scalability

The ability of an institution (a relationship , shared endeavour etc) in which

• multiple people repeatedly participate
• having customs, rules, and other features which constraint or motivate participants' behaviour

to

• overcome shortcomings in human minds and
• overcome constraints that limit who or how many can successfully participate.

 

Technology and Social Scalablity

The social scalability of an institutional technology depends on :-

• How that technology constraints or motivates participation in that institution
• How that technology protects the participants and the institution itself from harmful participation or attack.

Estimating Social Scalability

• The number of people who can beneficially participate in the institution.
• By the extra benefits the institution provides to a participant before the costs and other harms of participating grow faster than its benefits.

Other Factors

• Cultural and jurisdictional diversity of people who can beneficially participate in the institution.

The more an institution depends on local laws, customs, or language, the less socially scalable it is.

The Dunbar Number

Without the technological innovations of the past, participations in shared human endeavours would usually be limited to 150 people - the “Dunbar” number.

Overcoming The Dunbar Number

Trust Minimisation 

• Reducing the vulnerability of participants to each other’s and to outsider’s and intermediaries potential for harmful behaviour.
• Traditionally performed by centralised institutions. eg:- banks

Whereas the main social scalability benefit of the Internet has been matchmaking, the predominant direct social scalability benefit of blockchains is trust minimisation

Matchmaking 

• Facilitating the mutual discovery of mutually beneficial participants.
• Social matchmaking (Facebook, Twitter etc) vs Commercial matchmaking (Uber, Airbnb etc)

Money & Markets

Markets benefit the participants in a particular trade by  

• matching a buyer
• with a mutually beneficial seller
• and by a widely acceptable and standardised counter performance (money)

Money and markets involve  

• Matchmaking - bringing together buyer and seller
• Trust reduction - trusting in self interest rather than the altruism of strangers
• Scalable Performance - via money
• Quality information flow - Market prices

Social Scalability Of Network Security

• Programs and protocols running on our computers implement most of our commercial dealings

 

• While this has greatly improved matchmaking and information flow, it has come at the cost of an increase in vulnerability to harmful behaviour
   
• Traditional computer security is not very socially scalable

Enter Blockchain

Scalable markets and prices require scalable money. Scalable money requires scalable security, so that a greater number and variety of people can use the currency without losing its integrity against forgery, inflation, and theft. 

 

Blockchains substitute computationally expensive but automated security for computationally cheap but institutionally expensive traditional security,

 

A set of partially trusted intermediaries replaces a single and fully trusted intermediary.

Elements Of A Blockchain

Nodes

Virtual Machine

Distributed Ledger

Consensus Agorithm

Types Of Blockchains

Participants in a blockchain

Types of blockchains

• Public blockchains
• Private blockchains
• Permissioned / Consortium blockhains

• Agents who create transactions
• Agents who verify transactions
• Agents who view transactions

Public Blockchains

Anyone has the ability to read, write, and verify  data on the blockchain. i.e. anyone can be a node.

 

Values anonymity, immutability and transparency over efficiency.

 

Extremely secure but slow and wasteful.

 

Most appropriate when a network needs to be decentralised.

 

eg:- Bitcoin, Ethereum

Private Blockchains

A single entity (company, organisation etc) can  write and verify transactions.

 

Read access is provided as per the company's discretion.

 

Values efficiency over anonymity, immutability and transparency.

 

Appropriate to traditional business and governance models.

 

eg:- Blockstack, Multichain

Permissioned Blockchains

A hybrid between the ‘low-trust’ provided by public blockchains and the ‘single highly-trusted entity’ model of private blockchains.

 

A few predetermined nodes can  write and verify transactions.

 

They value immutability and efficiency over anonymity and transparency.

 

eg:- Ripple,  Hyperledger Fabric

A Comparison

Vitalik Buterin - “The idea that there is “one true way” to be blockchaining is completely wrong headed, and both categories have their own advantages and disadvantages

Blockchains vs Distributed Ledger Systems

It's a blockchain if it has :-

• Blocks - cryptographically encrypted transaction bundles
• Chains - Merkle trees or other cryptographic structures with similar integrity functionality of unforgability.

 

The transactional data whose integrity is protected by a blockchain should be replicated in a way which is as tolerant to worst-case malicious problems and actors as possible.

Food For Thought

Blockchains do not guarantee truth. They just preserve truth and lies from later alteration. 

 

Even public blockchains don't entirely solve the trust problem.