- address income inequality
- Always keep all data safe
- Make everything much more efficient and trustless
- save a dying baby
So, what kind of technology is blockchain? Can it really do all of the above? Can blockchain bring amazing results to industries as diverse as healthcare, finance, supply chain management, and music copyright?
Also, does not supporting Bitcoin mean you are supporting blockchain? How can you support Bitcoin while saying the technology behind it is not good?
In this article, I seek to answer many of these questions by analyzing what a blockchain is and, more importantly, what a blockchain is not.
What is blockchain?
In order to tell the truth of some of these claims, we have to define what a blockchain is, and there is too much confusion in this regard. Many companies use the word “blockchain” to refer to some kind of magical device by which all their data can go wrong. Of course, such a device does not exist, at least not in the real world.
So, what is blockchain? Technically, a blockchain is a linked list of blocks, and a block is an ordered set of transactions. If you don’t understand the last sentence, consider blockchain as a subset of database with a few more properties.
The main difference between a blockchain and a normal database area is that there are specific rules that govern how data is put into the database. That is, it cannot conflict with some other data already in the database (consistent), it is append-only (immutable), the data itself is owned by the owner (ownable), replicable and usable. In the end, everyone agrees on what the state of the data in the database is (normalized), there is no centralized mechanism (decentralized).
This last point is the ultimate goal of blockchain. Decentralization is attractive because it means there is no single point of failure. That is, no authority can take your assets, or tamper with the “history” to suit its needs. This immutable audit trail that you don’t have to trust anyone is exactly the benefit that everyone using this technology craves. But this benefit comes at a high cost.
The cost of blockchain
Immutable audit trails that are not controlled by either party are certainly useful, but creating such a system comes with a lot of cost. Let’s analyze some of these issues.
- Tighter and slower development
Creating a provably consistent system is no easy task. A small mistake can corrupt an entire database or cause some databases to be different from others. Of course, a corrupted or split database no longer has any consistency guarantees. In addition, all such systems are designed to ensure consistency from the outset. There is no such thing as “move fast and break things” in blockchain. If you break the rules, you lose consistency and the blockchain is broken and worthless.
You might be thinking, why can’t you just fix the database or start over and move on? This is easy to achieve in a centralized system, but difficult to achieve in a decentralized system. You need consensus, the consensus of all participants in the system, in order to make changes to the database. The blockchain is bound to be a public resource that is not controlled by any one entity (decentralized, remember?), otherwise the cost of creating a slow centralized database would be prohibitively high.
- Reward structures are difficult to design
Adding the right incentive structure and ensuring that all participants in the system cannot abuse or corrupt the database is also a big factor to consider. The blockchain may be consistent, but it is not very useful if there is a lot of useless data that is irrelevant because the cost of adding data to it is low. But if the blockchain has little data due to the high cost of adding data to it, then a consistent blockchain is useless.
What gives data finality? How do you ensure rewards are aligned with network goals? Why do nodes keep or update data? When there is a conflict, what makes a node choose one piece of data over the other? These are motivational questions that need to be answered well; they need to be consistent not only at the outset, but at any time in the future as technology and companies change, otherwise blockchain is useless.
Again you may wonder why some broken incentives can’t be “fixed”. By the same token, this is easy in a centralized system, but in a decentralized system you can’t change anything without consensus. There’s no point in “fixing” unless everyone agrees.
- Maintenance costs are very high
Whereas traditional centralized databases only need to be written once, blockchains need to be written thousands of times. Whereas traditional centralized databases only need to check data once, blockchain needs to check data thousands of times. Whereas traditional centralized databases only need to transfer data once for storage, blockchain needs to transfer data thousands of times.
The cost of maintaining a blockchain is orders of magnitude higher and needs to be justified by actual efficacy. Most applications looking for some of the above properties, such as consistency and reliability, can get them at a much lower cost if they take full advantage of integrity checking, receipts, and backups.
- User reigns supreme
This can be great because companies don’t like owning user data in the first place and feel it’s cumbersome. But this can be bad if the user “misbehaves”. Some users send a lot of useless data to your blockchain, or come up with ways to make money, but they cause a lot of inconvenience to other users, but you can’t kick such users out. This is related to the point above: the incentive structure must be carefully designed, because users who have a way to profit are unlikely to quit.
You might think that just refusing to serve malicious users, this is easy to do in a centralized service. However, unlike centralized services, denial of service is hard in a blockchain because no single entity has the power to kick anyone out. Blockchains must be impartial and enforce rules defined by software. If the rules aren’t enough to stop bad behavior, you’re out of luck. There is no “spirit” of the law here. You have to deal with malicious or misbehaving molecules, possibly for a long time.
- All upgrades are voluntary
Forced upgrade won’t work. Other participants on the network are under no obligation to make changes to your software. If they had this obligation, such a system would be extremely easy, fast, and cost-effective to build into a centralized system. The point of a blockchain is that it is not controlled by any one entity, and forcing an upgrade defeats the purpose.
Instead, all upgrades must be backward compatible. This is obviously quite difficult, especially if you want to add new features, even more difficult from a testing perspective. Each version of the software adds many variables to testing, extending the time to release.
Again, if this is a centralized system, this is easy to correct, as long as the old system is no longer serviced. However in a decentralized system you can’t do that because you can’t force anyone to do anything.
- It’s really hard to scale
Finally, it is at least orders of magnitude more difficult to scale than traditional centralized systems. The reason is obvious. The same data is in hundreds of places, not in one place. Transmission, validation, and storage are expensive because each copy of the database incurs this overhead, rather than paying those costs only once in a traditional centralized database.
Of course, you can lighten the load by reducing the number of nodes. But then, why would a decentralized system be necessary? If scaling costs are a major concern, why not just get a centralized database?
Centralization is much easier
One thing you may have noticed is that decentralized systems are hard to handle, expensive to maintain, hard to upgrade, and hard to scale. Centralized databases are much faster, cheaper, easier to maintain and easier to upgrade than blockchains. So why do people continue to use the term blockchain as if it were some sort of panacea for all problems?
First, many industries that embrace blockchain are long overdue for IT infrastructure. Software in the healthcare industry is notoriously bad. Financial settlement still runs on software from the 1970s. Supply chain management software is not only difficult to use, but also difficult to install. Companies in these industries have mostly resisted upgrading for fear of the risks involved. Many infrastructure upgrade projects cost hundreds of millions of dollars, only to end up reverting to the status quo. Blockchain is a way to market these IT infrastructure upgrades and make them a little more enticing.
Second, blockchain can make you appear as if you are on the cutting edge of technology. Like it or not, the word “blockchain” has a market in itself. Few people really understand what it means, but in order to appear trendy, these words are put on their lips. Just as “cloud” means someone else’s computer, “AI” means tuned algorithms, and “blockchain” here means slow and expensive databases.
Third, people actually don’t like government control of certain industries and want a different adjudication mechanism than the legal framework, which is often slow and expensive. For them, “blockchain” is actually a way to break free from the heavy shackles of government regulation. This overstates the capabilities of the blockchain. Blockchain will not miraculously eliminate human conflict.
As a result, many people listen to inflated promises without really understanding the capabilities or costs of blockchain. To make matters worse, venture capitalists and corporate executives are consciously or unconsciously avoiding the actual technical details and costs, and being vague about what blockchain can and cannot do. Everyone below them is afraid to say that the emperor has no clothes, and now we have the same situation.
So, what does blockchain apply to?
We’ve made one point: blockchains are very expensive relative to centralized databases. So, the only reason a blockchain should be used is decentralization. That is, to eliminate a single point of failure or single point of control.
This naturally means that the software or database must not be changed frequently, if at all. There are too few advantages to doing an upgrade, and too many disadvantages to messing with or changing the rules.
Most industries are not like this. Most industries require new features or upgrades, with the freedom to change and expand as needed. Given that blockchains are difficult to upgrade, change, and scale, most industries have little use for blockchains.
We found that funding was an exception. Unlike most industry use cases, funding is better if there is no change. Immutability and hard-to-change rules are good for money, not bad for it. This is why blockchain is the right tool for Bitcoin.
Clearly, many companies that want to use blockchain don’t really want blockchain, they want IT upgrades in their industry. That’s fine in and of itself, but using the word “blockchain” for that purpose is dishonest and over-hyped about its capabilities.
Blockchain is a buzzword today; unfortunately, the meme of “it’s blockchain not bitcoin” isn’t going away. If you provide a centralized service, the blockchain can do what a centralized database can do, and the cost of the latter is only one thousandth of the former. If you’re offering a decentralized service, you’re probably kidding yourself and not taking into account the single point of failure that exists in the system. There is no “you” at all in a truly decentralized service.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/what-is-blockchain-technology-in-short-slow-expensive-databases/
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