My Bitcoin Blockchain Analysis

Analysis

Blockchain technology derived from the Bitcoin stack promises much in the era of digital business. The Bitcoin blockchain is currently the primary mechanism for implementing a decentralized, distributed ledger of cryptocurrency transactions — although alternatives are have been underway.

There is a contradiction between the requirements of a private blockchain and the capabilities of public blockchain, which result from its original purpose of creating a value-exchange system that is resistant to control by a single central authority. This will be an ongoing tension, similar to the dynamic between public and private cloud.

Blockchain platforms, also known as distributed ledger technology and termed "metacoin platforms", remain at the peak of the Hype Cycle curve. This means inflated expectations still abound, the result of a lack of knowledge of the technology and what problems it can be applied to.

The Essence of Blockchain Technology

Many enterprises are considering blockchain technology but perceive it to be a tool or platform for database management, data integration, application integration, identity management, records management and/or business process management. In its current form, blockchain technology is none of these, although it may evolve to eventually encompass several of these areas.

The only blockchain platform that is proven mature, secure and rock solid in production is the Bitcoin blockchain (although, additionally, the Ethereum platform has recently gained credibility).

The Bitcoin blockchain is conceptually simple: a flat file, a sequential list of transaction records denominated in bitcoin currency. This record of transactions (distributed ledger) is implemented as direct-to-file-system storage, meaning there is no use of a conventional database management system (DBMS) (except for in a secondary role as a query mechanism for metadata).

Instead of relying on a DBMS tool or platform, the Bitcoin ledger is a manually coded data structure that consists of a sequential chain of blocks, in which each block comprises several hundred transaction records appended to the rest of the chain at roughly 10-minute intervals per block. The entire dataset is massively replicated across thousands of nodes in a peer-to-peer network, each one running software that implements the Bitcoin protocol. The system is designed to avoid reliance on any one server, on any one organization or on any one software implementation. Instead, the blockchain represents a trusted record within an untrusted environment — an authoritative record of significant events, where the truth of the record is defined by the majority of nodes in the peer-to-peer network (strictly speaking, by the majority of computational power).

Despite this successful track record, the Bitcoin blockchain has known limitations in scalability, flexibility and governance. Due to design decisions made that favor the full scope of the "Byzantine Generals' problem," the system will favor security and data integrity over scalability and flexibility. Regarding throughput, the entire system has a theoretical capacity of only seven transactions per second (tps) maximum (in practice, this number is about three tps). This transaction volume is not for a single application, but for the entire network — the entire world of bitcoin.

A Crowded Competitive Arena That Continues to Grow

Over the past two years, there has been a proliferation of blockchain technologies. Some of these are directly competitive with the Bitcoin technology stack, and therefore are designed as public blockchains (similar to Bitcoin, they are integrated with a value token or digital currency). Others are oriented to private blockchain deployments (private networks where the number of participants is stable; all nodes are known; and there is a mechanism that grants permission to participate, which might be a centralized identity management system).

Although choosing the eventual winner for this sector is unlikely, given that it may not even be on the market, it is possible to state what that winner will look like.

Here are the characteristics of a winning blockchain platform:

• Open source — this is necessary to cultivate a rich and diverse ecosystem and accelerate adoption through network effect.

• Modular architecture with layers of programmability and customizability — as above, this cultivates an ecosystem and enables market adoption.

• Global scale — scalability, performance and efficiency are essential if blockchain is to become the foundation for the "Internet of Money."

• Multiple implementations of the core protocol — multiple, independently developed implementations ensure that the protocol is understood, well-defined and adds resistance to possible attacks (as occurred with the Ethereum platform in September 2016). This requires there to be an accurate and precise specification of the core protocol, as opposed to relying on one codebase that is not documented.

• Hardened through public blockchain deployment — this is the only way to ensure that the system is secure and "bulletproof," by exposing it to the worst threats on the open internet, as has occurred with both the Bitcoin stack and the Ethereum platform.

• Configurable for private blockchain deployment and support for confidentiality of transactions — because most businesses do not want their transactions to be visible by their competitors or by the rest of the world.

• Functioning governance — there needs to be a cohesive decision-making structure that can respond in an agile and coherent manner to threats to the system.

• Advanced smart contract capability — because the current generation of smart-contract technology relies on traditional languages (similar to Java or C#), which are inadequate for the rigorous requirements of large-value contracts (and are best supported by metadata-driven or mathematically verifiable programming systems).

• Adequate tooling for developing, debugging, deploying, monitoring and managing smart-contract-based systems (the importance of which was underscored by the recent denial-of-service attacks on the Ethereum network).