Blockheads and Blockchain: a view from Novetta.

Bitcoin enthusiasts aside (and there are a lot of them out there, including not just the stereotypical individual techno-libertarians and black marketeers, but some significant financial services companies as well) should people see the underlying blockchain technology as one with significance for their lives? Or is the blockchain nothing more than a flashy hashtag soon to be overtaken by other fads?

Peder Müller, Novetta's Deputy Director of Analytics, thinks the blockchain is significant. He made the case Monday at the Jailbreak Brewing Company in Laurel, Maryland, to Jailbreak's usual audience of white hats and developers. Müller declared himself at the outset of his talk as a Bitcoin enthusiast whose interest began in curiosity but has since expanded through his work at Novetta to encompass blockchain technology as such.  

What's the blockchain, where did it come from, and how does it work?

The blockchain, Müller said, is a chain of blocks, each block being analogous to a ledger page. It's immutable in the sense that the chain is append-only, and so can only be added to, with earlier blocks remaining unalterable. In this sense the blockchain is a push technology. Data in the chain are fingerprinted with hashes (like ledger pages). It's also distributed—there are no central servers. "You pick data, hash it, you take that hash, add it to the next page as a header, then hash it again." Thus blockchain is typically described as a "distributed ledger."

Müller traced the history of the blockchain to work in the mid-2000s on the Byzantine Generals problem. (Described in 1982, the problem is one of fault tolerance in systems that require user consensus, and in which the users may or may not be trustworthy.) In 2006 Satoshi Nakamoto (whoever that actually is) took up the Byzantine Generals problem. We're engaged together in some activity, but we can't communicate or trust one another. The solution, subsequently realized in Bitcoin, was to present a proof of work, a solution to a difficult problem. "You say to the whole network, 'I've got the hash,'" Müller said. "You tell them you have the key, and the network can check that, and thus a chain is built."

The longest chain in the blockchain is the one that matters. Because "the long chain wins," in the long run, there's no realistic chance of hacking. The more agents who are involved, the stronger the chain becomes. "You can see what x said to y. It's signed data," Müller said. "Everything that happens can be shown, and is known."

What about weaknesses and unfinished work in blockchain technology?

Having reviewed the strengths of blockchain technology, Müller covered some of its weaknesses. Because the integrity of a blockchain relies on many nodes, adoption is a challenge—the more adopters, the better. With a smaller group of adopters, "51% of the hashing power could exploit the longest-chain-wins system. This hasn't happened yet, but we have come close." The very size of the blockchain, which lends it its strength, could also become a problem. Blockchains get big, Müller explained. Were Bitcoin to reach the transaction levels of, say, Visa, it would grow rapidly, by petabytes annually.

Legal and regulatory frameworks to govern Bitcoin are still "nigh non-existent." And some perceive a weakness inherent in the proof-of-work on which the system rests. Is proof-of-work a waste of computational power? Could it be replaced by proof-of-exchange, or proof-of-stake? The argument here is still premature, Müller believed, especially with respect to proof-of-stake approaches, but it's certainly possible that eventually proof-of-work will run up against the familiar problem of the commons, in which everyone has an incentive to exploit shared resources, but not to husband them. "You've got to have miners or the blockchain breaks."

Bitcoin: the most famous application of blockchain technology.

The blockchain, Müller summed up, is really "a way of thinking, way of coding, a way of storing and transmitting data." He then turned to some of the applications the blockchain has found.

Its most famous use is in Bitcoin, a deflationary currency maxed out at 21 million. Bitcoin makes "heavy integration" of elliptic curve cryptography. It uses trustless pseudoanonymous transactions, and it's proven itself highly reliable and available: "It's never gone down since 2009." Today, one Bitcoin today equals approximately $640.

Bitcoin's blockchain is a ledger for its transactions, and you can trace the inputs back to Satoshi Nakamoto's "genesis block." Each page of the distributed ledger is cryptographically hashed (and so confirmed) by miners. Mining is no longer something done by private enthusiasts from their gaming rigs. Today, Müller explained, there are huge mining farms, with server racks doing nothing but hashing.

Bitcoin is protected by being distributed and hashed. Transactions always refer to a previous transaction, which is where chaining comes in, and a transaction is just signing data over.

Other blockchain applications.

Bitcoin may be the most successful implementation of blockchain, but, Müller said, "Generally, blockchain's biggest asset is imagination." There is, for example, a customizable election service based on blockchain called Votewatcher. It can be used to secure and authenticate any kind of voting whatsoever.

There's Storj, which enables distributed storage of hard-drive space you're not using. "In Storj, shards are distributed, cryptographically hashed in redundant nodes." It's cheap and fast.

When you might not want (or need) blockchain.

Müller thinks there remains a need for classical databases, and that there are several conditions under which you wouldn't want, or need, blockchain. Will one data entry point work? Do you need a central authority? Are you unwilling to trust miners? Do you not need proof-of-work? If the answer is "yes," then blockchain won't be for you.

What's coming next for the blockchain?

Blockchain 1.0 is Bitcoin, Müller said. "Blockchain 2.0 is smart contracts, agreements in code, and removal of human bias." He sees Ethereum as Blockchain 2.0. Ethereum has a programming language. It's Turing complete. Ethereum has a virtual machine that runs across its blockchain. "It has solidity." It's not just currency, but "ether, gas." Ethereum is "fire-and-forget." It has, therefore, no bias. "It does what it says it will."

A number of contracts can be built into distributed autonomous organizations (DAO). DAOs are like classical business structures, not AI, and are working to create large-scale applications. "Think MS Word, but on blockchain."

Development of DAOs hasn't been without difficulties—Ethereum had to create a hard fork—and its challenges have included bugs and a difficult learning curve that amounts, in Müller's view, to an acculturation challenge. Growing popularity will also drive up price, and no one wants to pay an excessive price to run a contract. Legal and social norms remain to be addressed, and, above all, the community needs to think through the implications of buggy code for an increasingly pervasive blockchain.

And what's coming next after that?

And in Blockchain 3.0? "What if we go beyond smart contracts," Müller asked, "to, say, automated medical dosing?" He foresees physical security applications approaching rapidly, and he sees the possibility of competitors' storing their proprietary data with one another. Blockchain can protect all those data, and do so with compromising them.

Müller concluded by observing that "Blockchain is proven to work. It's a matter, simply, of thinking differently. It's not about money. It's about data."