Ask HN: What benefits does the blockchain provide?
I've heard many people stating blockchain will become ubiquitous over the next few years, but I'm not entirely sure what benefits it provides.
The internet obviously provided companies a way to reach and connect with millions of people from all over the world. AI allows companies to use machines to do tasks once only humans could do. Cloud computing frees companies from the hassle of maintaining physical hardware.
But what does the blockchain offer me if it's really on par with these other innovations?
92 comments
[ 5.4 ms ] story [ 172 ms ] threadAll of us at many points in our lives have to trust people or companies that we can't (and should't) trust, for example we give credit card numbers to some random websites on the web.
In theory, blockchains are supposed to get rid of that need, because instead of a single entity owning everything, everything is decentralized.
This means people don't have to put trust on entities they shouldn't have to trust. This will probably get rid of a lot of inefficiencies in the world.
Imagine a bank on Ethereum that accepts deposits and allows withdrawals (first example here: https://learnxinyminutes.com/docs/solidity/ )
Anyone can deposit and withdraw, and no central party has the right to control the funds, if the contract is designed that way. As such, there is no custodial risk that the funds are stolen - and perhaps even no need to regulate the bank itself. (obviously, someone can steal if they get your private key, just not through the bank itself)
Lots of other examples. Bitcoin lets us set a credible limit of 21 MM, but in the real world you'd have to trust a central bank's word for the same.
Or the Lightning network allows peer to peer payments through counterparties. But none of these counterparties are able to steal the money midway through. This is akin to having 20 random people help you move a payment across the world, without any of them being able to steal the money.
Finance is full of these examples where we have to trust other parties, and crypto may have a huge impact there. Also, by reducing regulations and capital requirements, may make the space more ripe for startups to attack finance.
No crypto system can close trust beyond the network and it’s nodes. Some other dependency is required for that. Crypto might be shown to allow for some new kinds of dependency to step in at that point but I don’t know of anything like that myself.
They don't protect you from a third party not shipping your products that you bought on eBay.
If you have ever dealt with companies like PayPal as a merchant, you know why this is important.
Trusted middlemen usually serve a useful function in the system but for some use cases (i.e. irreversible micro transactions), they’re too expensive.
Alice wants to buy something from Bob. But the only way to do so is through Eve. Then Alice and Bob both need to trust that Eve won't steal their credit card or money transfer in between.
Your question is regarding whether Alice can trust Bob (Not whether Alice and Bob can trust Eve the Middleman) There isn't currently a mainstream app that does this yet. One notable example is OpenBazaar, where they created a protocol to carry this out in a trustless manner, but they're just getting started.
[0] Under scam mitigation - https://www.openbazaar.org/blog/openbazaar-development-updat...
With the distributed system, essentially we are trying to hardcode all of the rules, so there isn't any wiggle room for fraud, or a single person changing the rules on you, etc.
The downside to this, is that it means that it essentially becomes goverened by the software devs (or controlling body) of the altcoin. However, it sort of protects the consumer a little more by making it harder for a single governing body to make singular changes, because they'll want everyone who runs a type of exchange for the coin to participate as well so as not to alienate the coin and userbase...
I do think we're still a ways off before the blockchain actually gets mass adoption in terms of real world usage (instead of it being a speculative, get rich quick scheme that it is now to a lot of people)
The above distinction, I believe, is important - I’m not objectively better off using one or the other, it depends completely on which scenario I’m more worried about.
Specifically how with the blockchain could I give a company my credit card information without me having to trust they don't misuse that information?
I understand a couple of disadvantages here would be the general inefficiency of the blockchain, and zero protection in cases of fraud. Do you feel the benefits of the blockchain would outweighs the negatives here?
The general (electrical) inefficiency is a specific characteristic of Bitcoin and PoW systems. It's not an inherent thing about Blockchains. Other cryptocurrencies don't have that problem.
I don't know about zero protection. Bitcoin-like currencies protect you from many things. One thing they don't protect you from is eBay sellers that scam you. Alternatives exist for this problem (namely money escrows).
Re: your last question, I think using a credit card is better today for buying stuff on eBay. But Bitcoin like systems solve a more fundamental issue which is that they let you and you alone control your own money. That is not essential for buying on eBay. But it is essential for other things that I would argue are more important. See my higher lever comment about Wikileaks funding, for example.
Wouldn't the real solution here be to push for the tech currently used by centralised banks to be updated so transactions can happen almost instantaneously? This would also come with the advantage of preserving the protection from hackers and fraudsters that centralised banks currently offer their customers.
Better bank tech exists in many places outside the US (pretty much everywhere, really). Better bank tech does not guarantee my ability to send you money, and it certainly does not provide that ability if any single one of a number of large private and/or public entities decide to preclude me from it.
Guaranteed access and censorship resistance. That is a clear advantage of cryptocurrencies at this time (not of blockchains, mind you), and I think it's a significant one. That doesn't mean you should use them.
If you are curious and up to the challenge I will give you an Argentina (where I currently live) bank account number and if you can get USD 1 in it by the end of next week I will send you $50 worth of the cryptocurrency of your choice.
PS Also I don't want to sound presumptuous but it seems to me you use the word "blockchain" as an equivalent to "bitcoin" or "cryptocurrency". It could be the case that some of the points in this type of discussion rely on the differences between those concepts.
Here's a specific example:
Blockchain-powered systems are an alternative to the censor-prone nature of the current networks (Internet, but also financial networks).
Governments and large corporations hold significant leverage over the omnipresent communication mechanisms that are available today. This wasn't an issue when the Internet was invented.
If a government disagrees with the existence of Wikileaks, Wikileaks can be excommunicated or financially strangled to death by applying pressure to third parties (banks or internet service providers) that allow it to function.
Blockchains and P2P networks provide an alternative to this.
Blockchains allow parties to achieve consensus without trusting any other member. The innovation being that any social system that relies on trust brings with it the problems and implications of the trusted. Common examples include being more costly (overhead/greed), socially exclusionary / corrupt in some circumstances (eg banning protesters). It also facilitates new innovations such as cryptocurrency.
In public blockchains, trust is instead put into the security of the network in terms of its proof-of-work, its developers who maintain the software, the community at large (especially in the case of forks) and so on...
Not mentioned often however is why corporations also are loving the idea of private blockchains (IBM Hyperledger, R3, etc). Private blockchains involve trusting only a couple participants to join the network. A set of banks can define a mutual settlement protocol in a standard smart contract for example - in using a blockchain, they mitigate the risk of other banks affecting their system.
A better example of where a private blockchain would do wonders is in BGP routing. You hear almost every year of a news story where an Indian ISP accidentally broadcasts they forward for Google's IP subnet, and subsequently disrupts all of India's Google access until they manually fix it. A private blockchain among BGP hosts would vastly improve these situations if everyone could agree on which routes they were routing, and globally optimise in the case of failure.
I think the key to achieving anything with the blockchain approach is to not try replace something with a blockchain (ie Facebook) for the sake of removing trust, but pinpointing specific pains that derive from having to trust other parties and then focussing there.
Yes, this is what really interests me. I'm trying to understand why companies like IBM and FB want to develop their own blockchains, but I'm struggling to get it.
Do you think you could give me some more details about how this would work? Do you have a real world example of how banks could use a private blockchain?
How does it solve breaking of this "trust"?
In the same way that I shouldn't give credit card numbers to random website, I pay some coins to a random website which promptly runs away with those coins.
While for credit cards we have entities which can solve this problem for me, how does blockchain solve this problem? Because if this goes mainstream we will have people getting scammed a lot.
Or even people who get hacked due to the recent Intel bugs:
https://news.ycombinator.com/item?id=16076575
Coins, inventory, cars, loans, art, crypto kitties, sensor logs, records.. anything you'd put in a database, you could instead put into the distributed ledger and forget about it (at a price, the amount of data has to be very small but you can also buy hosting separately). Others can then have assurances about the integrity of that ledger without having to trust you either
The cherry on top is being able to write transform functions (ie programs) that all of the nodes simultaneously run so the ledger state can intelligently change based on conditions
What specific advantage does the blockchain provide here, given decentralisation is less efficient than the centralised cloud solutions already available from providers like AWS?
In what situations am I going to want to create a database in which not even I under any circumstances can delete things or change access rights?
It does a good job of explaining how trust evolved in the world and now that we are comfortable using computers to organize our lives, it makes sense to have a global ledger to keep track of "karma" we owe each other.
However, I was really asking for the benefits of blockchains more generally. I've been hearing a lot of smart people say it's the future, and I've seen news articles about numerous companies looking into building their own blockchains, but I don't really see what the general use case is for it. The only example that's ever made much sense to me is the example of cryptocurrency.
* Puts the whole world on the same level of financial freedom and participation - farmer in Africa without an internet connection permissionlessly invests in a Chinese tractor company via text.
* Solves the problem of ownership - no need for house, car, etc title companies.
* Brings a new level of honesty to the financial world - auditing industry goes away because it's not possible to cook the books.
* Every movement of value becomes near-instant and doesn't require trusted middlemen - elimination of clearing houses.
* Breaks down national borders - vastly improved supply-chain logistics.
It has the potential of reshaping almost every corner of the underlying structures of modern economies. Just like the internet, it's the foundation for a new chapter of innovation. Who knows what will come of it?
Accounting, surprisingly to folks who've never studied it and think it's simple arithmetic, requires judgment, based on rules that are sometimes grey and subjective. When you add in legal complexities, it becomes... well, more complex and therefore open to manipulation.
For instance, Enron was able to hide many liabilities by marking it (in hindsight) below market, since... there was no market for said liabilities. So it was impossible to value them. Furthermore, it hid other debt in obscure subsidiaries that were only tangentially, legally and fiscally speaking, connected to Enron.
The blockchain confirms, with better accuracy than existing systems, "X transaction occurred between Y and Z partners." It does not confirm "X's assets were appropriately valued and marked as such to a non-existent market, and X is most definitely a legal subsidiary and is overseen by the fiduciary duty of A Holdings, Corp."
The blockchain has the potential to be a far more efficient settlement system. But saying it prevents Enron or Madoff is simply not true at all.
The blockchain, rather, represents a better clearinghouse merely by being a decentralized platform to account for payments rather than a centralized one.
OP says this prevents accounting fraud. Not one iota.
>by the use of accounting loopholes, special purpose entities, and poor financial reporting – were able to hide billions of dollars in debt from failed deals and projects.
which you could probably spot if you had access to all their bank accounts including those of the special purpose entities but no large company is going to make all that stuff public. If it's on a blockchain it'll be encrypted some how. The people who are supposed to have access to that stuff and check it are the auditors, in this case Arthur Andersen who screwed up and were destroyed by it going from 85,000 employees to mostly closed.
The amazing thing is blockchain, specially things like Monero or Zercoin, makes it even more difficult to spot this as Enron would have been able to open accounts as they wanted.
I am writing a piece on blockchain transactions and I still don't understand how this triple account thing applies.
Let me explain how double accounting works - You and I have 100 in Bank A. The Bank A notes:
Bank's Liability to: You - 100
Me - 100
Total - 200
Asset for:
You - 100
Me - 100
Total - 200
When I pay you 50 out of it, the book shifts:
Bank's Liability to :
You - 150
Me - 50
Total - 200
Asset for:
You - 150
Me - 50
Total - 200
Both side in balance.
Now this book is obviously internal. Can you use this same example and explain how triple accounting works in blockchain?
[1]: https://www.investopedia.com/terms/r/revenuerecognition.asp
And because governments really don't want to admit to their constituents how much they really spend and what they spend it on, the rules are ... less than perfect.
But a blockchain can vouch for the fact that the ledger was made according to the (supposed to be published and fair) rules, and that the rules didn't change except with total agreement.
So enron would have been able to book things in against the rules, but an easily written automated program would have detected such shenanigans, and there would not be anything Enron could do to prevent that program from raising red flags when the transactions don't follow the rules (so it would not be possible to book in such transactions, then not book in payment in full when it's due. If you're wondering how that's possible, consider that in bitcoin there just isn't any credit. So the only way to place an order using a bitcoin directly is to stake they money ahead of time, optionally with an instruction that it'd be paid back if an "oracle" (anyone else on the blockchain) says it's not delivered correctly)
Let's take an example of a retailer. She buys stuff from a company to sell in her stores. And she has How or when does her book it as a revenue? When it is bought? When it is sold? Common sense says after it is sold. What happens if there is a return? There are so many rules to cater to so many things. It's something you can hardcode into program code.
> bitcoin there just isn't any credit.
And far from you belief, it is not a good thing.
> optionally with an instruction that it'd be paid back if an "oracle" (anyone else on the blockchain)
I like how a statement defending cryptocurrencies goes all over the place.
Pray tell, how are "oracles" implemented in "bitcoin"?
Also, why should people not trust the government but random "anyone else on the blockchain"?
That said, I am still waiting for someone to explain me this "triple accounting" thing on blockchain.
Because for your bitcoins, that would be "45 minutes or less".
Given 2 economic systems. One with credit and one without. The credit based one will crush the non-credit-based one.
Does that mean credit is good ? No, but it makes it a moot point: we will have credit. Point. Bitcoin will not survive, in the long term. I get that.
In theory a blockchain could serve as the source of truth for birth records, health records, property records, favorite cat videos, etc... The possibilities are endless
Recently I've been seeing a number of really smart people and established companies claiming blockchain is going to be ubiquitous and revolutionise a large number of different industries. However, outside the case of cryptocurrencies I'm not sure what applications the blockchain has or why myself as a developer would want to start using this revolutionary technology.
I understand why in the example of cryptocurrency the blockchain is used. However why companies like Facebook or Microsoft would want to use blockchains for things is beyond me. It also confuses me why if the blockchain is as revolutionary as people say that it's only just started to get attention. Bitcoin has been around for quite a while, and has been well known in tech circles for a long time now.
If my comments here seem critical it's not because I have any opposition to using the blockchain, but simply that I'm confused and desperately trying to understand what I'm missing here. I genuinely don't understand why or how this technology is going to become ubiquitous or revolutionise much of anything - which concerns me given the track record of some of its advocates.
https://news.ycombinator.com/item?id=16017754
We have to remember that the banks and the credit card companies will prevent this from happening with all their resources...
The cynical answer is that banking institutions and oligarchs are adopting cryptocurrencies because with the various recent leaks and the (long overdue) political willpower in the West to do something about tax evasion, they need something more reliable than physical tax havens.
One of the reasons why I suspect the current BTC rate is not just a bubble is that it matched the recent crackdown on corruption in Saudi Arabia. Hundreds of billions of dollars are at risk of being lost. We have seen similar hikes after Cyprus banking fiasco and, IIRC, after a round of Russian sanctions. Still, when even my step-mom considers investing in BTC, there is clearly a speculation bubble going on over this, but I doubt the crash would bring it to pre-december levels.
The idealist answer is that blockchains allow to secure transactions that would normally require a trustable third party. If you want to run a virtual currency you normally need a database somewhere that says "Bob owns 176 dogecoin, Amanda owns 9871 dogecoins". The owner of that database can theoretically suddenly remove or add amounts on accounts in the database without anyone else's authorization. On the blockchain, the database is shared by thousands (millions now I guess?) of nodes constantly checking each other. To make a fraudulent modification and get away with it you need to own 2/3 of the network.
Currencies were the first things implemented but now some smart contracts have been added: contracts that are programmatically defined and that the blockchain will ensure execute if some specific conditions are met. E.g: "If the account #25676 contains more than 10 BTC at the first day of a month, split its amount between these two different accounts". This gave rise to the possibility to create enforceable shareholder contracts without having to trust a legal system.
The idealists who put that in place are called cryptoanarchists. (Warning: Bias ahead) simply put, these are people who think that big institution will always fail. That corruptable systems will be corrupted and that the people creating crucial infrastructure today are so flawed that the general demise is inevitable. They see a big value in the fact that we don't need to trust an entity to do transaction. I used to think that way too.
However, fact is that entities whose business is to be trustworthy tend to do a good job 99.99% of the time. The 0.01% of the time is when you are called Wikileaks or Khodorkovsky. If you are, then you put a lot of value in the lack of third parties, but if you are part of the 99.99% you probably don't.
I still like the fact that blockchains are creating competition for other institutions. The speed and low price of transactions (well, now it is getting higher in BTC, hopefully this will be solved) puts the big institutions to shame. Recently a 10 minutes SEPA transfer initiative was started, probably because of this. It is the main transfer system in Europe and it would typically take several days to process.
The fact that companies could exist solely on blockchains and be created in a matter of minutes will hopefully put a similar pressure on administrations.
You seem to be saying that you believe it has the potential to revolutionise a few things in the world of finance, which I would agree with. How much it will change those industries in reality though I'm a little more sceptical about.
Facebook is not allowed to issue dollars but may issue likecoins, warn that US residents are not allowed to sell them for dollars and get away with it.
Outside government control is a mixed blessing - less bureaucratic but more prone to tax evasion, drug dealing and investment scams.
Does anyone think that those that have control of the current money supply (well at least those that advise them) are going to give away this power to a bunch of nerdy anarchists with a cool idea?
http://blog.dilbert.com/2014/04/09/how-the-robots-will-take-...
Basically, according to that argument Bitcoin and blockchains are an AI-conceived ploy to stabilise markets and eliminate irrational human behaviour from the equation.
https://medium.com/tezos/a-functional-nomenclature-of-crypto...
When compared to a central regular database, blockchain is a compromise you make so that you can have distributed consensus over the state of the database. Apart from that it doesn't give you magical new benefits.