Excel may be cheaper and faster for companies but governments care about legitimacy and could probably end up forcing implementation. So imagine that instead of county deed offices that have physical books dating back hundreds of years with title info, they had a blockchain ledger then the third party systems the evolved on top to make title transfer lowers friction will technically not being a true legal transfer could have a middle ground where the transaction has the certainty and legitimacy of a public record and the low friction of a digital transaction rather than physically having to go to each county to record the transaction.
Similarly all large banks now have to submit stress tests to the federal reserve and one of the hardest things to do is trace asset transfers and liabilities to get at contagion risk. If regulators were smart they would mandate a blockchain or time series database so that unwinding transactions didn’t have to happen through junior attorney and bankers manual review of transfers in bankruptcy court.
Transactions are harder to do, they take longer, they're massively more inefficient, etc. And what do we gain from this? Blockchains are not immutable (as we've seen), they're usually controlled by a single entity or group of entities (as we've seen), they're public but in a bad way - as soon as the connection between a person and a key is revealed, that person's entire transaction history is revealed. And so on.
I know that "all these problems are being solved" but you could solve them all in an instant by just using a database and having sufficient oversight over who gets to manage it. I don't understand the enthusiasm to use a blockchain here (or anywhere)
I can say the same things of Visa? If the point is that economic incentives are what keep miners honest, what do you think keeps Visa honest? (I'll tell you as soon as they start doing things that don't follow the rules, their market cap will plummet)
Central point of failure argument seems moot - there are simple architectures to solve this for databases.
As soon as you tie it to real-world assets it's no different than an Excel sheet because you must validate everything manually anyways.
It can work outside of the digital realm.
https://blockpit.io/en/blog/how-to-solve-the-oracle-problem/
> A decentralized oracle uses a decentralized network of nodes to obtain real-life data from off-chain sources of information and transfer it to smart contracts on-chain. These decentralized oracles are like public libraries with multiple sources of information. Using many sources of information helps to minimize counterparty risk. More importantly, decentralized oracles aim to reduce concerns about reliability and trust because oracles that provide false data will be penalized for data manipulation.
Whoever hosts the database is in a position to manipulate data to the disadvantage of the other. Which entity gives in and gives up that power to the other? Why should either party agree to take on that sort of counterparty risk when they don’t have to?
Also, what instances of non-immutable blockchains are you referring to? Blockchains by definition are immutable post-finality.
Both?
> manipulate data to the disadvantage of the other
How is this even possible? Don't they other sign their transactions?
> How is this even possible? Don't they sign their transactions?
In a blockchain, yes. What you quoted was talking about a database. It seems like you accidentally just realized the issue with your own argument by trying to find an issue with his. Great way to get around bias.
If I'm a company, I already have a database of transactions, even if it is a spreadsheet or physical file folders.
> It seems like you accidentally just realized the issue with your own argument by trying to find an issue with his.
Where is the issue? The two companies can sign and keep separate copies of the contract/transaction. That's literally what they do now. Just digitize it, no blockchain necessary.
Companies could sign a text file of a contract with PGP keys. We could standardize a transaction format and both companies could sign each exchange. Company A would keep the contract and Company B's signature, and vice versa. Trusted third parties (our attornies, banks) could sign as witnesses for bigger transactions.
What do cryptocurrency and blockchain achieve over that, especially given the high costs of transactions?
https://www.cfainstitute.org/en/advocacy/issues/central-clea...
The premise of your argument is that building a clearinghouse is cheaper and easier than using a blockchain. That seems laughable, honestly.
Sure and what if unicorns were real? Horses would seem pretty boring then I bet.
> The premise of your argument is that building a clearinghouse is cheaper and easier than using a blockchain. That seems laughable, honestly.
I guess it’s good that we are both laughing at each other then.
"no, that's ridiculous, let's build a clearinghouse, get a bunch of lawyers and have paper contracts drafter, ad deal with differences in international law."
Like, either the terms are known and you put them in a smart contract or they’re unknown and you need lawyers anyway.
I dig the energy, but at least be sort of realistic in your “owns”
It's a bit like hearing people dismiss email and saying "just use snail mail", "just have a scribe write the letter for you", "just use a personal carrier so it's faster".
> An escrow is a contractual arrangement in which a third party (the stakeholder or escrow agent) receives and disburses money or property for the primary transacting parties, with the disbursement dependent on conditions agreed to by the transacting parties.
Expenses involved is such a process include legal fees to draft and negotiate the agreement; paying the escrow agent for their bother; paying for litigation in the event of a dispute.
Escrows can be implemented on a blockchain as well. If the use case is suitable, you can save a lot of money and hassle! And if settlement is on-chain and is indisputable, you might not even need any escrow at all.
Clearing houses do not provide any real information what they do. Supposedly they are regulated, but nobody really seems to look under the rug - which seems to have a lot of dead bodies (anyone remembers the Clearstream scandals?).
DTCC was accused multiple times during the Gamestop saga for allowing naked short selling + for allowing "fail to deliver" all the time. And the worst is that we really dont know. There were no real investigations, no real audits, no information provided to the general public. We are supposed to "trust" the clearing house, but without the ability to verify what it is doing. So how can we know what they are doing? The things we have dont really show what they are doing; also different thing is that they can claim to do one thing, but do something different in reality.
I bet that clearing houses are allowing naked shorts all the time, because nobody can really control it. Are there any programmers doing complicated code reviews with sys admins? The "big four" audits are a joke, they check some papers, of things that supposedly happened or did not happen.
Audits are done by accounting by graduates, who barely understand basics of accounting and here we talk about inspecting complicated software of some clearing house that does a million things per second. Everything is done inside some complicated operatically tool - and I doubt big 4 has any chance to understand it, if even they investigate it, because probably it is outside of scope - they just investigate the print outs, or Excel files "provided by customer". Everyone who works in finance knows that audits are a joke; the auditors barely understand what normal things are doing - and they can barely keep up with the financial part; here we talk about actual checking if the business side isnt cheating somehow inside its software.
A clearing house can just run two sets of books; also how can anyone know it isnt front-running, or naked shorting? There is a lot of money on the table in that and I bet someone tried to skim some of it from time to time. And as I said, we will never know, since this information is hidden from public. We dont really have any way to check it and very doubt if those who check really do.
It also doesn't really do much for most real world transactions because of the oracle problem. Unless both businesses only care about entities that exist on that blockchain as well having the transactions there doesn't provide any additional benefit since the blockchain cannot verify nor enforce anything outside of it. Regardless of whether the transaction of you sending me money is immutable I can still just not send you what you paid me for.
Also, I agree that blockchains only work in the context of a functioning legal system, in that the link between on-chain assets and physical assets must be enforced via some legal or governmental mechanism. This should be possible using contracts under current law, however, and such contracts could be limited to establishing this linkage, avoiding more complex issues that might otherwise come into play if it were not for the use of a blockchain for record-keeping, transfers and settlement.
You want to shield your transactions some of the time to prevent competitive analysis of your business expenses etc but other times require provable transaction reporting and tracking for stuff like tax purposes and financial disputes.
You want to be able to prove you sent a payment or need to document yearly expenditures for instance, being anonymous in those situations could cause issues. You could use signatures to prove ownership of the keys involved in a transaction I suppose but I’m not familiar enough with the laws in this context to know if it’s sufficient legally nor am I an accountant.
I guess stuff like that is kind of a gray area and is an example of the unclear guidance that pro-regulation crypto folks in the US have been asking for the government to provide clarity on.
Imagine installment sales where the original seller transfers their right to collect the remaining balance to two separate companies. How does the original buyer have any confidence that their payments will be applied correctly if they are reliant on and beholden to shoddy records of the seller or some third party?
More importantly though I don’t feel like blockchain prevents shoddiness and human error from causing problems, it just changes the methods available and how they manifest.
Badly written contracts, mistyped addresses, and misplaced keys have lost people tons of coins. And the lack of reversibility and centralization makes cleaning up mistakes significantly more difficult.
What happens to the buyer when the original seller writes a broken contract to transfer the recipient for the remaining balance that results in the payments being completely irretrievable?
If the two rivals can't abide by a contract, a blockchain wouldn't resolve the scenario either. Imagine "bug vs boot" or "shooting war" kinds of contract violations where overwhelming force is in play; why would a blockchain make a difference?
Human history has lots of "people don't trust each other" scenarios, and they've been resolved in the past, with reasonable efficiency, without blockchain.
The reason so much time is spent negotiating legal agreements is to reduce the surface area of dispute. On one hand, we want to reduce the possibility of misunderstandings that could lead to a "shooting war" as you put it, and also to reduce the as much as possible the scope of the matter that may need to be evaluated by a court in the event of a litigation.
Using a blockchain in a situation like this can make achieving both of those objectives much easier and less costly from both legal and operating points of view. There would still need to be some contractual relationship among the participants, but the scope of the contract can be simplified and reduced.
And if the number of participants involved exceeds two entities, a blockchain can vastly simplify the relationships of all the participants with each other, without needing to empower a centralized entity to coordinate among all the participants.
> Human history has lots of "people don't trust each other" scenarios, and they've been resolved in the past, with reasonable efficiency, without blockchain.
Sure, but what's wrong with reducing costs and complexity even further?
And it's interesting to note that no-one (as far as I'm aware) is doing this. Blockchains have been around for a decade and escrows are still going strong - I don't see any movement to adopt blockchain for this.
For the end user sending a transaction is quicker and cheaper than getting your lawyers to draft contracts, maintaining your own books, paying an accountant or someone else to manage/balance the books, coordinating a deal/terms with them, etc.
Also there's Proof of Stake which is much more efficient than Proof of Work.
The commenter up above is directly referencing where existing 3rd party / escrow services are pretty terrible today and they're certainly not easily accessible to the general public or your average piece of computer code.
A lot of the pre-boom blockchain contract excitement really was as simple as "turn the awful banking middlemen into code so we can get the advantages of them programmatically."
"It's math, bro" isn't actually comforting if the contents of the distributed database are actually in question, perhaps because of mistakes, shenanigans or misbehavior.
No sane risk assessment of "our company depends on this being correct and consistent" is going to sign up for this.
This is the greatest misunderstanding. Immutability is NOT a property of blockchains. Its a property of Bitcoin and possibly Ethereum through PoW/PoS
As I noted, "by definition" a block that has reached finality will not be removed. Any attempt to add, modify or delete transactions or blocks prior to this point would be self-defeating because it would be automatically rejected.
Yes, newer blocks can be forked out of existence before they reach finality, which is why only blocks that have reached finality are deemed immutable.
So basically, the only use-case of the blockchain is "virtual currency" like bitcoin and we've seen that these "virtual currencies" doesn't actually operate as a practical currencies but rather a speculative investments and means of laundering money/control-of-sources (if you have free electricity, you can turn it into cash at a cost to the planet etc).
The best thing about a blockchain in a situation like this is that the different participants don't need to reconcile their transaction records to make sure they agree. Reconciliation—which is costly and can lead to disputes—is unnecessary.
Of course there are other technologies you can use as well, but using a blockchain would be easier and cheaper—especially if additional parties begin to participate in the arrangement as well.
The blockchain simplifies the arrangement. Where is the additional complexity you are referring to?
All of these questions need serious consideration if you are doing real business. Particularly when a database looks like it gets you 98% of the way there and your legal department covers the other 2%. What value is a blockchain actually adding compared to MySQL and a lawyer?
After all, the threat of a lawsuit is enough to keep the databases in sync almost 100% of the time, and to resolve most other problems quickly. For anything more serious, you will need to do a full reconciliation of the stuff and the money, which a blockchain won't help you with anyway.
Why do internet companies not use blockchains like git for all their transactions and instead use some form of database?
And git doesn't prevent software developers from pushing bad/hostile code/data into their repos. A blockchain wouldn't prevent financial institutions from publishing incorrect/fraudulent transactions into the blockchain.
What you theoretically gain out of a public blockchain is just that it is permanent and public. You could try to pass laws to require permanent and public access to a companies books instead and be technology agnostic. This law would be highly unlikely to ever pass. But you don't need a blockchain to do it.
And if it isn't public and immutable then the company can change the ledger whenever they like and throw away the old chain and commit fraud, there's nothing magical about the word "blockchain" which prevents that. It is the public nature of it which makes it immutable. If you want to make it private and immutable a normal database with a public, published cryptographic hash of the entire contents published at intervals would make that possible. What you need then is an append-only database where incorrect prior data is fixed not by throwing away the bad data, but by publishing new records which update the old data, and then a way of publicly validating that the old data hasn't been tampered with. That can actually be solved without blockchain. It definitely can be solved without public blockchain, you just the company to periodically "publish" its bookkeeping hashes to an agency (or the public) that tracks them.
That doesn't fix fraud, though, those records could all be bullshit the first time they're entered. Just makes it harder to go back and commit fraud. And if the company never opens it books and is never audited then none of it really matters, blockchain or not it just becomes a private diary of lies.
Neither of those things are the defining feature of cryptocurrencies, decentralization is.
Decentralization is one of the most pointless endeavors in technology, because it's so hard to scale anything decentralized (case in point, how expensive on-chain BTC/ETH transactions are).
The entire Internet is built on various levels/degrees of decentralization, and while there are performance costs, it's still usually cheaper than the alternative in the long term.
It’s so wild to hear this, when, actually let’s just count some decentralized failures.
1) Remember when Solana just turned off? I bet you do since it happens so often. (I know, it’s the miners fault; crypto can never fail, only be failed)
2)Remember when Bitcoin hard forked 8+ times and many of those forks suffered 51% attacks due to lack of interest? If decentralization were good, then why does everyone centralize on the original chain?
> The entire Internet is built on various levels/degrees of decentralization, and while there are performance costs, it's still usually cheaper than the alternative in the long term.
Explain to me how many machines running at under 100% capacity is cheaper. Why does the cloud exist if that’s the case?