Decentralization

Why blockchains fail and decentralization succeeds

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With all of the excitement around blockchain technology, it’s easy to think what we have now is the foundation for the next wave.

Yet, it’s worth remembering we are still in the early stages. The blockchains we have today probably won’t be the blockchains of tomorrow.

I am still bullish on Bitcoin (for reasons that go beyond this post), and Ethereum looks promising. It also has a lot of technical questions that surround it.

As Muneeb Ali of Blockstack said, “At scale, Ethereum is designed to fail.”

I am certain he didn’t mean, “it will intentionally fail.” However, if you think about the nature of blockchains — everyone has a copy of the ledger (with all the storage space that entails), which these days is about a 100GB download. Furthermore, in the case of Ethereum, ever more third-party applications and sub-economies are being launched to run on top of it, and all of that code runs on the distributed network too. So it makes sense to start asking questions.

For example,

  • What happens when everyone puts all their data and contracts on Ethereum?
  • Won’t the blockchain size get SO big that only the biggest computers can run it?
  • If that happens, wouldn’t we have a centralized system susceptible to control, thereby defeating the very purpose of blockchains?

In industry jargon, this problem is known as “blockchain bloat.”

Many people see it as an existential threat to the mass adoption of blockchain technology, even though Ethereum’s creator, Vitalik Buterin, isn’t one of them as he explains in this (long) post.

So, with that in mind, let’s look at two interesting alternatives I’ve come across that try to address this issue.

Like any other technology, it is near impossible to predict its success or failure. It’s the exploration and investigation of the concept that is critical to our understanding of how the Age of Blockchains comes upon us.

IOTA

IOTA made news recently because its listing on one of the cryptocurrency exchanges resulted in a Day One valuation of $1.5 billion dollars. Yes, with a B. That’s insane, but what they do is not.

I had the privilege of chatting at length with David Sønstebø, the project lead. The focus of IOTA is, as you may have guessed, primarily the Internet of Things.

If we are going to unleash the power of IOT devices to communicate with each other, take value from the network, and give value to the network in the form of crypto-tokens, it is unlikely one global blockchain is going to be able to record all the information from all the devices in near real-time and verify it.

When a Nest device senses it’s too hot in a house and tells the lights to dim and the smart shades to close, multiplied by every house in the world, you can start seeing the size and scope of the challenge. It is simply unpractical and unfeasible to verify every transaction.

IOTA says don’t worry, you don’t have to. And, by the way, it won’t cost you anything except for a small amount of computing power (enough to dissuade spammers).

Its approach is called “Tangle.” What it does is require each device to verify the transaction of one other device and, in turn, its own transaction is verified by two other devices.

Think of it this way: I verify that Alice gave $10 to Bob. John…

Pied Piper’s New Internet Isn’t Just Possible—It’s Almost Here

HBO

On HBO’s Silicon Valley, startups promise to “change the world” by tackling silly, often non-existent problems. But this season, the show’s characters are tackling a project that really could. In their latest pivot, Richard Hendricks and the Pied Piper gang are trying to create new internet that cuts out intermediaries like Facebook, Google, and the fictional Hooli. Their idea: use a peer-to-peer network built atop every smartphone on the planet, effectively rendering huge data centers full of servers unnecessary.

“If we could do it we could build a completely decentralized version of our current internet,” Hendricks says. “With no firewalls, no tolls, no government regulation, no spying, information would be totally free in every sense of the word.”

But wait: Isn’t the internet already a decentralized network that no one owns? In theory, yes. But in practice, a small number of enormous companies control or at least mediate so much of the internet. Sure, anyone can publish whatever they want to the web. But without Facebook and Google, will anyone be able to find it? Amazon, meanwhile, controls not just the web’s biggest online store but a cloud computing service so large and important that when part of it went offline briefly earlier this year, the internet itself seemed to go down. Similarly, when hackers attacked the lesser-known company Dyn–now owned by tech giant Oracle–last year, large swaths of the internet came crashing down with it. Meanwhile, a handful of telecommunications giants, including Comcast, Charter, and Verizon, control the market for internet access and have the technical capability to block you from accessing particular sites or apps. In some countries, a single state-owned telco controls internet access completely.

Given those very non-utopian realities, people in the real world are also hard at work trying to rebuild the internet in a way that comes closer to the decentralized ideal. They’re still pretty far from Richard’s utopian vision, but it’s already possible to do some of what he describes. Still, it’s not enough to just cut out today’s internet power players. You also need to build a new internet that people will actually want to use.

Storage Everywhere

On the show, Richard’s plan stems from the realization that just about everyone carries around a smartphone with hundreds of times more computing power than the machines that sent humans to the moon. What’s more, those phones are just sitting in people’s pockets doing nothing for most of the day. Richard proposes to use his fictional compression technology—his big innovation from season one—to free up extra space on people’s phones. In exchange for using the app, users would agree to share some of the space they free up with Pied Piper, who will then resell it to companies for far less than they currently pay giants like Amazon.

The closest thing to what’s what’s described on Silicon Valley might be Storj, a decentralized cloud storage company. Much like Pied Piper, Storj has built a network of people who sell their unused storage capacity. If you want to buy space on the Storj network, you upload your files and the company splits them up into smaller pieces, encrypts them so that no one but you can read your data, and then distributes those pieces across its network.

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“You control your own encryption keys so we have no access to the data,” says co-founder John Quinn. “We have no knowledge of what is being stored.”

Also like Pied Piper, Storj bills itself as safer than traditional storage systems, because your files will reside on multiple computers throughout the world. Quinn says that in order to lose a…