Maybe Blockchain Really Does Have Magical Powers

I&#x27;m all for deflating blockchain hype, but I found the overall tone of the article pretty disagreeable, and more importantly, wholly missing the point.<p>&quot;In other words, the only thing previously stopping the standardization of reconciliation processes was the unwillingness of financial institutions to collaborate.&quot;<p>No, actually, the one thing the blockchain provides, which was literally unsolved before pre-Nakamoto, was a working implementation of &quot;trustless&quot; consensus. Turns out fraud prevention is kind of a big deal shuffling around billions or trillions among numerous third parties, but I&#x27;m sure that&#x27;s just because they&#x27;re &quot;security-conscious egoists.&quot;

&gt; The technological innovation of a blockchain is that it combines cryptographic signatures with a fault-tolerant distributed database.<p>This is the naive view that has allowed the financial industry to ditch Bitcoin and run with blockchain. The problem that Bitcoin solves and private blockchains do not is called the Byzantine generals problem which did not have a known solution until Bitcoin came along.<p>Private blockchains cannot solve the Byzantine generals problem because they cannot ensure that one of it&#x27;s limited number of parties is not employing massively more computing power in order to cheat. Bitcoin only works because an unlimited number of players are mining as hard as they can making it improbable that a single entity can exceeded 50% of the total hash power. With private blockchains it will always be reasonable to assume that cheating would be with in reach.

The example clarifies my feeling about blockchain: How would the example provided (avoiding the clearing house) work without the banks accepting something like a mining-backed crypto-currency like bitcoin?<p>With bitcoins, there is no possibility for dispute: bank A gives bank B the money during the transfer.<p>Any other scheme involves a promise (a legal contract), so you will not know for sure that bank A really had the money to give to bank B. The solutions to this are all in use today:<p>(1) Bank A previously gave B money (they have a correspondence account in B). So the transfer is really between accounts at bank B.<p>(2) Bank A gives bank B physical money.<p>(3) Bank A transfers money to B between accounts at some other bank (or the fed). It means A had money in the other bank to begin with.<p>(4) Bank B gives credit to bank A (i.e., Bank B trusts Bank A) and accepts IOUs from them. The banks could cancel out each others IOUs. The IOUs become new money. This used to be done in the old days, but the basis for trust was each bank&#x27;s gold reserves.

Can somebody explain me how we deal with the increasing size of a blockchain? I get moore&#x27;s law etc., but other than that? I mean, it&#x27;s trillions of transactions we are talking about. Federated servers? We break the chain in some way?

&quot;the only thing previously stopping the standardization of reconciliation processes was the unwillingness of financial institutions to collaborate. Financial institutions spend $65-80 billion on back office reconciliation every year. The employees working in back offices probably offered lots of excellent reasons why their roles couldn’t simply be standardized away.&quot;

Being a general ledger, the Blockchain also can be used as a more professional way of proving you made a prediction at a certain time. Sure, as an individual, I can tweet where I think the P&#x2F;E of Amazon will be in a year and refer back to it to prove my point, but is that the best way for a financial institution? Having an entry in the blockchain has a more business oriented feel to it.

We keep seeing a lot of examples of how Machine Learning can really innovate and reinvent all sorts of processes (i.e. the vegetable sorting we saw on HN yesterday), but when it comes to blockchains, it seems that it&#x27;s mostly talk about how it could potentially change everything, but so far I haven&#x27;t seen many very useful examples that couldn&#x27;t have been done without using a blockchain (the whole blockchain thing often seems to be used just for the coolness factor).<p>Can anyone provide some ideas of how I, as a solo entrepreneur, could improve software by using a blockchain? I get how it might provide tremendous values for bigcorps, but I&#x27;m not part of that audience.

tldr; this whole breakthru in technology called the blockchain isn&#x27;t a new idea at all. Banks have known about &quot;shared&quot; ledgers since 1800s. But because everyone is talking about Blockchain now in 2016, banks are finally ready to embrace some standards.

&gt;The 130-page report reminds me of those old Coca-Cola ads that promised to cure everything from headaches to exhaustion. The ads worked because nobody really knew what was in a Coke bottle.<p>I would have thought it was the coca.<p>&gt;Similarly, the term “blockchain” has been so misappropriated that no one knows what it means anymore.<p>Thankfully, those who no longer know can just grab the paper at bitcoin.org&#x2F;bitcoin.pdf and get a refresher.