Blockchain has been hailed as the next ‘big thing’, a term thrown around in social gatherings with the likes of ‘big data’, ‘cloud computing’ and ‘Internet of Things’. A crucial understanding of the true value of blockchain is sorely lacking in many minds, leading to wasted resources by some of the world’s top banks and tech firms.
Having been dubbed another ‘solution without a problem’ by some of its critics, the hype surrounding blockchain appears to oscillate between inflated expectations, and the trough of disillusionment, never quite hitting the slope of enlightenment, and thus never approaching anything quite like a product.
So what good is it really?
If you’re not familiar with the Byzantine Generals problem, here’s a quick overview:
Nine Byzantine Generals are entrenched around a city. They are divided upon their current course of action: do they attack, or do they retreat? Failing to reach consensus, they decide to cast votes, each general sending a messenger to relay their choice to the other generals, where the majority decision will be the action to take.
Four of the generals vote to attack and four vote to retreat. The group is split in two: those in favour of retreating, who begin to strike down their tents, and those in favour of attacking, who gather on the frontlines. What of the last general? Well, he’s been bribed by the city’s leaders*. Rather than vote one way or the other, he dispatches two messengers; the first states that he will attack, the second states that he will retreat.
Four of the generals thus lead their troops into battle and suffer a stunning defeat. The other four generals retreat, dishonoured, with a significantly weakened army.
This story is an allegory of a concept we have come to know as double-spending. In traditional markets, every merchant keeps their own ledger of all transactions. This is also true in the world of digital payments. Some clever customers have been known to make multiple transactions to different vendors, essentially issuing IOUs without the actual means to make good on every transaction. Come time for settlement, vendors have delivered their items, banks are short and the clever customer has high-tailed it through a proxy**.
This is the main problem Blockchain is intended solve: a distributed ledger network in which all vendors and customers share the same record of transactions and balances. Incentivised ‘miners’ add new transactions to the pool, where only one block of transactions is accepted at a time, based on mutual consensus by other parties, effectively solving the double-spend issue.
Too bad the Byzantines didn’t have blockchain.
Perhaps we need to go back to basics and focus on utilizing blockchain for its original intended purpose. All the pieces are set for us to begin digitizing financial instruments, ushering in a new era of trusted peer-to-peer transacting. The only question remains; what happened to the early adopters?
by Stuart Allen