Blockchain

The Advent of Disintermediation

Matthieu Quiniou

• Publisher: Wiley-ISTE
• Year: 2019
• Print ISBN: 9781786304032
• eBook ISBN: 9781119629566
• Edition: 1
• Topic: Business
• Subtopic: Management
• Index: Business

The dominance of trusted intermediaries could be weakened by blockchain, a distributed ledger technology, one of the functions of which is to constitute timestamped proofs by replacing inter-individual trust with algorithmic trust. Blockchain self-executing smart contracts allow us to rethink the practice in the domain of e-commerce, interbank communication, fundraising (and ICOs), justice (timestamping evidence, acts authenticated by blockchain) and businesses in numerous sectors (entertainment, AI, health, real estate, tourism, transport, etc.) which attempt to propose new services by benefiting from blockchains. This book aims to put into perspective the technical innovations and the uses brought about by blockchain, by identifying that which has a medium- or long-term impact, all while taking into account the social, economic, judicial and administrative resistances that are likely to develop.

Part 1
The Blockchain: a Tool for Non-centralization and Disintermediation

Introduction to Part 1

As a secure, non-centralized, peer-to-peer ledger technology, the blockchain makes it possible to restructure entire parts of socioeconomic operating modes.

Even if many of the Blockchain projects, including the Bitcoin project, do obviously seem to be anarchist crypto projects, a current of thought called cypherpunk developed in the 1990s in the United States, with the computerization and advent of the Internet.

Several articles have been published by this group of cypherpunks, including a Crypto Anarchist Manifesto written by Timothy C. May, an engineer and cryptographer. According to this manifesto written in 1988:

“Computer technology is on the verge of providing the ability for individuals and groups to communicate and interact with each other in a totally anonymous manner. Two persons may exchange messages, conduct business, and negotiate electronic contracts without ever knowing the True Name, or legal identity, of the other. […] The technology for this revolution — and it surely will be both a social and economic revolution — has existed in theory for the past decade. The methods are based upon public-key encryption, zero-knowledge interactive proof systems, and various software protocols for interaction, authentication, and verification” [MAY 88].

Projects such as those by Wei Dai with b-money [DAI 98] created in 1998 and referred to in the Bitcoin seminal document [NAK 09, note 1] have attempted to implement monetary projects based on block mining. One difficulty with this type of project was to develop a model to generate money and reward the provision of computing power. For Wei Dai, computing power is increasing rapidly and its cost cannot always be identified due to the limited, false, or dated information available, creating a real problem for the protocol¹. The Bitcoin protocol proposes to solve this problem of counterpart to computing power by an incentive system based on the issuing of new crypto-assets and transaction fees.

Since the creation of the Bitcoin protocol in 2009, the blockchain technology has already undergone several phases of evolution. Initially, the blockchain with Bitcoin mainly allowed a timestamping mechanism for non-centralized transactions using a peer-to-peer network and it was only with the appearance of the second generation of blockchain, focused on the deployment of smart contracts, such as the Ethereum blockchain created in 2014 [BUT 13], that the prospects for disintermediation were really felt. Currently, the projects, referred to by some as third-generation blockchain projects, focus on scalability, interoperability between blockchains and the implementation of machine learning elements within decision-making processes.

The main characteristics of the blockchain and the resulting changes in uses will be discussed in this section, focusing the analysis on non-centralization (Chapter 1), disintermediation (Chapter 2), and prospects for the evolution and improvement of the blockchain (Chapter 3).

1 [DAI 98]: “One of the more problematic parts in the b-money protocol is money creation. This part of the protocol requires that all of the account keepers decide and agree on the cost of particular computations. Unfortunately, because computing technology tends to advance rapidly and not always publicly, this information may be unavailable, inaccurate, or outdated, all of which would cause serious problems for the protocol”.

1
Non-centralized Architecture

The blockchain and the distributed registry technology allow us to solve the problem of certification of the transaction chain, without using a centralized system, to a trusted third party.

The term “decentralized”, frequently used to refer to the blockchain or its applications, does not seem entirely appropriate to refer to the blockchain architecture. Indeed, decentralization is a movement from the center to subentities. In political science, for example, decentralization is a process by which entities, generally local, are given their own powers previously held by a central power, unlike deconcentration, a process by which the central power delegates powers at the local level to its representatives.

The blockchain architecture is not decentralized; it is part ab initio of parallel centralized or partially decentralized models, so the terms “distributed” or “non-centralized” seem more appropriate. The term “non-centralized” was preferred for this book because it explicitly marks an alternative to a centralized model and avoids a debate that has no place in this book between decentralized and distributed systems.

This typology, which is very frequently used not only on blogs [EAG 17] but also in books on the blockchain [RAV 16], is generally associated with a diagram that presents the difference between centralization, decentralization, and distribution, based on a book by Paul Baran on distributed systems [BAR 62].

Figure 1.1. Paul Baran’s distributed system typology.

Source: [BAR 62, p. 4]

The diagram depicting centralization shows only one central point, the decentralization diagram shows a central point and several central sub-points, and the diagram on distribution shows one distribution mode among others, with a connection between the nearest nodes only (see Figure 1.1).

This schema is, wrongly, regularly used to present the blockchain as a decentralized model and to contrast the blockchain with distributed registers (of which the Bitcoin blockchain, for example, is a sub-category). The authors, using this schema to demonstrate that blockchains are decentralized and not distributed generally, later indicate that what makes the strength of a decentralized system compared to a centralized system is that there is no central point and that if a node fails the system persists¹. Based on this schema (and on the concept of decentralization in general), this approach is wrong; there is indeed a central point and if it is missing, the system no longer works.

Figure 1.2. Decentralized system. For a color version of this figure, see www.iste.co.uk/quiniou/blockchain.zip

To repeat this diagram, the centralization point is surrounded; if it is faulty, none of the central sub-points are connected anymore.

It should be noted that the use of the notion of decentralization in the blockchain ecosystem has become widespread with Ethereum and smart contracts. For example, the Bitcoin seminal document did not refer to it and used the notions of peer-to-peer and lack of central authority, which is fundamentally different [NAK 09]. Vitalik Buterin, the founder of Ethereum, also indicated on his blog that there was confusion about the use of the notion of decentralization in the blockchain ecosystem and that the above-mentioned schema was “unfortunately too widespread” [BUT 17].

Blockchain networks, such as Bitcoin, are actually designed according to a particular form of distributed architecture, a peer-to-peer architecture, which could be transcribed by the diagram below. It is this network architecture, in which all nodes theoretically have a copy of the registry and participate in consensus,...

Table of contents

• Cover
• Table of Contents
• Introduction
• Part 1: The Blockchain: a Tool for Non-centralization and Disintermediation
• Part 2: Blockchain Technology for a New Socio-economic Paradigm
• Conclusion
• References
• Index
• End User License Agreement