Research Summary: Do you need a Blockchain?

Research Summary: Do you need Blockchain?

Category

#oracles-data #summary #scaling

By Tony Siu

TL;DR

  • The authors provide a structured methodology to determine whether blockchain is a suitable technical solution to a given real-world problem.
  • Under that framework, solutions are divided into three categories: centralized databases, permissioned blockchains, and permissionless blockchains.
  • The authors visited real-world use cases and analyzed them with the framework, including supply chain management, bank transactions, and DAOs.

Core Research Question

What are the appropriate application scenarios for permissionless blockchain, permissioned blockchain, and traditional centralized database management?

Citation

Wust, Karl et al. “Do You Need A Blockchain?”. Eprint.Iacr.Org, 2021, https://eprint.iacr.org/2017/375.pdf 8.

Background

  • Distributed ledger: A distributed ledger is a database that is consensually shared and synchronized across multiple sites, institutions, or geographies, accessible by multiple people.

  • Blockchain: The name of blockchain stems from its technical structure – a chain of blocks. Each block is linked to the previous block with a cryptographic hash. A block is a data structure that allows storing a list of transactions.

  • Permissionless Blockchain: Also known as public blockchains, they allow anyone to transact and join as a validator. Data on these blockchains are publicly available, and complete copies of their ledgers are stored across the network giving them censorship resistance and security. A permissionless blockchain has no centralized authority, and users can remain relatively anonymous as there is no need for identifying oneself to get an address or perform transactions.

  • Permissioned Blockchain: Also known as private blockchains, permissioned blockchains can be thought of as closed systems that require permission to access. Anyone interested in validating transactions or viewing data on the network needs approval from a central authority. This is useful for companies, banks, and institutions that need to comply with regulations or want complete control of their data.

  • Centralized database: A centralized database is basically a type of database that is stored and maintained at a single location only. The data traffic of centralized databases is more easily attacked or hacked and if any kind of system failure occurs at the centralized system, the entire data could be destroyed. However, since all data is stored at a single location it is easier to access it, has very minimal data redundancy, is cheaper and faster compared to other forms of databases.

  • Trusted Third Party (TTP): In cryptography, a TTP is an entity that facilitates interactions between two parties who both trust the third party. The Third-Party reviews all critical transaction communications between the parties with an eye toward the ease of creating fraudulent digital content.

  • Scalability: In the blockchain, scalability refers to the capability of the blockchain network to handle large amounts of transaction data in a short span of time.

  • Decentralization: In the blockchain, decentralization refers to the transfer of control and decision-making from a centralized entity to a distributed network.

  • Writers & Readers: Writers are participants with write operation rights to a blockchain network and readers are participants with reading operation rights to a blockchain network.

  • Supply Chain Management (SCM): A SCM is the management of the flow of goods and services. This includes all processes that transform raw materials into final products.

  • Demand Chain Management (DCM): A DCM is the management of relationships between suppliers and customers to deliver the best value to the customer at the least cost to the demand chain as a whole.
    ksnip_20220204-205738
    Fig. 1: The traditional SCM has no central entity and SCM based on a blockchain system has distributed nodes that participants can read or write from the SCM status quo.

  • Certificate authority: Authority that gives licenses to banks to participate in a blockchain system.

  • Internal banking: Internal banking aims at increasing financials generated from regular business activities. For this purpose, evaluation and control of costs are made, along with reviewing the budget. Moreover, the credit terms with customers are verified so as to effectively manage collection receivables.

  • External banking: External banking involves finances generated from outside sources of an organization. There are two types of external sources of finance: long term and short term, which can also be classified as equity financing and debt financing.

  • Data structure: In computer science, a data structure is a data organization, management, and storage format that enables efficient access and modification.

  • Cryptographic hash: A cryptographic hash function is an algorithm that takes an arbitrary amount of input—a credential—and produces a fixed size of enciphered text called a hash value, or just “hash.”

  • Smart contracts: are executable code built on top of blockchains. They are extremely useful for executing agreements between untrusted parties and promise to be a key enabler of social automation in the 21st century.

  • Public Verifiability: Blockchain allows any observer to verify the correctness of the state of a system, while different observers in a centralized system may have completely different views of the state.

  • Transparency: Due to Blockchain’s public verifiability, transparency of relevant data and processes is required.

  • Privacy: A key property of a system for guarding the identities of participants and the content of their transactions. Privacy is harder to achieve in a Blockchain system because transparency is required.

  • Integrity: Ensures that information is protected from unauthorized modifications. Integrity is closely linked to public verifiability, and compromised in a centralized system.

  • Redundancy: Data redundancy is achieved through replication across writers in blockchain systems, and by backups in different physical servers in centralized databases.

  • Trust Anchor: Represents the highest authority in a given system to grant or revoke read-write access to the system, and a key difference between blockchains and other centralized systems.

Summary

  • Generally speaking, using an open or permissioned blockchain makes sense when multiple incompatible parties need to interact but are unwilling to use a TTP. Traditional centralized databases offer much better performance in terms of latency and throughput when compared to blockchain systems. This is largely due to the fact that a blockchain’s consensus mechanism adds another layer of abstraction.
  • There is a tradeoff between decentralization, “How well a system scales to a large number of writers without mutual trust and throughput” and scalability, “How many state updates a system can handle in a given amount of time.” This tradeoff should be considered when deciding whether the use of blockchain technology is appropriate or not.
  • If no data needs to be stored, no database is required. If only one writer exists, a traditional centralized database is preferable due to the effectiveness of database throughput and latency.
  • Where there is a TTP, there are two implications. If the TTP is always accessible, write operations and verification-of-state can be delegated to it. If the TTP is usually offline, the TTP can function as a certificate granting authority classifying blockchain writers.
  • If both parties agree there are no malicious writers, a centralized database is an appropriate solution.
  • If the set of writers is not fixed and identified, a permissionless blockchain is the preferred option.
  • The figure below depicts a flowchart in deciding whether blockchain technology is appropriate or not to solve a problem that requires a technological approach. Table 1 should also be considered alongside the figure below when deciding the appropriateness of a blockchain solution to specific problems.

Method

  • The author begins by describing the background and properties of blockchain technology, the different participants of blockchain, and introducing the idea of the Tensions between Transparency and Privacy.
  • The authors analyzed permissioned and permissionless blockchain types in contrast to a centrally managed database and provided a methodology to determine whether blockchain technology was necessary in specific problem scenarios.
  • Particularly, the scenario of supply chain management, interbank and international payments, and decentralized autonomous organizations were explored.

Results

(Table.1)
ksnip_20220204-204944

  • The authors contrasted some properties of permissionless and permissioned blockchains and a central database. Latency and throughput are much better than blockchain systems in centralized systems. Please note that permissioned blockchains can be public.
  • For supply chain management, according to the authors’ proposed framework, the main issue with applying blockchain to SCM is whether all writers can be trusted when interfacing between physical entities and digital entities. SCMs do require to store data, multiple writers are involved but an online TTP could always be utilized. Permissioned or no blockchain would be left for consideration if online TTP is not possible.
  • For financial applications, according to the authors’ proposed framework, blockchain solutions seem appropriate because participants are risk-averse and do not prefer to rely on strong trust assumptions. There are multiple parties that act as writers in interbank payment systems, there is a trusted third party for single currency systems which may not want to act as verifiers for every transaction and may only act as certificate authority by giving out licenses to banks to participate in the interbank system. This implies that the writers of the interbank system are known and a permissioned blockchain is appropriate for this scenario.
  • For a Decentralized Autonomous Organization(DAO), according to the author’s proposed framework, a permissionless blockchain is a good fit because a DAO requires storing unknown, mutually distrusting state writers. A dedicated permissioned blockchain may be used for a single DAO. In most cases, however, DAOs do not require their own blockchain and the DAO itself may just be built on top of existing blockchain networks.

Discussion and Key Takeaways

  • Deciding to use or not to use Blockchain technology is a serious matter: “Do you need a Blockchain?” has been discussed before.
  • The first structured methodology: The authors provided the first structured methodology in deciding between solutions of permissioned blockchains, permissionless blockchains, and centralized databases. Trust assumptions, application requirements, involved parties, and technical characteristics were taken into account.
  • Three application scenarios: The authors applied their methodology to supply chain management, Interbank Finance, and Decentralized Autonomous Organizations.
  • Conclusion: There are indeed valid use cases for permissionless blockchains, permissionless blockchains, and centralized databases that need to be decided carefully.

Implications and Follow-ups

  • Permissionless blockchains such as Zerocash or Ethereum are built on techniques used by the first open and decentralized blockchain, Bitcoin, that improves privacy with more expressive smart contracts.
  • There are protocol improvements for throughput of blockchains that allow transfers of digital assets between different blockchains such as hashed timelock contracts like the lightning network.
  • Many companies now are developing their own permissioned blockchains through the emergence of Bitcoin. As permissioned blockchains are simpler than permissionless blockchains these permissioned blockchains can use more efficient protocols for consensus.
  • The wider adoption of Blockchain-based solutions for digital-based problems may become more and more applicable in the future.

Applicability

  • Being the first more rigorous methodology to determine the appropriateness of blockchain use in resolving digital-oriented problems, the question of “Do you need a Blockchain?” for commercial and academic research may be looked at with deeper introspection. Further criterion on developing blockchain defining properties and decision making of “Do you need a Blockchain?” may be based on this paper’s insights.
  • This study may be used for in-depth introspection of blockchain use particularly for supply chain management, interbank and international payments, and decentralized autonomous organizations.
18 Likes

This post is a genuinely beneficial post on how to get into Blockchain technology by understanding its application adoption framework. If we could further understand its architecture and create some valuable information to engage with non-technical professionals will be helpful for those who don’t look familiar with Blockchain technology.

6 Likes

That is precisely why I chose to summarize this paper, “Do you need a Blockchain”! Thank you for you comment~

This adoption framework could also apply to this research on ML models accessibility via Blockchain technology. This research paper on how to leverage the accessibility of a machine learning model. Research Summary: Leveraging Blockchain for Greater Accessibility of Machine Learning Models - Tooling and Languages - Smart Contract Research Forum. Moreover, I look forward to deepening my understanding and research capability in combining my research domains in ML and Blockchain.

5 Likes

@Tony_Siu Do you agree with the authors’ rubric of when to use a blockchain and when not to? What potential issues are there with the analysis they suggest?

3 Likes

On a high level, I do agree with the authors rubric of when to use and when not to use blockchain solutions for digital-oriented problems. There are valid use cases for permissionless blockchains, permissionless blockchains, and centralized databases that do need to be decided carefully. However in terms of more case-by-case anecdotes of blockchain applicability, I think this paper still needs more articulation on blockchain advantages and disadvantages and may fair better if the deciding criterion is more quantifiable to something like a “points-based system”.

I would also like to see the paper make more comparative arguments between blockchain implementation and current best practices between each anecdotal domain of application. It seems to me that through reading the paper itself, the reader won’t be able to know a comparison criterion more focused on the domain of application. Readers might perceive arguments on the narrative that blockchains are to be implemented, completely ignoring the intricacies of the problem formulation in the first place.

An example of this can be found in a companies web app of a Platform as a Product. Blockchain being all the rave, many SASS businesses and business owners just want to throw blockchain at everything. It may be a cool idea to integrate blockchain into the businesses online products features, but without clearly defining the consumer, the market, the demands of the consumer, and what specific gap the business can fill that the business can gain profit from via integrating blockchain into their product, blindly implementing blockchain would be the ultimate downfall of the business. Without defining what the business wants out of blockchain, the business might as well be trying to create the new AWS built on blockchain with zero cash flow or market audience. Of course AWS first started off as just an e-commerce company that slowly developed the scale to move into cloud services.

8 Likes

This is a brilliant summary @Tony_Siu and I agree with the authors’ stance as it answers the question of whether to use blockchain solutions on a project or not. The methodology employed by the authors could be used by Blockchain platforms or communities to select projects that require the use of Blockchain technology. The study has also piqued my interest in the use of blockchain technology in Politics and Land registry.

A key takeaway for me is that not every project needs blockchain. The overarching purpose of blockchain is to minimize the need for Trusted Third Parties and to increase the data integrity of the project. So if these two criteria are not met, blockchain may not be required

2 Likes

Thank you @Tony_Siu for a simple and straightforward summary.

This research paper, I believe, should be a must read for anyone trying to utilize blockchain technology for building solutions to problems.

A good number of people believe that blockchain can be applied in every area of human life to disrupt it. They do not understand that blockchain technology is not a one-size-fits-all innovation. They do this probably out of ignorance. Consequently, this leads to failed projects and initiatives.

I am particularly excited that this research paper outlines a checklist before one can confirm the suitability of using blockchain technology for building solutions to problems.

Following this checklist would mitigate failures in blockchain based initiatives arising from inappropriateness of blockchain technology applications.

3 Likes

This is a really great summary @Tony_Siu

As in the case of IOT, blockchain technology could be used to create autonomous systems that pay for resources that they consume and receive payment for those resources, but in some cases, the specific trust assumption must be carefully studied and evaluated to determine whether the use of a blockchain adds value, so in juxtaposing these, I think that not every project requires blockchain to thrive.

2 Likes

Nice summary @Tony_Siu
for the core research question in the summary concerning the application scenarios for permissionless and permissioned blockchain, Because the two blockchain topologies have different use cases, they are both better suited to particular applications.
Blockchains without authorization which is permissionless blockchain, for instance, are better suited for use in financial applications. It is also very suited to situations that demand a lot of decentralization, like:
Giving and crowdsourcing, Digital asset exchange, cryptocurrency storage.
Permissioned blockchains, nevertheless, are appropriate for uses that demand a high level of security and anonymity, such as:
Authentication of identity,Claims resolution,Supply-chain Management.

It may also be argued that permissioned blockchains may be preferable in some corporate contexts and use cases. One benefit of permissioned blockchains is that because they are only available to a select group, they do not need as sophisticated algorithms as permissionless blockchains. A consensus is formed more rapidly as a result, and data processing and transaction processing are both more energy-efficient.
As with everything, it is advised to weigh the advantages and disadvantages of both distributed ledger technology standard before investing your money in them.

1 Like

Blockchain changed my life and is still changing it, as you can see from my pinned tweet on Twitter.

Blockchain will change my life

I chose this summary for the Writer’s Cohort Week 3 comment because it best describes how I and countless others feel about Blockchain’s usability. I discovered the technology late last year and was stuck once I went down the rabbit hole. First, I had to research its origin and components to understand better the technology and what makes it work so well.

Many people did not know what a blockchain was until Bitcoin’s emergence in 2008. Even after that, the only use case they could think of was facilitating Bitcoin transactions. The Blockchain combines distributed ledger technology with cryptography, digital signatures, the Internet of Things (IoT), a network of computers and, lately, smart contracts.

This infrastructure is the backbone behind everything blockchain technology can do and stands for. The Blockchain is one of the best technologies invented from a personal POV. So, to answer the research question…

I say YES; we need the Blockchain.

What makes me say so?

If you’re reading this, I’m sure you know of at least one successful application of blockchain technology. I can name four off the top of my head:

  • Tokenization
  • Immutability
  • Governance
  • Smart contracts

These examples did not exist when Bitcoin was the only known Blockchain. Instead, they all became possible when Ethereum was born because developers built and improved on the principles laid down by Satoshi Nakamoto.

Today, many crypto users enjoy immediate payments and decentralized financial services that traditional banks can’t offer due to rules and regulations.

The authors also noted other advantages of permissioned and permissionless blockchains in supply-chain management, banking, and data transmission. These advantages have helped users and enterprises improve their lives.

The paper shared here was refreshing to read as it proposed an argument I’m sure many people then did not want to have. Looking at the history of the space with a focus on the ICO crazy years and, recently, NFTs, one could say there has been a proliferation of the technology to make quick bucks.

That’s true…

It reminds me of the rich-getting-rich ideology.
But that doesn’t mean the technology or the various products it hosts are unnecessary. That’s what I believe. Although my belief may be biased, that’s okay.

But until I see tangible evidence in that light, I will keep believing.

@Tony_Siu Kudos on the well-written, detailed summary. :clap:

2 Likes

@zube.paul I’m still waiting for the counter-argument.

1 Like

Thank you @Tony_Siu for this wonderful research paper. I enjoyed reading same, I said so because I was able to find out that Bitcoin and Ethereum are instances of permissionless blockchains, which is fantastic, in fact, they are open and decentralized. And which means that any peer can join and leave the network as reader and writer at any time. Interestingly, there is no central entity which manages the membership, or which could ban illegitimate readers or writers.

Looking at the methodology applied by the author in this paper, I think there are sure substantial use cases for each, permissionless and permissioned blockchains, and unified datasets that should be resolved cautiously.

I have one question for you, do you think that it is actually plausible to design a permissionless blockchain which hides privacy or relevant information?

1 Like

@Tony_Siu Thank you for this thoughtful summary, i can say the two blockchain architectures have different use cases like permissionless blockchains are more suited for financial applications. It is also highly applicable for those that require high levels of decentralization.
Another important point is if permissioned and permissionless blockchains can co-exist

1 Like