Blockchain - Innovation or Illusion? (Offical - Full Documentary)

Blockchain - Innovation or Illusion?  (Offical - Full Documentary)

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blockchain Innovation or Illusion it seems for the last few years everybody's been talking about cryptocurrency and its many incarnations from Bitcoin to ethereum from nfts to Dows from staking to defy there's no shortage of buzzwords in technobabble but at the center of everything is one word blockchain blockchain is a new network and it's going to help us decentralize trade allowing us to do a lot of our transaction actions much more peer-to-peer directly and lower our use of intermediaries like companies or Banks maybe so what is bitcoin some people think that Bitcoin is just a giant scam some people think that Bitcoin is the wave of the future I predict in the next 10 years the crypto blockchain Bitcoin all of this Innovation will be the 12th sector of the s p for the first time in human history we can grant property rights to 8 billion people bitcoin's not just a technology bitcoin's not just an asset bitcoin's not just an ideological movement Bitcoin is a rebirth it is a rebirth of our society of our economy it is The Rebirth of humanity so our cryptocurrencies real currency cares and there's nothing more important happening in the world other than maybe the heat death of the sun itself then Bitcoin but listen as long as you recognize the very real possibility that the whole investment case for crypto wrestling the greater fool Theory you're caught by busting a Speculator on it if you actually understand what blockchain does it takes away all the leverage that the countries in our world have outside of their atomic bombs everything in the world of crypto revolves around this one construct blockchain ask a hundred people and you get a hundred different definitions most of which still don't reveal any true understanding of what it is and why everybody seems excited by it and the future it can bring at the same time there's people who claim the whole industry is nothing but multi-levels of pyramid-shaped smoke and mirrors is crypto going to save the world from an impending economic collapse of the existing monetary and finance system or is it just a giant decentralized Ponzi scheme well stay tuned because we're finally going to settle this dispute once and for all okay let's be realistic this debate isn't likely to be settled any more easily than which American car manufacturer sucks the least it's entirely probable that no amount of evidence will convince some people to change their minds and for this reason the crypto industry on many levels seems to be more cult-like than business-like nonetheless come with me as we take a detailed look into the core technology that all of crypto is based on I'm talking about blockchain wait wait wait before your eyes glaze over widen or roll the goal of this video is not to overwhelm you with a bunch of technobabble many of you are under the impression that this Tech is so complex and amazing you aren't capable of understanding how it works and you're just supposed to trust the nice guy in the Hawaiian shirt with laser eyes that he knows what's best for society well I'm here to dispel that myth is blockchain really that hard to understand not really is it an amazing disruptive technology that will forever change the world of money and finance it depends on who you ask is it nothing more than a giant MLM pyramid or Ponzi scheme it depends on who you ask those are pretty wide extremes so does this mean the truth is somewhere in the middle the answer may surprise you if you're still into Fiat you might be in an abusive unhealthy relationship okay here's a ten dollar bill this is garbage this is garbage your people in South Africa you have Iran right that's going to zero that's going to zero this is going to zero two Euros are going to zero the ends going to zero the Chinese currency is going to zero it's all going to zero against Bitcoin selling 101. so if someone is trying to sell you on some new technology they shouldn't have to try so hard to convince you the existing Tech you're using is horrible instead they should show you how and why this new tech is better and it should be obvious don't you think so there's no need to talk about what is broken about the existing system what we need to talk about is what is better about the proposed new system what is bitcoin Bitcoin is a hero pair of digital currency it's Anonymous and Z centralized it's like being able to teleport money to anyone's across the world there's no better way to get a firm grasp of the entirety of the cryptocurrency industry than by examining its core component blockchain all crypto projects have one primary component in common blockchain it's the unique defining element of all the other subsequent spin-offs from nfts to web3 to digital tokens to Dows D5 fintech and everything in between everything hinges on blockchain we're going to dig deep into what blockchain is and how it works we're going to go through one by one each and every popular claim that people make about blockchain and what it promises to do for society does it live up to the hype see for yourself for a supposedly Innovative and disruptive technology there's a notable absence of actual technology experts in mainstream media hyping crypto and blockchain instead you are more likely to find salesmen paid influencers and people of random vocational expertise along with the occasional CEO who's previously been in trouble with the SEC talking about the benefits of this Brave New Financial world let's fix this let's hear from some tech people about the actual Tech I do think people get bought into these manias who may not have as much money to spare so I'm not uh bullish on bitcoin and you know my general thought would be uh that you know if you have less money than Elon you should probably uh watch out why aren't you bullish on bitcoin it's it's like there are things we invest in in society that produce output basically there's no value in this space none zero zilch Zippo and I'm gonna tell you why private blockchains are 20 plus year old idea public blockchains are grossly inefficient without actually being decentralized like criminally inefficient and only are good for cryptocurrencies and cryptocurrencies don't work as currency unless you're a criminal the entire space is a self-assembled Ponzi scheme this is basically intellectual vaccination once you realize how bleeding stupid the space is how incredibly brain dead stupid it is you'll be immune from wasting your time on them I know understanding crypto technology it's easier than you think cryptocurrency Bitcoin ethereum blockchain smart contracts non-fungible tokens decentralized autonomous organizations defy staking fintech web 3 etc etc this industry is full of colorful buzzwords many people are confused about what these terms mean they are often badgered into thinking this high-tech world is too complicated for regular people to understand but is that really the case think about it like this imagine all the technology we use could you explain to somebody what's special about the internet fax machines the microwave oven self-driving cars the electric light bulb all of these things are what we call disruptive technology new inventions that are clear improvements over existing systems and have disrupted or changed our way of doing things for example do you need to understand the nature of atomic particles and radiation to appreciate the value of a microwave oven if someone asks me what's so special about a microwave I can answer that in five seconds it Cooks many foods faster than conventional methods need a specific example here's a potato I can bake it in the oven for three hours or in five minutes in a microwave clear as day this is innovation it's disruptive there's no ambiguity there it clearly does something better faster more efficiently so anything that's truly Innovative and disruptive especially something being sold to the public should be able to be easily described in simple terms and everyday people should be able to get it you don't need to sit through a 60 Minute video on the history of cooking food to appreciate the microwave its Innovation is obvious and this is the problem with crypto and blockchain for almost a decade and a half this Tech has been around and getting somebody to explain it in simple terms what it's uniquely good for seems to be an exercise in frustration should it be that way no and that's the first sign something here may not be right before we get into the specifics of the technology let's first talk about some of the terminology and psychology that surrounds the crypto industry crypto psychology pictures gone again yes where have you hidden it this time why should you take other things pencils knives hold on Bella where's the picture crypto gaslighting maybe you've heard of the term gaslighting it's a colloquialism Loosely defined as making someone question their own reality originating from the 1944 film Gaslight the plot involves a man who is trying to find the riches stored in the house of a well-to-do family he marries an heir to the family and they live in the house as he begins to find things and appropriate them his wife notices things missing he convinces her that it's her fault and she's losing her mind among other things when he's searching in the attic for things to steal he turns on the upstairs lights which cause the downstairs gas lights to flicker she notices this he tells her the lights aren't flickering hence the term gaslighting for convincing somebody that what they think is happening really isn't happening the term may also be used to describe a person a gaslighter who presents a false narrative to another group or person which leads them to doubt their perception and become misled disoriented or distressed oftentimes this is for the gaslighter's own benefit in the world of crypto there's a lot of gaslighting happening the most common version is when crypto is described to others and they don't think it makes much sense that they're told you don't understand I don't understand crypto I don't understand crypto what what is it anyways [Music] all the elaborate terminology also serves to confuse people and make them think crypto technology is too complicated for most people to get in reality it's not nfts are a good example of this people paying huge amounts of money for a cartoon image of an ape really yes really okay Boomer you're too old to understand this is the future that's gaslighting instead of going into detail on why something so intangible would be worth so much your simply dismissed as not being capable of appreciating nfts it's your fault for not seeing this obvious value another way people are gas lit in the crypto industry is being unilaterally told certain things are good and certain things are bad this often involves gross oversimplification of complicated systems resulting in dichotomies like centralization is bad decentralization is good government bad Bitcoin good central banks bad blockchain good in fact the word decentralized is a fundamental meme in the world of crypto proponents repeat it ad nauseum as if it's an instant gold medal award in debate declare something in the crypto world decentralized and Bam it's automatically assumed to be better than anything that's centralized or subject to government influence rarely is there any actual evidence presented that justifies such an assertion you're just expected to acknowledge this unsupported universal truth and if you don't well then you're crazy you're part of the problem or you don't understand this leads us to one of the first points we need to address decentralization is it really better is this Innovative and disruptive if we take a system and decentralize it the concept of decentralization is supposed to go like this you take a system like a database creeping track of money art or other things and instead of having that system managed by a single entity like a government or Corporation you decentralize it and spread the responsibility among an array of random Anonymous nodes that basically follow a very specific set of instructions what's the main motivation for decentralizing something to claim there is no overseer there is no evil emperor who can mess with your new decentralized system this is supposed to imply that such a system is immune from corruption and otherwise Unstoppable remember one of the principles in the crypto world is that you can't trust Central authorities least of all governments to do anything right so let's create some computer code and offload as much as we can to an array of unknown machines primarily located in communist countries wait that doesn't seem to make sense you don't understand okay Boomer oh this is the fact have fun today you said the same thing about the internet you know another interesting feature of decentralization is the fact that when you have nobody clearly in charge you also have nobody to blame when things go wrong there is no accountability this may seem odd to normal people in our society the whole concept of stability and reliability is predicated on accountability having someone in charge means they have their reputation on the line and are motivated to act trustworthy we have an elaborate justice system that protects and holds people accountable but what happens when nobody's in charge where is there any motivation to be trustworthy how do you ensure fairness and Justice crypto proponents argue you don't need trust the system is trustless code is law you might think to yourself it still sounds like you have to trust somebody or something maybe instead of government it's whoever's writing the code that runs the blockchain there's still trust but now there's no real accountability that doesn't sound good consensus so if nobody's in charge of a decentralized system how does anything get done this is where another buzzword comes into play consensus like decentralization consensus is another magic word that as long as you don't look into it too specifically magically solves all problems how are decisions made regarding monetary policy consensus how do we know the code running the network is reliable and solid consensus how do we improve the technology and address future needs and expansion consensus once you decentralize the system then consensus magically makes everything work perfectly and if things go wrong then consensus will fix them this is why there are now a dozen different versions of Bitcoin every time one group has consensus they leave behind another group who disagrees and follows a different path in the world of decentralization there's not much incentive for everybody to adopt a singular standard and now we have 50 000 different incompatible crypto projects and uh that's consensus it seems more divisive than inclusive you don't understand okay Boomer we're going to be talking a lot more about consensus this is a mechanism that affects how blockchain works and it varies from one project to another so now let's get into the meat and potatoes how does blockchain work what is blockchain okay hold on to your hats it's going to get very technical here because crypto is state of the art and we may be using some terms that might seem difficult to grasp are you ready here we go a blockchain is a non-editable database stored across an array of computers that's basically it it's just a database often referred to as a ledger which is an accounting terminology a list of transactions usually in sequential order on X date person y transferred commodity n to person Z that's primarily what goes in a ledger okay so I'm oversimplifying things a bit different blockchains have extra features like ethereum's smart contracts that I'll go into later but let's start with the basics the main function of blockchain is simply as a database a ledger a record blockchain has a few other characteristics obviously it's what people call immutable which is a fancy word for you can't change the data once it's written to The Ledger blockchain also uses cryptography to verify that each entry in its database is original and hasn't been altered it does this using a technology called Merkle trees which are basically arrays of data that generate special unique codes called hashes or digital signatures which are then combined with later records and linked together so that if you alter any of the data the hashes don't line up anymore and the system is identified as corrupted now I could go into the math and tech details of this but it really doesn't matter the end result is you have a database that can be guaranteed to be quote original and not altered later blockchain didn't invent cryptographic hashes they've been around for more than a century and cryptography itself goes back thousands of years whose name is derived from Greek meaning to write a hidden secret it should be noted that core technology used by the blockchain Merkle trees has been around for decades prior to the invention of crypto this Tech was patented in 1979 it has limited uses because most databases need to be editable a write-only database is nowhere near as useful as one that can be updated and you can use similar cryptographic hashes to verify the Integrity of a read write ledger so there are very limited applications where the technology is needed so that's basically what blockchain is does it sound super Innovative beyond the basics of blockchain implementing this system in a decentralized context creates additional problems that have to be solved and this introduces a number of other Unique Mechanics in the world of crypto technology mode decentralization no problems when you set up a regular database it's usually somewhat centralized it's located on a specific computer or in the case of a cloud-based system across an array of virtual servers and the operator referred to as the DBA or database administrator is in charge of provisioning allocating the resources necessary to make the database work as the DBA you can make sure you have everything you need to run the database usually there's a company or agency involved that pays for the resources you're administering you can also highly optimize the network because you can pick where and how the systems are hosted centralized networks are great they can easily scale to meet demand and you can determine who can connect to your network and who cannot which significantly reduces the likelihood of hacks and attacks with blockchain's decentralized nature it's not that easy the idea behind blockchain is that since nobody is in charge anybody who wants to participate in the network can do so just install the software fire up your own node and you're on the network all the nodes talk to each other and share information you can have a huge array of nodes all around the world this upside is also a downside if nobody is in charge who pays for the operation so now some type of material incentive has to be introduced into the design in order to entice people to help operate the network this is where the crypto Mining and tokenization component comes into play we talked about cryptocurrency on the market right now we have 2.8 million holders uh one of the fastest growing communities in the world we won the best cryptocurrency community shout out to the sapine Army here so we have a valuation of around three to four billion dollars and we did this all in nine months tokenomics while not the first digital currency Bitcoin is the first to use blockchain and blockchain is The Ledger that keeps track of special tokens that are minted or mined this supply of tokens can be a fixed amount or an ever increasing amount depending upon the design BTC which is the most popular version of Bitcoin for example is designed to have a maximum of 21 million coins in existence the mining process releases a certain amount of coins over time until eventually all the coins are minted at this point more than 90 percent of the BTC that will exist is already owned by somebody these tokens are not tangible items even though they have names that have the word coin in them which makes one think of a physical coin You could argue that's misleading or you could argue it's a useful metaphor however unlike coins which traditionally have been made out of materials with intrinsic value crypto only exists as an entry on the blockchain on the Bitcoin blockchain one token equals one Bitcoin or BTC other blockchains have different names for their tokens like eth for ethereum and bch for Bitcoin cash Doge for Dogecoin Etc but they're all basic the same a unique unit that is stored digitally in a particular location that can only be owned by one entity at a time when these tokens are owned by people they are assigned a particular wallet a wallet is a digital address that can only be accessed if you know a special password that password is called the private key whoever knows the private key controls the wallet and can send crypto tokens to a different wallet the blockchain basically keeps track of which tokens are in which wallets mining if the blockchain database is keeping track of digital currency there needs to be a way for those operating the network to get a little piece of that action in order to help run the network there are two ways this is done Mining and transaction fees when the system first starts out there aren't hardly any transactions so another way to reward people operating the network is by giving them math problems to solve while they're running the database so in the case of Bitcoin every 10 minutes someone solves a problem and gets some free tokens this is called the block reward and is produced as an incentive every time a block of data is codified in the blockchain these math problems every node solves Also Serve another purpose they make it expensive to participate on the network why would you need to do that you ask well to stop what are called Bad actors these are third parties that might want to sabotage or exploit the network in a way other than what it was intended for for example imagine you run an online chat room if you don't police your system it could easily be taken over by spammers they can write scripts that would bombard people with advertisements porn scams viruses or whatever easily disrupting your system well if your system is centralized you can simply ban those spammers or Implement some kind of filter but when the system is decentralized there's no Authority available to say who is a good actor and who is a bad actor so a different type of scheme has to be implemented making it expensive to participate in the network you can still be a bad actor but it will cost you and that is supposed to deter Bad actors so all that extra work is needed because of decentralization people spend a lot more energy to run a blockchain node than a regular system this is called proof of work there's a lot of controversy about this technique since the energy expended doesn't serve any real purpose other than costing resources there are other workarounds being proposed now such as proof of stake where instead of wasting energy you put up a certain amount of money or tokens as a bond to guarantee you're a good actor if you do bad things you can lose your stake it's more energy efficient but it still does nothing to stop Bad actors if they're willing to spend money to mess with the network so it's not a really solid solution and this is just one of the many things that more than a decade later is quote still being worked on you don't understand it's a gay Boomer transaction fees another quote feature of blockchain is the transaction fee system on some blockchains it's called gas but it's basically a fee you pay to the node operators for handling the transaction what makes blockchain different from other transactional systems is that this fee is not fixed it is more like a tip than a fee and you can specify any amount some blockchains have hard-coded minimum fees some do not originally the idea of the transaction fee was established to keep Bad actors from clogging the system with bogus or disruptive transactions which brings up another Point how fast is the blockchain we'll get into that in a minute but suffice to say blockchain is not by its nature a very fast transactional system Bitcoin for example is capable of handling about 4.7 transactions per second this is significantly less than credit card systems which can handle thousands this also doesn't take into account that it takes even longer for a transaction in crypto to be finalized in Bitcoin that can be as long as 10 minutes the transaction fee system has two purposes make it expensive to transact on the network to stop spam and provide another way to pay the node operators for maintaining the network many blockchain token designs have a finite amount of tokens like Bitcoin which means at some point in the future mining rewards will drop to zero at which point there has to be another incentive to keep operating the blockchain and that's when the nodes will depend exclusively on transaction fees you would normally think a transactional database would operate in a sequential manner transactions are processed in the order in which they are received but this isn't typically the case with blockchain instead there's a market where transactions post different amounts of fees in an effort to get faster service this sliding scale obviously benefits The Operators of the network more than anybody else it also means there's less incentive to make the network more efficient during times of congestion when operators can make more money it's not very consumer friendly who wants to have to guess at how much it will cost to complete their transaction crypto developers obviously disagree this peak Time pricing model might make sense for a service like uber because higher prices will encourage more drivers to operate during those times and handle more Riders however blockchain doesn't usually work like that increased traffic simply jams the system because all major blockchains are hard-coded to handle a certain amount of transactions in a certain amount of time and making the network handle more requires discussion code changes and consensus there is no way to dynamically increase the throughput of many blockchains based layers more nodes entering the network during peak times don't cause performance to scale to meet demand blockchain's inability to scale to meet even the most modest increases in traffic is one of the many problems with the technology so much so that this has caused many blockchains like Bitcoin to Fork into different versions some designed to handle more traffic than others and other Solutions people call L2 or layer 2 Solutions which are basically extra layers of computer networks to help manage the queue and make it appear to handle more transactions faster in reality these L2 Solutions are just a cludge the core design of Bitcoin is inherently difficult to scale by its nature with blockchain increased fees don't make the network operate better they just create an auction type system where whoever pays the highest fee has the best chance of moving to the front of the line and this ability to jump ahead of other people who may have started transactions before you also creates additional problems like allowing people to front run other transactions and engage in Market manipulation once again the decentralized design introduces a whole array of additional problems traditional databases and financial markets don't have to deal with buzzwords crypto uses a lot of buzzwords let's quickly unpack a few of these Concepts third contracts smart contracts are touted as a unique and amazing feature found on some blockchains like ethereum in addition to being able to store transaction information on The blockchain Ledger you can also store a set of instructions that can be executed to make rudimentary decisions like when and how to execute a transaction in other words a smart contract is basically some if-then statements that can be interpreted when the transaction is processed that's it their exclusive area of effect is The blockchain Ledger ironically smart contracts are neither smart nor actual contracts like many phrases in crypto it's a bit misleading also smart contracts are hardly an Innovative technology the concept of adding executable instructions to databases has been around for decades the traditional term for it is called stored procedures and its use in mainstream systems is far more advanced than the shallow implementation on blockchain how would one use a Smart contract we'll unpack another buzzword to demonstrate nfts nft stands for non-fungible token another fancy buzzword that basically means a piece of digital information that supposedly can only be owned by one person stored in one wallet at a time a smart contract may be used to assign ownership of an nft to a particular person in reality while people think of nfts as art or pictures on blockchain they're just digital IDs or addresses to another site that indicates or hosts whatever the nft is supposed to represent it is possible to store an actual digital image on the blockchain but this is rarely done because every byte of storage on the blockchain costs money it's very expensive to store 1K of data on the ethereum blockchain costs .02 if or around 64.48 at the current price of 2015 dollars for one token of eth a board ape nft at 631 pixels tall is more than 36k in size which would cost over twenty three hundred dollars in transaction fees alone to store on the blockchain and these prices change all the time smart contracts also take up space on the blockchain so the more elaborate your smart contract is as well as how much code you have to bulletproof it the more it costs to run this creates another problem as higher quality code that's more user friendly and has better error checking is probably more expensive to use all smart contracts do are basically right to the blockchain what that data means in the real world like who owns Which ape picture is somewhat nebulous and dependent upon various external systems like nft exchanges D5 other uses for smart contracts are in the area of what's called defy which stands for decentralized finance another meaningless marketing metaphor that is used to describe various things in the world of crypto and blockchain smart contracts can be used as Escrow Services for transactions holding tokens in one wallet that won't be released until a condition is met like a certain amount of tokens appear in another wallet this technique is used to create what is called a bridge between two different cryptocurrencies the smart contract holds or Burns tokens on one system and releases tokens on another simulating a movement of one digital asset to another these bridges are often targets for hackers taking advantage of vulnerabilities in smart contract code to liquidate stored tokens which brings up an interesting point is there such a thing as theft on the blockchain the code has no way of knowing what's a legitimate transaction and what is it math rules what happens math has no intentions good or bad in a decentralized world there's no way to judge what's right and wrong when the code that runs a network allows things to happen code is staking smart contracts have enabled a number of additional services in the crypto world including what's called staking where people put up crypto to lend to other people in what are called flash loans it's a complicated scheme that claims to offer additional crypto income by letting other people temporarily use your crypto ultimately the main objective is to encourage people to not sell their crypto Cashing Out is bad that's what leads to loss of liquidity and Bank runs and collapsed pricing Dows d-a-o also known as decentralized autonomous organizations are another construction built on blockchain and smart contracts these are organizations centered around a particular objective like raising money for a project that offers some type of mechanism whereby stakeholders can make decisions regarding the Dow's business it's basically similar in nature to shareholders in a corporation being able to vote on company business except with Dows there is no clear indication that stakeholders own anything like much of the crypto industry there's a lot of ambiguity when it comes to what tokens mean this is intentional to avoid regulation as well as to try and limit the development team's liability web three web three is another one of these ambiguous buzzwords what exactly is web3 basically it's web 2 with crypto added which often translates into tokenizing everything one can get their hands on including games where in-game economies mingle with crypto creating p2e or play to earn situations where you can earn crypto tokens for game activities as expected there's a lot of blowback from the traditional Gaming Community over crypto enabled games many people play games to escape the real world and aren't happy about having every Leisure activity monetized or turned into a job blockchain claims finally we're going to get to a collection of the most common Arguments for blockchain blockchain can verify authenticity for the first time we can lower uncertainty not just with political and Economic Institutions like our banks our corporations our governments but we can do it with technology alone when you vote have you ever wondered whether your ballot is actually counted if you meet someone online how do you know they're who they say they are when you buy coffee that's labeled fair trade what makes you so certain of its origin to be sure really sure about any of those questions you'd need a system where records could be stored facts could be verified by anyone and security is guaranteed perhaps one of the most common recurring applications for blockchain involves its ability to verify the authenticity of something tickets products in the supply chain nfts identity info Etc once again proponents of blockchain tout its infallibility blockchain is guaranteed to confirm what was originally put on chain is still exactly as it should be however this in no way can guarantee the authenticity of anything outside of the blockchain it only guarantees once data has been stored it wasn't changed and this brings us to the Oracle problem long before blockchain a software Engineers had a saying g-i-g-o which meant garbage in garbage out the concept basically means the output quality of a system is only as good as its input the principle applies not just all computer systems but to all logical argumentation sound arguments can lead to unsound conclusions if their premises are flawed and there's one huge flawed premise with blockchain called The Oracle problem blockchain cannot guarantee the validity of data initially put on chain that requires someone else some outside system and Oracle that provides the input if the Oracle intentionally or accidentally provides bad data whatever's on the blockchain will be bad as well so at best all blockchain can do is tell you here's what the Oracle said whether the data is authentic is determined by the Oracle not blockchain what this results in is a rather significant false sense of secure 30.

let's illustrate with the standard application for which blockchain is promoted as a solution supply chain tracking let's say I have a shipment of Jamaican Blue Mountain Coffee that I want to track on the blockchain it will pass through a number of Transportation hubs enroute from its Harvest location to its buyer we will track this shipment on the blockchain each point along the way an entry will be made on the blockchain indicating this particular bag of coffee arrived and continued onward until it reaches its destination how do we technically track the coffee a unique identifier is associated with the bag the equivalent of a private key likely a special code on a tag on the bag at various points along the way this tag is scanned and recorded on the blockchain since the blockchain is public anybody can check on the bag status and see where it's been if you don't have access to the bag you don't know that special code so this is supposedly proof this is the same coffee from Harvest to delivery or is it there are several potential problems with supply chain tracking that blockchain has no power over the first and most obvious is whether or not the right coffee is even in the bag whoever fills the bag with coffee beans is the first Oracle that determines authenticity Jamaican Blue Mountain Coffee is very expensive and it would be really difficult to determine whether the bag contained those specific beans or something much cheaper from elsewhere you really don't know so the real trust here has absolutely nothing to do with blockchain and decentralization it's trusting the source is being honest with you blockchain can't do anything if they're not okay so assuming the coffee is legit when it begins its Journey what happens next the bag is transported by other parties any of which could choose to swap the contents of the bag along the way how would blockchain know it doesn't basically all blockchain is doing is tracking the barcode not actually the contents of the bag but it's even less secure than that because the barcode could be copied and slapped on another cheaper bag whoever registers the barcode is another Oracle you have to trust okay let's assume this special barcode is difficult to replicate and can't be removed and the bag has special seals on it so that if it's tampered with it's evident and the shipment can be refused as inauthentic that would solve some of the problems right yes it would and this technique is used all around the world for that very reason notice that blockchain has nothing to do with whether the bag is authentic it's all the other non-block chain technology that makes verification possible in light of this situation there's not a single thing that blockchain does that improves upon Supply Chain management all major shipping companies have ways to track shipments there's no need for that to be decentralized a centralized system as we've demonstrated will almost always be more efficient and the true test of whether the shipment is authentic will be a function of its packaging not what's on the blockchain so no there's not a single thing blockchain brings to this situation that is better than what we've already been using for decades and if you confront blockchain proponents about this they'll often reply with the standard excuse well it's really early the tech needs to be further developed exactly how can blockchain be further developed to address these issues it doesn't make sense there will always be a need to trust somebody in the real world the Oracle problem basically negates a huge majority of all of the value blockchain claims to bring to various markets it doesn't matter whether we're talking about coffee medical records or concert tickets there is still some outside person or centralized system that has to provide the authenticity and there's not really a good reason that this data really needs to be stored in a public database anyway why should your x-rays be on the blockchain why should how much money you get paid be in a public database why should a decentralized network need to keep track of tickets issued by a specific Central venue when they have their own website that's cheaper faster and more reliably guaranteed to be operative as long as they're in business it really doesn't seem advantageous to deploy blockchain in any of these scenarios is blockchain good for verifying authenticity the only way blockchain verifies the authenticity of anything off chain is if we are guaranteed the authenticity prior to being added Supply chains tickets voting nfts medical records Etc authenticity is only achieved via outside authorities also known as oracles if the Oracle is wrong then blockchain is wrong and isn't unnecessary part of the process that wastes time money and is a false sense of security no enforcement in the world of decentralization there's nobody to enforce what blockchain says so it's totally voluntary whether you want to accept blockchain's data is legitimate doing so is a function of the oracles adding blockchain to the authentication process only makes it slower and less fault tolerant conclusion it is an illusion that blockchain verifies authenticity blockchain is decentralized and not under anybody's control is blockchain really decentralized how decentralized is Bitcoin really I view Bitcoin as money without Masters decentralization is key to keeping that money without Masters decentralization is is a technical mechanism to achieve some properties that are key to bitcoin namely that it's permissionless Bearer unseasonable and survivable so that it's very hard to shut the network down in earlier segments we discussed the pros and cons between centralized and decentralized systems it's arguable whether decentralizing something is even a good thing but beyond that let's examine whether or not blockchain is in any meaningful way actually decentralized in order to talk specifics and cite evidence we may single out specific cryptos like BTC and eth but the same can typically be said for most cryptocurrencies and various other crypto projects if code is law then whoever writes the code is the ruler blockchain is basically a database which is created and operated by a specific block of computer code computer code is a set of instructions or rules that tells the entire system how to behave this code is basically the law of blockchain so whoever writes the code is the de facto law Giver blockchain code is typically thousands if not hundreds of thousands of lines of instruction and not easy to read and understand except by those who are programming experts crypto proponents argue that the value of blockchain is that quote nobody owns the network and quote nobody unilaterally controls the network that's their idea of things being decentralized as opposed to governments and other special interests that can impose their will on everybody else that's the bad thing blockchain supposedly protects us from but in reality are people in the crypto space really protected from private special interests exerting control over the network let's take a closer look while the Bitcoin code is open source in public what goes in that code is under the control of specific private interests as of this writing there are only a handful of people who have access to the source code and the ability to commit code changes those with access to the source are associated with for-profit corporations like chain code Labs OK coin bitmex and block stream there's also an association called mit's digital currency initiative the MIT Association lends an air of legitimacy to the Guardians of The Source until further investigation reveals that it is funded by Chain code bitmex Jack Dorsey and Europe's largest digital asset management company coin shares among others it would be foolish to not assume the interests of these for-profit companies have an influence over this quote Association and are focused more on increasing the value of their stake and less about the technological efficiency in insulating the world from centralization which might explain why BTC is one of the least technologically capable versions of crypto despite being the highest valued so while on the outside it looks like there's some kind of decentralized Association controlling the laws that run blockchain in reality it's a small cartel of private corporations also many people think just because a project is open source that means it's run by the community this is false most open source projects have a master maintainer who has totalitarian control over the project they are not obligated whatsoever to answer to any community and most of the developers have other business interests they serve in fact many open source projects are only open source because they use code that requires any derivative work to also be open source there is absolutely no guarantee an open source project has any oversight nor is there any guarantee that the code is the result of community involvement with other blockchains like ethereum there's an even thinner veneer of decentralization ethereum has its de facto King the original programmer of italic buteran the community's Pied Piper upon whose every word is revered it's 2.0 yeah we must coordinate but we at no Cathedral no one subordinate every team and every project we could get are subergic biologic we work like a Bazaar yeah he's created a non-profit organization called the ethereum foundation which sounds consensual in theory but is little more than a marketing company stacked with board members whose main skills seem to be loyalty and willingness to promote ethereum rather than technology and finance the real decisions regarding the future of blockchain rest with the development team which are not in place via any reliable consensus mechanism like some other crypto projects ethereum has a published process whereby the community can petition to help help direct the future of the technology it's basically an appeal that someone can make but ultimately it's up to the centralized very small development team to decide what goes in code and in policy so while there's a mechanism for quote consensus to apply to blockchain development at the end of that hallway is always a small group of overseers who have the final say and presumably nothing happens without King vitalik's approval so in most of these projects we now know the code the law is centralized what about other aspects of the operation so maybe there's only really space for like you know 10 or 20 mining pools so it's not very decentralized is mining decentralized Satoshi Nakamoto the original creator of Bitcoin and blockchain envisioned a diverse decentralized array of miners working separately but in tandem to verify the authenticity of transactions on the network while this sounds great in theory in practice it never materialized recent studies show that even in the early days of crypto mining was concentrated in the hands of a few operators all throughout the history of Bitcoin you had key people and groups controlling almost every aspect of the operation in the early years it was the development team and their Associates who mined huge quantities of Bitcoin much of which is still concentrated in large blocks of wealth today then when the price of Bitcoin started to rise it became more advantageous for miners to form consortiums than to operate independently today the top five percent of mining operations get more than 80 percent of the block rewards let me say that again the top five percent get more than 80 percent of the block Rewards it's simply no longer economically viable to operate an independent decentralized mining rig some may argue this isn't the case for other blockchains but the main reason is simply because they have such low traffic and their tokens are worth so little there's no incentive at the moment to consolidate blockchain processing as soon as a token becomes more valuable centralization and consolidation happens this isn't a construct specific to crypto it happens in every industry first there are small groups of early adopters but as the market grows big players come in and take over the same applies with crypto and there's no way to get around it especially when it's decentralized and nobody's in charge to make rules against monopolies today we have monopolistic groups controlling most major blockchains a small handful of mining cartels control the majority of the Bitcoin blockchain if they decide to collude they can unilaterally take over bitcoin's blockchain this is called a 51 attack but that's a misnomer it's not really an attack it's just math whoever controls the majority of the blockchain's processing controls the blockchain the only alternative if you don't like what 51 does is to abandon the blockchain that's called a fork and we'll explain that when we address another argument whether blockchain is immutable so thus far we've revealed that the code aka the law is centralized we've revealed that the processing of the blockchain itself is centralized what else is left well how about the infrastructure upon which trades occur core infrastructure one of the principal features of crypto is its peer-to-peer nature you're supposed to be able to send crypto tokens to anybody anywhere without any Central or outside influence in other words nobody can stop crypto that's at least the pitch there are at least two big problems with these claims the first one is the 800 pound elephant in the room that everybody in crypto ignores the internet crypto people talk as if the internet is some unlimited Unstoppable free resource like sunlight or wind they completely take for granted the fact that without evil Central governments and centralization the internet would not exist the entire infrastructure upon which crypto is based upon which it is a parasite depends on a myriad of central authorities to maintain nowhere in any crypto's business model is their accommodation made for helping sustain this resource it's just assumed to always be there unfettered and unrestricted unfortunately that's not the case there are thousands of central authorities that determine what happens on the internet from system administrators at companies and isps to policy makers in government each of whom have the ability to control or restrict any activity online if they so decide this is especially true for governments they are not about to allow anybody to use their resources and undermine their ability to enforce law we've seen examples over and over of various governments restricting what can and cannot be done online from taxation of online sales to restriction of online gambling if Government wants to control something they can they may not be able to control a hundred percent but they can control enough to make most systems impractical to use this is especially true for crypto and blockchain is especially vulnerable because it's not a single dark website that can move around it's a wide open network of nodes that have to be able to identify each other making the entire network easily targetable by authorities if needed just because things haven't been more tightly controlled doesn't mean they can't or won't on top of that there are less than a dozen private corporations that control 90 percent of most domestic internet traffic and are not in any way legally compelled to handle crypto traffic if they don't want to if net neutrality hadn't been abolished things might be a little different you have no constitutionally guaranteed rights on a private corporate Network and that includes the vast majority of the internet beyond the obvious that all crypto depends on government subsidized infrastructure from Wireless to land-based systems to the centralized IP address and hostname systems there is still even more centralization going on trading infrastructure much is touted about crypto's ability to allow people to send tokens directly to each other but this isn't the typical way crypto is traded in fact the vast majority of crypto trades are not even recorded on the blockchain they are executed on private centralized exchanges like binance and coinbase while there are ways for people to buy and sell crypto in a peer-to-peer manner with sites like local Bitcoins there's a huge liability using these unregulated facilitators you're also much more likely to be directly mingling with money launderers and terrorists and costs can be quite different from the main market prices you're also very likely to be defrauded or implicated in some illegal activity cexs or centralized exchanges offer more protection so this is the preferred way most people trade crypto so it comes as no surprise to discover the vast majority of crypto transactions happen on centralized exchanges not on the blockchain these exchanges are monolithic Central authorities in many cases subject to much less transparency and oversight than traditionally licensed government-regulated brokerage houses even countries like El Salvador who claim to have adopted Bitcoin are all in actuality operating their own private centralized exchanges they have exclusive control over there's no way to tell whether the amount of Bitcoin in their exchange matches with Bitcoin on the blockchain they can freeze or shut down Accounts at will they can close up shop and take everybody's crypto and many have including famous rug pulls like quadranga where the owner of the exchange mysteriously died and left most of their clients without access to their crypto even Fiat that's stored on account at these centralized exchanges is not protected from fraud unlike traditional regulated Banks there's significant less protection for consumers on these exchanges and significantly less action that can be taken when they're defrauded so to summarize while it sounds great as a talking point once you examine all the various pieces of the crypto Market puzzle you find they are in fact not decentralized every step along the way you will run into powerful private interests that have even more control and less accountability than in traditional markets blockchain is immutable and cannot be altered peer-to-peer technology that groups data into blocks and then chains those blocks together with cryptographic mathematical algorithms that produces an immutable chain of reaction vocabulary refresher immutable unchanging over time unable to be changed fixed set rigid inflexible permanent established carved in stone that's what we want records to be one of the defining characteristics of blockchain is its supposed high security it's immutability the claim that what's on blockchain is written in stone and cannot be altered is this really the case depending upon how narrow a context you choose to cherry pick you could say it's immutable but there are situations where if you zoom out it is definitely not immutable for example let's examine the Bitcoin blockchain just that statement in itself is confusing why is that because the Bitcoin blockchain is not really one single immutable blockchain there are dozens of different variations of the Bitcoin blockchain there's BTC the most popular version but there's also bch Bitcoin cash and bsv Bitcoin satoshi's vision and various others these were all originally part of a single base blockchain up to a certain point when changes were made to the code which caused the blockchain to Fork into separate versions and anybody who owns Bitcoin cash if they owned it before the fork also has coins on the original BTC blockchain instead of one immutable version of blockchain now there are several different versions and in fact multiple copies of the actual Bitcoin tokens that can be owned by different people so when people say there will only be 21 million Bitcoin ever made that's not technically true because every time blockchain Forks into a different version that's another 21 million Bitcoin that can be owned by different people this also involves a fallacy called no true Scotsman where you have people arguing over which version of Bitcoin is the real Bitcoin but ask yourself this if blockchain were truly immutable then shouldn't it be prohibited from forking into separate versions beyond the forking debate are there other instances where blockchain can be altered yes 51 attacks technically speaking anytime a majority of the blockchain operators want to do something they can exert unilateral control over the blockchain when it comes to decentralized consensus mechanisms basically the majority wins and if one or two mining operators control more than 50 percent of the hash power of the blockchain then they in fact can do what they want including rejecting transactions reversing transactions moving tokens around and forging their own version of the blockchain and forcing everybody else to accept it it's often called a 51 attack but the pejorative attack is technically a misnomer because in the decentralized world of blockchain there is not supposed to be any Central Authority that can determine what is right and wrong other than Coke if the code allows it to happen then it's quote legal it's not an attack it's consensus this has already happened with many blockchain projects in 2020 so-called privacy-centric censorship resistant blockchain grin Network Works suffered an attack that shut down the network for a while grin was touted as Bitcoin 2.0 and had more than a hundred million dollars in seed money invested today a grin token is worth about seven cents significantly less than its original 10 opening price Bitcoin gold suffered not one but two 51 attacks one in 2018 and one in 2020. ethereum classic suffered three 51 attacks in 2020 alone note that in some cases you don't even need 51 control to alter the blockchain some blockchains like Iota can be attacked with 34 perc

2023-01-07 05:25

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