Blockchain – gamechanger or one of the most overhyped technologies ever?

Jamie Dimon, JPMorgan Chase CEO once said: “Cryptocurrency is a fraud. It won’t end well. Someone is going to get killed.” It was the same day his bank bought a lot of bitcoins for their clients. Even though he and many other bankers and technologists might be right about the reliability of cryptocurrencies, the most well-known cryptocurrency – Bitcoin – brought us something, what in the end may have a much bigger impact than the currency itself.

We are of course talking about blockchain – the distributed ledger technology which has the potential to eliminate huge amounts of record-keeping, improve transactions and save money. It allows value exchange without the need for trust or a central authority. The blockchain users are also the administrators.

How does it work?

Each block contains a cryptographic hash of the previous block, a timestamp, and transaction data. Because blockchain is based on a distributed, peer-to-peer topology where data can be stored globally on thousands of servers – and anyone on the network can see everyone else’s entries in real-time – it’s virtually impossible for one entity to gain control of or game the network. Blockchain can only be updated by consensus between participants in the system, and when new data is entered, it can never be erased. The blockchain contains a true and verifiable record of each and every transaction ever made in the system. There are already 1250 cryptocurrencies on the blockchain.

Blockchain is a combination of 3 technologies:

1) a private key cryptography

2) P2P network, a distributed network with a shared ledger

3) The blockchain’s protocol, record-keeping and security


Is it all that awesome?

Network size

To summarize it, blockchain is a write-once, append-many electronic ledger. It created the backbone of a new type of internet. No system is “unhackable”, but blockchain’s simple topology is the most secure today. It is even being touted as the potential solution to the United States Department of Defense logistics challenges.

The Internet has completely changed our lifestyle. It has brought new ways of sharing, trading, and communication. Blockchain should become our new “internet of value”. Soon we all might use blockchain for trading and exchanging music, real estates, energies, for voting and also for using so-called “smart contracts”.

But many experts and even insiders do believe that blockchain is too overhyped. One of its deficits might be the network size. The larger the network is, the more secure it becomes. Needless to say, it calls for a large network of users. So what about private networks? By virtue of being controlled by a private entity, it may have fewer independent nodes. Is it even blockchain then? And is it still safe?

Transaction costs and network speed

Even though many people doubt about Bitcoin, it is important to know the history. Bitcoin started as a democratic, almost free cryptocurrency. With its increased adoption, network congestions and high transaction the costs have become unnecessary. Moreover, there is still the problem with its size. A full node on the Bitcoin blockchain stores the complete blockchain ledger locally. The size of the blockchain becomes a problem because the full node will have to store all the transactions that have ever happened on the blockchain. As of late 2016, it can only process about seven transactions per second, and each transaction costs about $ 0.20 and can only store 80 bytes of data. That is incredibly slow and expensive. Due to the nature of blockchains, it will always be slower than centralized databases. Whereas centralized databases process transactions once, in blockchain they must be processed independently by every node in the network.

The list of advantages and disadvantages could go on endlessly. We just have to wait till blockchain is ready for the commercial adoption and see how it will perform within certain business cases.

Will quantum computing break the blockchain?

Blockchain isn’t even widely implemented but there are already a few potential threats. People mostly focus on increased regulation, which seems completely reasonable. However, there might be a much bigger threat behind the corner.

We already know that blockchain allows a ledger of transactions to be distributed among a large network of computers. No single user can break into and change the ledger. That’s the main security measure. But the new strong technology with advanced computing power like quantum computing just might break blockchain’s seemingly immutable ledgers within a few seconds.

To successfully hack a blockchain, you need to alter both the targeted block and all of the blocks connected. But there is no central point for a hacker to penetrate. To have a chance of penetrating the network, you would need to simultaneously alter at least 51% of the blockchain. The best public key cryptography systems link public and private keys using the factors of a number that is the product of two incredibly large prime numbers. To determine the private key from the public key alone, one would have to figure out the factors of this product of primes. According to Nathana Sharma from Singularity University, even if a classical computer tested a trillion keys a second, it would take up to 785 million times longer than the roughly 14 billion years the universe has existed so far due to the size of the prime numbers in question.

But quantum computing relies on quantum physics and has more potential power than any traditional form of computing. Quantum computing takes advantage of quantum bits or “qubits” that can exist in any superposition of values between 0 and 1. Because a bit is only ever 1 or 0, a classical computer calculates in a linear fashion. In contrast, the quantum physical properties of superposition and entanglement mean a qubit is both 1 and 0 at the same time, which allows for exponentially greater computing power.

With greatly increased computing power it might be possible to generate a private key from the corresponding public key. In that case, even the strongest traditional public key cryptography would be vulnerable. Companies like IBM, Google and Microsoft are currently working on advanced quantum computers. IBM already has a 50-qubit quantum computer, and more powerful machines are in the pipeline. In March, Google unveiled its 72-qubit Bristlecone quantum chip. It is expected that quantum computing could be viable in less than 10 years.

So will quantum computers break blockchain? Probably it will, but not if we develop a solution first. There are already plans for quantum blockchain and many cryptographers are working on quantum-resistant cryptography as you are reading this article.

Quantum computing will be a huge threat to all security systems, not just to the blockchain. We might expect that future security solutions will contain all mentioned technologies – but as always, the same will do for hackers.

Author: Martin Kysilka, 6D Academy