Using just the “rails”

[Note: opinions expressed below are solely my own and do not represent the views of my employer or any company I advise.]

Yesterday the following question and comment was made to the previous blog post:

So just to be clear, you consider a company a “blockchain company” even if it runs its platform using Bitcoin’s blockchain as the rails ? For example, I believe Symbiont does this, but they certainly license out their software for a profit.

Yes, technically speaking using any blockchain as a “rail” (e.g., for storing or moving messages between parties) could effectively classify the startup as a “blockchain” company.  But I also think it’s worth looking at whether or not this is useful or even a wise decision.

In the short term, maybe: if a company only cares about distributing data to a geographically distributed third party, then using a blockchain as a “rail” could be a solution for a few problems.  For instance: Peernova, Chain, DigitalX (AirPocket) and others have built systems/platforms that are independent of a blockchain but then will store a “hash” of information onto a blockchain such as Bitcoin (typically via OP_RETURN).  This is a process called “anchoring.”

But you can actually “anchor” in multiple mediums, it just happens that this medium is what they have currently chosen to do in the short run (e.g., could also tweet it, post it on a public mailing list, broadcast it on TV, or if you are paranoid use a numbers station).  I wrote about the anchoring idea last month and previously elaborated why users such as banks do not need to use a public blockchain for anchoring.

There is another company called GuardTime that is pitching a “trust anchoring” service as well (called KSI).  Their product is similar to Surety which publishes hashes of data into newspapers.  If you are interested in this general idea, be sure to look into linked timestamping and “How to time-stamp a digital document” by Haber and Stornetta (and again, this is not an endorsement).

Regarding Symbiont, my understanding is that they are still using “embedded consensus” (based on their blog post) because their core team created Counterparty, which also uses an “embedded consensus mechanism” tied to Bitcoin.  Currently I do not think that it is a particularly elegant solution for post-trade but it may have its uses.  However that is a topic for another day (see this paper starting at page 5).

Source: Surety

Long term, no: I don’t think it is necessarily wise for Bob to rely or depend on Alice’s chain for the security of Bob’s chain.  It may be a short term stop-gap occurrence, but network designers should ultimately have to assume that other networks can become compromised and/or are unsustainable.  The network needs to be as self-reliant as possible.  And it is currently not possible to accurately forecast the security of Bitcoin (or other public blockchains) as it is economically driven – directly proportional to the market price of the tokens.

I think the drama around OP_RETURN size (40 versus 80 bytes) two years ago (see pages 29-30) and even the current block size debate should also serve as a cautionary tale to any organization looking at using a public blockchain.  Because of the way “decentralized governance” works (an oxymoron?), the end-users are at the mercy of nebulous governance structure that can arbitrarily nerf or take away a feature (like OP_RETURN) just as much as they gave it without direct feedback or recourse from the users themselves.

As an aside, there are also cross border/remittance companies like Align Commerce  that attempt to send bitcoins back and forth between liquidity providers/exchanges and do not rely on the appreciation or depreciation as part of their business model — in fact, they dislike any volatility as it harms their margins (e.g., they lock in a price for their customers for a short window of time).  But since they do not rely on bitcoins qua bitcoins, they could just as easily create and use their own proprietary ledger (it doesn’t even need to be decentralized).  Whether or not the “rebittance” business model makes sense is also another topic for another day (I recommend this post from Save On Send for starters).

Recall 15-20 years ago people used to attend “Internet conferences” and tell their friends that they were building an “Internet company.”  That sounds anachronistic two decades later.

Today a small business owner, Bob, would simply say he operates a small business that happens to have a website, but that doesn’t mean he is operating a website company.  Or if Bob accepted payments via Stripe, he wouldn’t say his company is an ACH or Stripe company – Bob is just using these “rails” as a means to an end.  Hopefully when all the hype and noise lowers over time we will begin to see the companies that are actually trying to create real commercial businesses that just happen to integrate with DLT, rather than everyone positioning themselves as a DLT company that might also have a commercial product.

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