Peter Todd: Businesses Push Implementation of Blockchain Onto Platforms Not Compatible With Distributed Systems
Peter Todd, Bitcoin developer and applied cryptography consultant, spoke with Binary District Journal at the Genesis London blockchain conference last February. The conversation explored the blockchain industry, the future of Bitcoin and the emergence of national cryptocurrencies like the Venezuelan Petro.
Over the past three years, the blockchain industry has evolved and changed significantly. Three years ago, the vast majority of companies - the likes of R3, Hyperledger, Intel, JPMorgan, and even smaller startups - were obsessed with building permissioned ledgers and centralised blockchains because most of the money within the industry was being directed to such projects.
Intel developed and released its Sawtooth Blockchain, R3 revealed R3 Corda and JPMorgan created an independent company to continue its development of Quorum, an Ethereum and Zcash-based permissioned ledger. However, permissioned ledgers struggled to find commercial success and the technology is now being utilised to run pilot tests.
Blockchain as PR
Todd has been critical of companies utilising the technology behind Bitcoin as a PR move to bolster their market valuations. He stated during an interview with Binary District Journal that, within the blockchain industry, many businesses are trying to push the implementation of blockchain onto platforms and infrastructures that are not necessarily compatible with distributed systems.
Blockchain technology is not a better version of database technology, but a more secure and decentralised form of database. There exists a trade-off between flexibility and decentralisation and, as a consequence, blockchain technology is far less efficient than centralised databases.
“In most cases, however, blockchain technology in its current form cannot match the capacity of databases, unless a centralised form of blockchain is implemented, which has poorer security”
Fortune 500 companies have used database technology for decades to record the transfer of money, goods, services and items, as well as ensuring that the logistics behind their supply chains and service distribution are accurate. Substituting database technology with the blockchain could be viable if the type of blockchain being implemented can handle a capacity equivalent to that of traditional databases.
In most cases, however, blockchain technology in its current form cannot match the capacity of databases, unless a centralised from of blockchain is implemented, which has poorer security.
“I think there’s an industry, often scammers using the term ‘blockchain’ to go and push things that don't really work and don’t really exist”
Todd emphasised that there are applications of cryptography in a wide range of industries. He remains optimistic about the utilisation of blockchain technology and other forms of cryptographic system in areas that are actually compatible.
“I think there’s an industry, often scammers using the term ‘blockchain’ to go and push things that don't really work and don’t really exist and so on,” Todd says. “I think that’s a bit unfortunate because that kind of overshadows how chains of blocks are a useful cryptography technique. At the same time, I think there’s a real genuine industry of real companies solving real problem that are making use of this — which is another facet of cryptography.
“Like many things, a lot of the tech needed to use a blockchain has been around or in development for a very long time, but once you fit all the pieces together it sort of makes the leap from ‘in theory you can do this’ to ‘yes you can actually do this’. I think that’s where we’re seeing real applications making that final leap to deployable stuff.”
Solving Unrealistic Problems
During the interview, Todd mentioned R3. Also known as R3CEV or R3 Consortium, it currently has the largest number of major banks and financial institutions working with blockchain developers and startups to implement what is an innovative technology.
Todd stated that the type of problems R3 is trying to solve with the blockchain are not necessarily realistic. Companies within blockchain consortia like Hyperledger and R3 are trying to eliminate fraud from supply chains by using the blockchain. With Bitcoin, Ethereum, and other public blockchains, fraud can be avoided because of the trustless nature of public blockchains. Users do not have to trust each other to send or receive money and sign smart contracts.
On permissioned ledgers or networks there is still some level of trust involved, and there are different levels to nodes, moderators, and authorities. As such, Todd noted that there is a much bigger problem in eliminating fraud than simply implementing a blockchain that can process information in a trustless manner.
“I think that much of the blockchain hype comes from people making claims that just don't bear water or by making claims where you, in theory, get fraud down to zero in this very narrow threat model, but there are much bigger issues to worry about.”
“I think that the problem companies like R3 will run into is, currently, for many applications we already trust each other fairly well so that type of fraud isn’t a big deal,” Todd explains. “That’s not always true — Let’s Encrypt is an example of where fraud was a big deal and by getting it closer to zero, you can drive a revolution. But that’s not going to be true in many cases.
“I think that much of the blockchain hype comes from people making claims that just don't bear water or by making claims where you, in theory, get fraud down to zero in this very narrow threat model, but there are much bigger issues to worry about. So fixing that, just isn’t going to fix this much bigger problem.”
On National Currencies
Throughout 2018, national cryptocurrencies have made the headlines, and they have appealed to investors in both the public market and the cryptocurrency sector. The Venezuelan government claimed that it had generated $5 billion from the token sale of Venezuelan Petro, an oil-backed cryptocurrency that is based on the Ethereum blockchain.
Todd stated that national cryptocurrencies which are controlled and issued by the government are no different to existing national currencies in the form of fiat, like US dollars. The advantage of cryptocurrencies like Bitcoin is their ability to process transactions without the involvement of intermediaries. If the intermediaries, central banks in this case, are the issuers of cryptocurrencies, then the centralised digital currencies lose their merit.
“In the case of decentralised cryptocurrency, it’s about the ability to move money and audit it without permission.”
“Most places have digital currencies already,” Todd says. “Equally, most places you can transfer money digitally. Cryptocurrency is not about being able to move money digitally, it’s about auditing. In the case of decentralised cryptocurrency, it’s about the ability to move money and audit it without permission. But when you’re talking about a government currency, obviously there’s permission, a central authority and control — end of story. So the cryptocurrency part of it is about giving people better ability to audit what happened, audit what the supply is and audit what the transactions are. I think, in reality, a lot of places don't really care about that.”
It was evident in the actions of the Venezuelan government that audits and transparency are not important, at least to the government of Venezuela and its president, Nicolás Maduro. The government offered minimal effort to reveal the technical intricacies of the Venezuelan Petro. Some reports suggest that the Petro is not really backed by oil and its primary use case is to process taxes and payments for oil.
On Reserve Currencies
If government-backed digital currencies and fiat money do not appeal to investors and users, particularly millennials who have lost trust in banks, the question cryptocurrency enthusiasts have started to ask is: will Bitcoin be the next reserve currency?
“The question may not even be will Bitcoin be the next reserve currency, it's will there be reserve currencies?”
Todd responded to this question with a question of his own, suggesting that reserve currencies may not even exist in the long-term.
“Well, the interesting thing about that is right now we're changing what world reserve currencies there are, I mean the US dollar is getting a little more mixed,” he says. “The question may not even be will Bitcoin be the next reserve currency, it's will there be reserve currencies? That's a bigger economic thing. From a technological point of view, obviously Bitcoin could be a world reserve currency. Will it? That's an economical question. Who knows?”
Peter Todd is no stranger to controversy. He could even be said to enjoy it. He’s very much a Bitcoin purist in the sense of adhering to Satoshi Nakamoto’s original vision and this is represented in his interview with BDJ. But, he’s also been the centre of community controversy for other reasons. In mid 2016, he said Bitcoin developer Gavin Andresen’s commit access should be revoked after he said he believed Craig Wright was Satoshi Nakamoto, and earlier that year committing a double-spend attack on Coinbase to demonstrate perceived vulnerabilities in their system.
Todd comes at the blockchain industry from a refreshingly rounded perspective having worked with a geophysics startup and holding a fine arts degree. Todd’s words hold weight, too, as a result of his long-standing and reputable involvement in some key projects. Focusing heavily on scalability, Todd has been an important contributor to Bitcoin Core and has worked maintaining the python-bitcoinlib and OpenTimestamps projects.
Illustrations by Kseniya Forbender
To contact the editor responsible for this story:
Margarita Khartanovich at [email protected]