The underlying technology that houses the Bitcoin currency seems to be a golden treasure that many people are looking into. Over the past seven years of the virtual money’s existence, the concept of the blockchain has enticed investors, bankers, and modern lenders. 22 Legacy banks are currently interested in distributed ledgers, but they typically don’t choose Bitcoin’s permissionless version. The word on the street is that Bitcoin is a rebel, and blockchain technology can be tamed. Despite this reasoning, people like Nick Szabo think permissioned ledgers are not what they ought to be.
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“[Bank] bureaucracies — keep trying to re-inject points of control, and thus points of vulnerability, into blockchains, e.g. through ‘permissioning’; but this nullifies their main benefits, which come from removing points of vulnerability.” — Nick Szabo
You’ve heard the terms “permissioned and permissionless blockchain” before, as the media has recently been all over both sides of this discussion. The Bitcoin blockchain is a permissionless ledger that enables the unique ability to provide decentralized trust within its architecture. Most of the community knows how the system works, as miners confirm transactions and with this our every day use and growth secures the network. Transactions are cryptographically insured by the blockchain’s accounting system that we all confirm and trust in as the system grows.
All of the units of account the miners inhale are called blocks, and these blocks are set into chronological order representing a linear chain. Miners are an important aspect of the permissionless ledger. They have only one goal, and that is to process transactions throughout the network for an incentive. This means the public using this currency is trusting in the fact that the system is confirmed by machines with only one thing in common: to find new bitcoin. There is no other reward for changing the system to meet the needs of certain financial institutions because the system of account works. The protocol’s network effect has worked so fluidly and so grand that it has enticed many from the side of centralization to try and harness its science.
They come for the blockchain, but will they stay for the Bitcoin? That is the question Bitcoiners are asking the crowd of investors currently looking at this new technology. However, this technology or variations like it are nothing new when it comes to centralized offerings. Legacy banks have used financial telecommunications for quite some time and often have held this information within their private databases. A permissioned blockchain is no different than this predecessor. Businesses around the world have been working with a systematic code structure for some time, and these accounts have always been taken in-house to be settled. Systems like SWIFT are used for global intercommunication but are conveyed in the end through private systems. These central accounting operations are regulated and manipulated due to their unified commitments with governments. These ‘private blockchains’ already exist today using current technology mixed with one central server and a whole lot of human error.
“Moving from a permissioned financial network between banks, to a permissioned financial network among banks, is no great step for mankind.” — Erik Voorhees
Permissioned blockchains solve one significant aspect within private companies, which is the cost of overhead. Distributed ledger technology does require less accounting and data intake by several hired humans. The bundles of lawyers, accountants, and notary trustees are not needed in this environment. However, you are still trusting the reliability of an in-house system of account. This database is not reliant on miners confirming transactions, it is only based on the trust of the company itself.
Private data can be manipulated and changed to give the business an advantage over its customers and competition. Databases that are kept private within the company itself have been known to be forged, and books have been cooked.
There lies the benefit of trusting a circle of anonymous miners confirming transactions. It’s far more reliable because their only mission is to reap the reward for finding blocks. They don’t confirm blocks because Blythe Masters just might dig the blockchain. Miners are not looking at the next Accenture survey or World Economic Forum report. They are securing the system in a decentralized and highly functional permissionless way.
“Just as the technology of printing altered and reduced the power of medieval guilds and the social power structure, so too will cryptologic methods fundamentally alter the nature of corporations and of government interference in economic transactions.” — Timothy May
Legacy institutions are trying to pull the wool over your eyes by getting you excited about them using blockchains. However, this is no different than a superior privatized form of SWIFT or ACH. With these systems, the question remains: who will watch the watchmen? Not the customer or the competitor. Nobody can watch these permissioned blockchains, and the ledgers are not decentralized in the least. Permissioned blockchains will never be distributed over time, and theoretically they fail from basic common sense.
Bitcoin has worked because of the miners you’ve never met, confirming transactions for an incentive — no more, no less. This incentive comes with the growth and securitization of the network. Banks will not provide this type of technology because they are too busy manipulating the masses, and their idea of the permissioned blockchain is an utter waste of time. Despite this, they will try to conform to the thinking of X-Gen’s and Millennials in their own way by perverting the ideas of distributed ledger technology until it’s no different than fractional reserve banking with shiny lights and buttons.
What do you think of permissioned blockchains? Let us know in the comments below!
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