There are many myths circulating about the Bitcoin Blockchain, most of them propagated by people that assume too much and make rapid judgments without really knowing…
Pretty normal you might think for an emerging disruptive technology to provoke such extreme reactions and opinions. It is obvious that some don’t want Blockchain to succeed and that others are still scared of it, looking only to defend themselves. And then there are the opportunists looking to make money from Blockchain by pretending they have the answers, even though 6 months ago they couldn’t spell Blockchain.
So here are some of the common myths you will hear and read about Blockchain…
The Blockchain (ledger) itself is not immutable. It is a myth. Immutability in fact comes from the expenditure of effort (in this case power and computing resources) relating to the Proof of Work algorithm where the difficulty increases and number of Bitcoin rewards for Miners reduces every 4 years. Currently 12.5. The ultimate visible Proof of Work example is the Pyramids in Egypt, which took decades to complete and those that took on the project had to feed and water hundreds of thousands of people that in turn moved mountains. Therefore demonstrating Proof of Work completeness encompassing extreme difficulty and expenditure of resources.
Miners expend not only huge effort and resources, they also invest significant amounts of capital in Mining equipment to mine the mainstream crypto-currencies. This is very different to the Proof of Stake investment/vested approach. Miners make the investment in computing and electrical power to solve the increasingly challenging (difficult) PoW algorithm (SHA256) to try to get a match, called Hashing. This is used to verify transactions and enable a new Block to be written on (taking 10 minutes) for which they get a reward. It is a race and mining power has a direct impact on the result.
TWO: Smart Contracts are Smart and they are Legal documents – WRONG again
Smart Contracts are dumb. They are not contracts at all. They are scripts as software code that are deployed onto the Blockchain at a particular address (data store) that follow simply instructions normally triggered events, e.g. IF, THEN statements. They are normally written as a transaction instruction and rely on the Computational Capabilities of the Ethereum Blockchain.
Smart Contracts eliminate the need for individuals to handle time consuming and costly business processes. They are autonomous and once loaded cannot be stopped or altered. Like a virus they can operate alone (autonomously) or in conjunction with other Smart Contracts, Data Stores as Oracles and interoperate with other legacy systems.
Smart Contracts are not contracts in any legal sense, nor will legal contracts be part of Smart Contracts. But they are capable of executing terms (as instructions) that may reside in an agreement between parties, to make a payment or move entitlement/ownership and transfer funds. They form part of the business logic layer that links nicely with the process logic to form what become unintelligent groups of transactions.
Smart Contracts are emerging and the development and deployment is very complex. They are vulnerable to attacks/hacks and they are where most of the recent problems such as the DAO have been. Smart Contracts carry transaction instructions and become layers and groups of Smart Contracts that work together to form a new generation of Decentralised applications or Dapps.
Smart Contracts along with Keys (Public and Private digital fingerprints) play an increasing important role in the design of Blockchain Operating Models where core business processes are automated using embedded Smart Contracts. They are eventually embedded as firmware into physical things in an IoT world, with everything written to a ledger of Everything. Smart Contracts is the business logic layer that directs the transaction traffic between the participants.