Written by Silvio Micali, professor at MIT. Micali received the Turing Award for his work in cryptography in 2012. A great explanation of PoS and PoW.
A Massive Opportunity. Today, there is a massive opportunity to reboot the financial systems of the world. Data networks are faster than ever before: a message can travel around the globe in a fraction of a second for a negligible cost. However, money does not flow fast at all. A simple financial transaction can take days to clear and finalize. The process is expensive too: 5 trillion dollars are wasted every year to transaction fees of all types. And 2.2 billion people around the world lack access to modern financial services altogether: their transactions are simply too small to be profitable to banks. With the right technology, we can do better.
The Blockchain Promise. For a few years, developers and innovators have had a hunch that the right technology is the blockchain; that blockchains hold the key to a more efficient and more inclusive financial system.
In simple terms, a blockchain is a public ledger. It is a sequence of transactions organized in blocks, guaranteeing three fundamental properties:
Everybody can read every block, so the blocks become common knowledge.
Everybody can write a transaction in a future block.
No one can alter the transactions in a block or the order of the blocks.
So rather than having a hidden database kept by a central authority — as banks have — and rather than having transactions pass through layers of secret databases in order to clear, we could have a single, public ledger that can be read by everybody, in which everybody can write, but nobody can alter what has been written.
With these properties, a blockchain’s use is essentially unlimited. Indeed, blockchain technology could bring about a faster, cheaper, more secure, borderless economy.
An Apparent Trilemma. So far, blockchains have largely remained aspirational. Perhaps the best evidence of the aspirational nature of blockchains today is the famous blockchain trilemma. Sustained by the evidence of 2000 and counting blockchain projects so far, the trilemma essentially states that existing blockchains can offer at most two of the following three properties:
Indeed, there are no good options in the trilemma. Without decentralization, we remain in the financial system that already exists today: exclusive and secretive. Without security, blocks of transactions can vanish: a person who has delivered goods or services may discover that the payment received for those goods and services has vanished; debts may be erased; and the public ledger may be tampered with by adversaries to their own benefit...
This article was first published on medium.com.
Written by Silvio Micali.