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DLT Trust Engines: The Rules and Records of Blockchain and DLT

By Matthew Hine

One of the most important questions that can asked about a new technology is: What is this thing actually good for? This may seem obvious, but the emergence of every new technology is accompanied by innumerable false starts and dead ends created by trying to blindly force tech into applications where it provides little unique benefit, and developing the tech in directions that ignore its fundamental strengths and weaknesses. Having a clear-eyed answer to “what is this technology actually good for?” often provides a crystal ball into where a technology may find its most important applications, and how the technology itself may develop in the future. Nowhere is this kind of insight more valuable today than in DLT.

So what is DLT actually good for? Breaking down the important features of Bitcoin, and other more recent blockchain network types, will help answer that question.

Bitcoin: The Original DLT Network

Let’s start with DLT’s first instance, Bitcoin and its blockchain. Bitcoin demonstrated what many thought was impossible: creating digital cash on the open internet without any trusted counterparty.

Essentially, to create digital cash, everyone must trust that nobody else can freely create new cash, and everybody must trust that their own holdings of cash – and movements of cash between people – are secure. This is easy to do with a bank enforcing the rules, but nobody thought that it was possible to enforce scarcity of a purely digital commodity on the open internet. Bitcoin proved everybody wrong with the first iteration of blockchain technology (later expanding into the more general category of DLT).

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Without going into the mechanisms of how blockchain accomplishes this, the result is that everyone can trust that the rules of Bitcoin are followed (nobody may freely create new Bitcoins and movements of Bitcoin between people must operate as correctly as handing cash from person to person) and that there are immutable records of what has happened in accordance with those rules (Bitcoin moving from person to person, representing changes in holdings). The rules are enforced by the network protocol before anything can be recorded forever to the blockchain – which is ultimately a digital storehouse for the records.

This central piece of functionality – rules and records – is what DLT is actually good for. The breakthrough of DLT is in its power to support trustable, inviolable rules and records purely through the mathematics and logic of a specialized network protocol. This means a DLT network provides trust inherently, rather than – as typical in enterprise today – through a hugely complex system of specialized code, security measures, backups, access controls, and teams of people that must develop and maintain such a system. A DLT is an elegant, secure, and highly efficient “trust engine” that obsoletes expensive traditional approaches.

This central piece of functionality – rules and records – is what DLT is actually good for. The breakthrough of DLT is in its power to support trustable, inviolable rules and records purely through the mathematics and logic of a specialized network protocol. This means a DLT network provides trust inherently, rather than – as typical in enterprise today – through a hugely complex system of specialized code, security measures, backups, access controls, and teams of people that must develop and maintain such a system. A DLT is an elegant, secure, and highly efficient “trust engine” that obsoletes expensive traditional approaches.

A DLT “trust engine” provides two essential elements: rules and records.

  • The rules define what is correct behavior for the intended application and are rigorously enforced by the DLT’s network protocol.

  • The records are the verified results that abide by the rules and are thus accepted by the DLT network, creating an official source of truth that is secure, up to date, and auditable.

Smart Contract DLT Networks

Other DLTs expanded on Bitcoin’s original vision. Ethereum broadly introduced the concept of “smart contracts”. The fundamental insight behind smart contracts was that if Bitcoin had a fixed and specific set of rules (the rules of digital cash), why not let people define their own arbitrary rules to be enforced by the network protocol, with the results frozen as blockchain records just as Bitcoin transfers are? Suddenly a DLT network could serve more than one application; it could – in concept anyway – serve any application where rules and records are useful.

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This turns out to be rather a lot of applications. It can be as simple as user-created tokens (with rules closely paralleling those of Bitcoin’s digital cash) to digitally representing, tracking, logging, verifying, accounting, identifying, and managing just about anything. So we can see why there is boundless excitement about Ethereum and many, many other smart contract DLT platforms that continue to be introduced with the same basic concept.

There are significant shortcomings to this approach however. Now a developer has full responsibility for the correctness, reliability, and security of the rules, and that developer is typically forced to implement the rules in a highly specific smart contract programming language. This code is hard to develop and debug – and bugs can be catastrophic. Performance of application code running on a DLT consensus network is typically very poor.

In a way, smart contracts are the worst possible compromise: all the poor performance of DLT, but without the security of rules being integrated at the network consensus layer itself (like Bitcoin’s simple digital cash rules).

DLT Networks with Configurable Rules

There is another way however. Some DLT platforms offer a more structured approach to creating application rules that are enforced by the DLT. These platforms provide configurable DLT rules that are integrated at the network consensus layer for security and performance, but provide commonly needed features that fit logical patterns of DLT usage. Typical examples of these features are “multi-sig” (more than one party must approve of a transaction) or token creation (allowing users to set up digital cash-style tokens with their own preferences for name, supply, divisibility, mutability, etc.).

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Many more recent DLT networks have taken this approach, either as their exclusive method for creating on-DLT rules (such as NEM or Stellar) or combined with smart contract capabilities (such as Radix or EOS). Creators of these networks have taken the view that directly providing configurable DLT rules leads to more tractable development and improved performance and security by not forcing developers to build custom smart contracts for common functionality.

The Future of DLT Rules and Records

While single-use DLTs may find certain niches (notably store-of-value), the broader future of the technology is certainly in flexible, application-oriented DLTs. But once developers and businesses begin to really focus on what DLT trust engines are good for – rules and records – I anticipate that they will realize that little value is gained by pushing application logic fully into complex smart contracts, and hybrid public/private development patterns using more numerous structured configurable DLT platforms will become popular for real world application development. This is certainly the approach He3Labs has taken with our customers and with our own Threshold DLT system.