Decentralized vs Distributed Systems Part I

Blockchain per se is not about decentralization; rather, it is a distributed system technology. The two terms, decentralized system and distributed system, are often confused, so much so that the term ‘blockchain’ seems almost synonymous with a public, decentralized system.

The usual picture used to show the distinction between decentralized versus distributed systems is the one below:

This picture is inadequate since it doesn’t draw a clear distinction between decentralized and distributed systems. The differences in the pictures are rather arbitrary. A slight re-arrangement of the layout of the nodes might convert a decentralized picture to a distributed one or vice-versa.

Decentralization should be rightly used in the context of decision-making, power, authority, and control. Distributed systems are about geographical diversification of storage or processing. The terms ‘centralization’ and ‘decentralization’ come with the baggage of value judgment and philosophy, while the phrase ‘distributed systems’ has a purely technical connotation.

Centralization is about power, control, authority, accountability, and risk management. Distributed systems are about partitioning, dispersing, or part ownership of storage or computational capacity.

All decentralized systems are distributed practically by definition. However, not all distributed systems are decentralized. Enterprise systems at large companies can be distributed, but the company holds all power and decision-making centrally.

The other point to note is that centralization is not automatically evil and decentralization is not automatically good. It depends on the context and the way an application is implemented.

Similarly, distributed systems are not automatically efficient. Poor architectural choices may provide none of the benefits of distributed systems and may increase vulnerabilities.

Centralization becomes a problem only if participants have an incentive to take unfair advantage and the system—by whatever name we call it—allows such manipulation. We also have to recognize that not all problems can be solved through technology alone. If that were true, there would be no need for partnerships, service-level agreements, intermediaries, and so on. So, the real challenge is to create an architecture that leverages technology in a cost-effective way while delegating the rest of the problems to the human institutions or social networks.

In a subsequent post, I’ll point to different ways of understanding the nuances between the two, including references from both the public blockchain and academic communities. I’ll also discuss the challenges of designing incentives in decentralized and distributed systems.


Joining Hyperledger to Revolutionize Tokenization of Private Securities Globally

We are thrilled to announce our membership in the Hyperledger Project. This was a carefully thought-out decision, but given the nature of our business, a fairly easy one to make.

Our roots are in providing managed compliance-related services to private companies globally. Building on this experience and success, we are well into executing on our vision of revolutionizing the tokenization of private securities. The revolutionary nature of our journey is in providing an environment for security tokens that ensures full compliance, safety, and complete lifecycle management. Investor protection has always been our unrelenting focus. We look to the business requirements to drive the selection, design, and deployment of technology.

Hyperledger, with its roots in the Linux Foundation and Apache culture, gives us access to a community of dedicated practitioners and researchers in technology. Fabric, in common with the other Hyperledger projects, is all about enterprise-class applications. Anything involving money had better be serious business.

One of the most critical aspects of finance is the safety and security of transactions. Legitimate participants in the financial markets may be frustrated by the inefficiencies of regulation, but they welcome the protections offered by such regulation. Fabric chose not to create its own native cryptocurrency. This avoids the dependence on crypto-mining and its attendant issues of fraud, forking, fictitious participants, and losses. By avoiding commingling of payment mechanisms (which include legitimate cryptocurrencies) with securities instruments, we can keep our economics clean. We can also avoid confusing currency regulation with that of securities regulation.

The architecture of Fabric includes several characteristics that are highly-desirable for financial transactions: modularity, performance, scalability, and security. It also helps that many financial institutions have adopted Fabric and over 400 applications are in development on it. All this is certainly a confidence-booster.

In a series of posts, I’ll cover the various aspects of Fabric, the philosophy behind the KoreToken protocol, and how KoreChain’s business functionality fits into this solid foundation.

Introducing the KoreChain

The KoreChain is the first blockchain on a serious industrial-strength infrastructure that is focused exclusively on the complex world of global financial securities. The KoreChain is a permissioned Hyperledger Fabric blockchain. This gives it the native advantage of Fabric, a blockchain platform that has been engineered from the ground up for handling enterprise-class applications. KoreChain is implemented on IBM’s hosting platform since it provides the highest level of security as define by the US National Institute for Standards and Technology.

In electing Hyperledger Fabric to be the foundational blockchain infrastructure for KoreChain rather than Ethereum, we made a clear commitment to good engineering, enterprise-class architecture, and implementation with well-established tools rather than new and untested programming environments.

Hyperledger Fabric Strengthens KoreChain

The following benefits of Fabric come to us practically out of the box:

  1. Membership and access-rights management: The securities world has many complicated rules about data privacy, KYC, AML, need-to-know, etc. Some of these vary by region or by exemption rules. In addition to regulatory constraints, the platform also has to accommodate privacy conditions of participants in various transactions. Fabric provides this flexibility through channels.
  1. High levels of performance and scalability: Securities transactions are more complicated than point-of-sale authentication and authorization. While all securities transactions don’t require response and completion within seconds (as, for example, in trading), the sheer volume of multiple transactions and subsidiary events in capital markets requires a robust infrastructure that can stand up to spikes and also support secondary trading.
  2. Security and safety: The combination of Hyperledger Fabric and the hosting infrastructure at IBM provide a protected environment that includes end-to-end cryptography and the highest level of security defined by the US National Institute of Standards and Technology (NIST), the level 4 of FIPS 140-2, that includes, for example, Hardware Security Modules.

KoreChain’s Specialized Capabilities

In addition to these, KoreChain provides a number of specialized capabilities such as several layers of artificial intelligence, event management, and transaction management for securities.

All this makes the KoreChain an industrial-strength engine for KoreContracts, which are true smart contracts for financial services. One special category of KoreContracts is the  KoreTokenContract, which is the fundamental template for KoreTokens. The KoreChain is carefully designed to ensure a safe and secure environment for security tokens and their management throughout their entire lifecycle, including provision for various corporate actions.

More on these exciting developments in subsequent blogs and articles!
Please see the following introductory Executive KoreBriefing on What is KoreChain?
We will release the detailed technical whitepaper shortly.