Three months ago, I stumbled upon a new trustless architecture, Holochain. At first, their goals seemed almost impossible, intrigued I dug deeper. After initial green paper reading, I was rapt, reading through expert reviews of their code cemented this curiosity. Naturally, i kept digging and the light bulb moment came when reading the co-founders personal blog, I realised they may have actually found a solution to solve current centralised problems, problems Bitcoin has been trying to solve.
To explain this solution, we should understand how revolutionary technology develops. At its evolutionary core; technology is a designed derivative of natures fundamental concepts, combined with humans foremost survival mechanism; our ability to communicate effectively.
Grasping this concept further, we first look back on our communication history. Where language birthed culture & hunter-gatherer tribes. Writing established the agriculture-age, in turn forging kingdoms. Printing brought on the industrial-age along with nations & economics and birth of the internet restructured society, constrained only by computing technologies designed for centralised control.
Secondly at a natural design level, we look at a crossover between how systems in biology and the real world scale. Take cells for example, each have an instruction set (DNA), rather than a recorded state of every cell. Likewise, speakers of a language each know a languages underlying rules to construct sentences as needed, there is no enormous sized ledger containing every sentence that has ever been spoken.
Combining these two elements allows us to construct a collective intelligence, ‘what you need to distribute is reliable processing according to rules that have been reached by consensus.’ Not try institute consensus across all data. From the process, the data output can be used to certify the processing integrity, instead of being the platform for executing the process.
Starting with a validated process copy, you can then proceed authoritatively, trusting your code to implement the rules, producing a valid output, without waiting for the whole network to approve, authenticate, and amend itself with your state.
What is Holochain?
Holochain, provides a self-evolving fully distributed framework, free of any central authority. At its foundation, Holochain distributes a consensus on how to “speak.” Whereas Blockchain manages a consensus on what was “said.”
The key innovation behind this new consensus design is based on a double entry crypto-accounting system, built into distributed applications running on Holochain architecture. Each user has their own ledger, a signed hash chain, tracking all transactions of the applications native currency (Holo) with distributed hash tables.
Where the system will always have a net native currency of zero but each individual ledger within the system will have either a negative or positive balance, all individual ledgers will add up to reach this zero-net; a mutual credit system.
Establishing this accounting system requires that every node runs its own validation rules to process consensus among participants. Where corrupted files are bypassed by only allowing ‘terms of service’ agreeing participants to write to a shared space.
In this sense, Holochain follows a user-centric approach to allow for efficient scalability without heavy resource use, all whilst maintaining a fully distributed network. Essentially Holochain allows users to own their own data, control their identity and only connect with applications that suit their needs. All without centralised systems monitoring their information.
Payment Flow of Holo, Holo Green Paper.
Why is it needed?
Currently the problem with existing blockchain based systems like Bitcoin is they ‘require global consensus for local actions by independent agents, require agreement on a single shared ledger’, are data-centric rather than user-centric and require a global ledger with each copy having to be the same.
Given, all these elements provide important features that allow blockchain networks to function properly. They also create significant losses to scalability through intrinsic resource & hardware costs. Where currently Bitcoin mining costs 71.12TWh yearly, more than yearly energy consumption of over 160 countries. If Bitcoin were a country it would be the 39th largest in the world, by energy consumption.
Adding to this, bandwidth and processing requirements for the Bitcoin network limit transactions per second to just seven (pre-sharding and pre-lightening network). Using VISA as the common benchmark, with 10,000 transactions per second at its peak, implies that Bitcoin just isn’t scalable to meet current let alone future demand. Sure, we could counter-argue this with the store of value theory but it still doesn’t take away from the intrinsic energy & hardware costs.
Another problem is mining & governance centralisation, specifically with Proof-of-Work consensus protocols. In Bitcoins case, 72.7% of hashrate is owned by five miners, 71-75% is mined in China (cheap electricity) and all run on amazon web services. The problem with this setup, is that any of these five pools, the Chinese government or AWS can significantly influence the Bitcoin network. Keyword being can.
Of note; from observation of wallet addresses at bitinfocharts.com. Just days prior to the market correction at the start of this year, only 11 wallets collectively moved 764,703 bitcoins from their wallets elsewhere, all within a 24 hour time frame. Is there a correlation?
Bitcoin Distribution, 15th of June 2018, Bitinfocharts.
Largest Bitcoin wallet in the world as of March 12, 2018, Bitinfocharts
To fix these problems, Holochain uses four core principles; 1. Scalable Applications 2. Hosting P2P Apps for Mainstream Users 3. Double entry Crypto-accounting & 4. Leveraging excess capacity using sharing economy principles.
- Tech innovation: Scalable Applications
‘Think of Holochain like Git repositories for each agent which can be published, shared, synchronised or merged via a BitTorrent-like DHT (Distributed Hash Table).’
- Tech innovation: Hosting P2P Apps for Mainstream Users
Combines cryptocurrency incentives & hosting with the ability to bridge into existing internet architectures.
Comparison Between Three Current Centralised Cloud Hosting Options, Holo Green Paper
- Currency Innovation: Double entry Crypto-accounting
Currency design for the Holo ecosystem had several challenging criteria to benchmark against;
- High TPS, in the millions.
- Significantly cheaper computing cycles and fees than traditional trustless architecture costs.
- Must optimise the market value of its units to cost of the hosting, thereby producing a steady stable trajectory.
The problems were addressed by instituting crypto-accounting where the assets are backed by hosting.
Differences Between Cryptocurrencies and Holo Fuel, Holo Green Paper
Therefore Holo is based on a mutual credit accounting system, ‘every transaction is countersigned on local chains of both counterparties.’
Holo acts similar to double entry accounting whereby the internal crypto-accounting operates like a balance sheet. Each transaction balances the sheet, meaning the sum of all balances will equal zero. In this way the currency supply has two ways to breathe, by offering small and large credit limits. Both with inherent conditions holding them accountable.
Critically, Holofuel is value stable via the backing of a vital modern asset, computing power. Hosts set their own prices. And given the fundamentals of supply & demand, average prices will move towards a global median.
Selective automation by Holo governance allows for resilience built into the design.
Governance comparison, Holo Green Paper
- Business model innovation: Leveraging excess capacity using sharing economic principles
- Holo requires significantly less physical infrastructure and capital investment to compete against existing cloud hosting companies.
- Whilst solving critical design floors in the current crypto sphere, including scalable decentralised applications, decentralised storage and secure decentralised identity.
- Focusing on active circulation over HODLing and hoping for a future market cap increase, where ‘revenue is tied to transaction fees, rather than outside trading value of a token.’
In summation, Holochain offers a new way of looking at trustless architecture, having the potential to revolutionise the already revolutionised digital asset movement. Implementing key design protocols & algorithms and focusing on a user-centric approach over a traditional data-centric method. In doing so, ‘the Holo crypto-accounting system surpasses the efficiency limitations of similar systems.’
Please use this information wisely and respect it as you would your own. Outsider Knowledge and its constituents do not by any means encourage or persuade the investment/purchase or trade of cryptocurrency of any form and is not liable for any financial gains/losses that may occur in the cryptocurrency economy or World Economy.
As an investment class, cryptocurrencies are speculative investments and investing in cryptocurrencies involves significant risks – they are highly volatile, vulnerable to hacking and capital loss and sensitive to secondary activity.
Historic performance is no guarantee of future returns. By reading this valuation Outsider Knowledge and its constituents are free from any liability, including financial responsibility for personal decisions associated with personal finance. Before investing you should obtain advice and decide whether the potential return outweighs the risks.
The ideas and opinions discussed here will change over time as greater knowledge is accumulated.