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Ahead of ICO, Ternio defends company’s technology

Company claiming first blockchain with a million transactions per second has a million questions to answer

Data

Meaningless data in a stock photo (via Pixabay).

If there were a Rotten Tomatoes-like aggregator for top ICOs, Ternio would probably get a “91%.” They have a top team, third party verification of technology, and the impressive first-ever milestone of 1 million transactions per second.

They also have a serious problem convincing us that any of that is true.

When Ternio co-founder Daniel Gouldman hired security firm Null Bash to conducted a full audit of Ternio’s team, infrastructure, and code base, it was more than a party trick. Gouldman wanted the toughest outsiders possible to verify that Ternio’s Lexicon architecture could handle one million transactions per second (txns). Ternio is in the pre-sale stages of its ICO, so now would be the time to show eager ICO eyes what it can do. It will open to the public on June 1, 2018.

Watch it happen in real time. With the naked eye does it look like the data tessellates? As in one long sequence seems to repeat?

This would solve one of blockchain’s most persistent problems: scalability. “The verification report highlights the ability for Ternio’s blockchain to process more than one million transactions per second, fully decentralized and on-chain, making it the fastest blockchain in the world,” the company said on its website. Although this protocol could make consumer purchases almost instantaneous, Gouldman and his Atlanta-based team are setting their sights on advertising.

That was our first red flag. We ran it through a third party audit of our own and then asked Gouldman to answer some hard questions.

First, some background:

The global credit card companies can handle about 40,000 transactions/second. So why would they sit on some tech that could turn this upside down?

“There’s a saying in advertising that 50 percent of all advertising is wasted, the problem is they never know which 50 percent it is.” This gets even more difficult in the world of online advertising where bad actors and junk websites can hoover up resources. Gouldman maintains that if his company can fix that problem, they can one day shake up everything from medical services, banking, and even the way governments function.

Modern Consensus went on a deep dive of their whitepaper and available specs. We also took a page from the Ternio book and got an outside opinion. They were not so impressed. “In short: best queue software in the world can do 200k transactions per second per descent server. You can run 5 servers to get 1 mil,” our auditors wrote to us.

“Traditional blockchain ledger requires entire chain to be balanced and verified and secured. They worry about attacks, which costs in performance. It’s what makes blockchain a blockchain. Otherwise may as well use something else. So you get 120 transactions per second. And it’s built by the best minds. These guys are claiming 10,000 times that?”

“They are offering to be what used to be called a ‘business bus’. All parties post what they know about the ad transaction onto that bus. They are all given logins to do so (no outside parties). They are keeping all these messages for only 24h, which is the lowest payment level on Amazon. So I’m guessing they are using Amazon Kinesis for this ‘cause if you say you are offering transparency, 24h is not a sufficient amount of time to do so! (I’ve spent a lot of time doing projects for this industry). For the $49 million they are asking, they can buy at least the next level.”

“One can write this in a few months with a team of 5 and it will be, at best, the same as everything that’s out there now.”

Modern Consensus caught up with Gouldman by phone.

Modern Consensus: On your white paper, it says these messages are only going to last 24 hours. Our best guess is that this will put you in the Amazon Kinesis system. But if you say you are offering transparency, 24 hours is not a sufficient amount of time to do so.

Daniel Gouldman: “The data is always going to be available to everyone in the ecosystem. That part of the white paper is poorly communicated. The 24 hour period is only necessary for when we handle the payment. Payments reconciled on a 24-hour basis. And that is added into the blockchain. The data will still be available. What we’re really saying, poorly, in the whitepaper is that we are reconciling payments every 24 hours. Now we’re talking net-zero payments. We can show you how much money you made yesterday.”

MC: Blockchain’s biggest problem isn’t scale it’s adoption. We say this everyday: You don’t need to know why your credit card works, it just works. I think that you guys are just working backwards. Blockchain technology can fix a system like advertising, which everyone agrees is broken.

DG: “What we’re doing is a much faster version of Stellar. Our Lexicon framework could work in a public setting. But digital advertisers don’t want their competitors to know their private sale.

“The debate is between democratization and decentralization. I think they need to be separated and understood. Once people can grasp that it will be a more intellectually honest argument.”

MC: If the Ternio system could do anything, why start with advertising?

DG: “We’ve built a framework that is trying to solve what’s affecting multiple industries. Our scalable blockchain gives us the capability to do so. It could be financial software that Wells Fargo could put on top of our blockchain. Our first use case would be in the digital advertising space. There’s an ongoing problem there. Blockchain hasn’t been scalable before. In order to solve the problem you need scalable solution.”

MC: According to AdWeek, “Today, at least half of every dollar an advertiser spends is typically lost in the supply chain on middleware, mediation and fraud mitigation.” How can it possibly be that bad? That would be like if Amazon lost half of its packages.

DG: “Pharmaceutical companies spend 2 percent on their supply chain, Walmart maybe 5 percent of their cost is getting their products where they need to go, chemicals are highly regulated and have to be stored in certain ways so in that industry it’s about 10 percent. We’re working with all participants in the advertising supply chain. We are working on our first use case going live in late July.  The digital supply chain in advertising is 50 percent. As soon as they do an ad buy they don’t know where it goes after it leaves the DSP.”

MC: Hang on. I have to look that up. Oh. The Demand Side Platform (DSP) that ad buyers use to place their ads. So even a legit ad-buy has a huge waste. It’s the equivalent of Walmart losing half their inventory in shipping.

DG: “If it’s not a fraudulent website pretending to be one of those. We estimate that $18 billion is wasted this way through fraud. You can see the CMO of Proctor & Gamble talking about how it’s either blatantly incompetence or the people engaged in it are ripping them off. You’ve got the advertisers pushing the problem on the agencies. They want a solution. Every single advertiser is saying I want transparency in the marketplace. None of the solutions have solved the transparency issue. Money is being spent in a black box and existing technology cannot provide the level of transparency. That’s why they’re all talking about blockchain in the advertising space. But the one thing that has historically.”

MC: So there’s no mining in Ternio. And no synchronization between nodes. Data gets dumped by their clients and later processed by their payment “blockchain.” That’s not a blockchain where you receive, store and distribute it across nodes.

DG: “But it is a blockchain. They are synchronizing. It is 100 percent blockchain on chain. That is why we had a third party verification. A year from now I think what you’ll be asking is how can they be doing 10 million transaction/second. I don’t think it’s accurate to say the nodes don’t work in tandem. The byzantine fault tolerance algorithm, we’ve taken that and modified it asynchronous. We do all of them together at once. We don’t wait. Stellar does an asynchronous process with proof of stake.”

MC: “So this is the opposite of self-driving cars. Elon Musk will never get people to believe that self-driving cars are safer than human-piloted ones as long as there is a single self-driving accident in the news. But you chose advertising because any improvement at all would be revolutionary.”

DG: “The lightbulb was not an incremental innovation on the candle. Email isn’t an incremental innovation over the post office. There are somethings many times over that have been a leap in technological potential. And that’s because it is going a different route. There is a very well respected company (under NDA) that has tested a blockchain solution at a small scale. Their internal reporting was 20 percent improvement. It comes down to can you find a blockchain that can scale. If you can only handle 100,000 transactions/second [it’s not good enough]. The larger DSPs do about 10 million per second. They are the first point of entry into the system. Here’s our creative, here’s our targeting. There are some that do four or five [million transactions/second]. If you did get all the business you are talking about 10 mil transactions to scale it.”

MC: This is cute in a lab setting. But I’m guessing that 1 million txns would melt your average Ethereum miner. But I did hear that IBM is actively working on it.

DG: “We forked off of hyperledger, that’s partially why there’s so much interest from the IBM folks. We took that open source where we could from a consensus model. The participating nodes have to be approved. It’s gotta be a system that can handle terabytes of data. Any major large company, whether it’s Coca Cola or Pepsi—It could be anyone who has an RPM agency out of Chicago, so they could be part of the solution. Basically by having all these nodes and participants will allow for us to have that speedy network.”

MC: So what you’re proposing has a decentralized structure, but it is made to be a proprietary software. Coca Cola or Bank of America (examples) could run their own servers, but they would have to be approved by you. This is, coincidentally, the plotline on Silicon Valley.

DG: “It’s down to the thousandths of a cent. If they’re saving 20 percent on a billion [dollars] and they have to spend a few thousand on servers, these companies don’t care. There isn’t a need for an incentivization [e.g. outside miners]. They’re going to save a lot more money.”

MC: Alright, then let’s have some transparency on that audit.

DG: “The two main portions of the audit were 1) security, and the second was 2) [whether] we maintain a decentralized state. And the auditor verified that we used over 1 million transactions in a second. We have experts from HP, U.S. military, NSA, Oracle, Sysco, Bank of America, MIT, Lexis Nexis.”

MC: But I can’t even take a peek at your code on Github.

DG: “We don’t have a Github, we view it as proprietary software.”

MC: Who’s getting a piece of your ICO?

DG: “We’re only selling 49 percent. Our founding team gets 15 percent, founding developers 5 percent, advisors 3 percent, reserve fund 15 percent, strategic partnerships 13 percent. There have been some major funds we’re in discussion with about purchasing our tokens.”

MC: I couldn’t imagine something like this three years ago. But where will this project be three years from now?

DG” “The fact that we’re scalable is going to change everything. We can scale an Ethereum-based product. Right now we have a Build-a-Bear workshop—it works in the industry it it supposed to work in. We can take that same architecture and use it in the public way. Not every solution requires a scalable blockchain. We believe we will be working with the largest funds in the world. We see Ternio becoming the Amazon of blockchain. We’re purposefully starting with something that isn’t very sexy. Amazon started with books and proved they could reliable scale. But we can make our mark, build those relationships, make a lot of money and expand on that.”

MC: A lot of bankers are shivering in their Hush Puppies about cryptocurrency. But you’re offering them a liferaft. They can run your software. But why would they?

DG: “We are a trillion dollar solution. We have spoken to some of the largest banks about our technology. They’re actively looking at blockchain. If you can prove it in programmatic then you can do it anywhere else. We think there will be major banks. One of the most well-known technology companies in the world had a schematic on how they view the world. They see putting everything they do on top of our architecture. They see everything sitting on top of us.”

MC: Does this have a government scale?

DG: “We’re already in conversation with the UAE government. They very much believe in participating in a public private venture. They want to go all on blockchain. They can save $3 billion a year. I can tell you, working with the UAE, that their day-to-day accounting it’s not impossible to say that we can handle an entire country’s government. They have a 100-year plan. They want to be seen as the world’s best run country. I think other governments that aren’t as progressive are going to end up seeing the light and adopting blockchain.”

MC: If you could reboot the U.S. government on your system, what would you do?

DG: “We would want to make everything work on blockchain. Everything from voting to simple management of records. The UAE thinks they save $5 billion. how is the U.S. not going to save a trillion?”

MC: A phrase I keep hearing it, ‘You’ll know that blockchain works when you don’t have to know how it works.’ Like, your grandma doesn’t have to know how her debit card works, it just works.

DG: “It works in advertising because we made it simple. There are going to be many products this year by many blockchain companies that are going to have really easy to use systems that are seamless in the background. When will the U.S. government vote on blockchain? It’s when there’s an adoption by a state. Unlike things that are partisan, I can see both a state as liberal as Maryland adopt it and in the same year, Wyoming. It is not unrealistic that as quickly as things are moving: in the next five years, I would bet there will be a state that will have passed blockchain-based voting.”

MC: Can you fix healthcare next?

“That is not my expertise. We know that will health records. There are very few things that are so careful. You can imagine a world where all of your records are on the blockchain. It’s easy to maintain.”

MC: But how can you handle privacy?

“The intention is to give the power back to us as individuals. GDPR [General Data Protection Regulation] standards. It can be that balance of providing information and maintaining their privacy. We don’t keep anybody’s records or anybody’s personal information on the blockchain. You can do a public/private key. You have a law saying people have to be able to delete their information. You can’t record somebody’s Social [Security number], name, and phone number. You can’t put that on the blockchain in an advertising space because it will never be deleted. GDPR says that you should always be able to delete it. There are solutions that will solve those problems. One of those solutions is not to hold the data.”

 

After a series of email exchanges (for instance, we asked if they’re using Amazon Kinesis because it matches their 24-hour timeframe), we received the following email from Ternio’s CTO, Bryant Maroney:

“I think there was a fundamental misunderstanding somewhere down the line.  The questions seem to come from a predefined notion.

“Ternio is a blockchain/cryptography company.  We have 2 key products at the moment: Lexicon, and the Ternio Advertising Framework.  Lexicon is a decentralized transactional blockchain (no crypto attached) with the flexibility for configuration.  It was originally a fork off of the Hyperledger Fabric blockchain and utilizes a custom asynchronous BFT (Byzantine Fault Tolerance) algorithm.  In no way is Lexicon a distributed database or Ledger entry system.  If that was the case it would be much easier to use something like Datomic and call it a day.

“Obviously there are questions that I just cannot openly disclose to you since we are not open-source, have proprietary infrastructure and code-based, and our patent’s have no cleared yet.  However, you are welcome to go through the Hyperledger Fabric readme docs to gain an understanding of the infrastructure on a basic level: https://hyperledger-fabric.readthedocs.io/en/release-1.1/

“From our website (this is small snippet but a lot of info that may be used to you is on the main site):”

The reality is that a single blockchain ledger cannot hold all of the world’s data and still be fully decentralized. This is not the case today, and will not be the case in the future. Trillions of data-points and terrabytes or data per second is not a feasible or reliable solution. Even right now in this day and age, there are various different kinds of blockchain frameworks all serving a different purpose with no single blockchain carrying a significant amount of transactions in any industry. Ternio created Lexicon; the first and only fully scalable and verified blockchain to be able to meet the needs of any type of scenario or use-case. By allowing different industries and use-cases to be able to run a simple to setup blockchain based on their needs, adoption and complete decentralization of data across all mediums is not a decade away but a few years.

“Lexicon has the flexibility to be able to run within both a permissioned and open environment based on the use-case while still holding to a complete decentralized state for both large and small companies alike. By having a flexible core, the creator is able to state the environment and node configuration of the blockchain.

“Ternio Advertising Framework is a blockchain framework utilizing Lexicon blockchain, Stellar blockchain, and a communication layer for the integration of RTB.

“Referring to the 24hr schedule within the Ternio Advertising Framework, this is for the purposes of reconciliation of payments through the Stellar blockchain which is the payment protocol.

“None of our services run off of AWS specific products, or are inhibited by AWS services/pricing.  Our testnet for example was run on AWS, GCE, Digital Ocean, and Packet.net.

“As far as the payment protocol and the Stellar blockchain: the transactions are reconciled from the Lexicon blockchain ledger for each participant.  Example: an agency pays us in advance, based on the Lexicon blockchain ledger we reconcile what is owed to each participant and contracts are created through the Stellar blockchain.  On a side note – I would love to have a system in which everyone in the advertising supply chain for example is paid out immediately based for transactions.  However, there are of course a number of factors involved here – one such as what kind of business can really handle or grasp millions of micro transactions?  Sometimes you have to crawl > walk > run in order to progress and industry.

“In terms of mining, what you are talking about is a specific kind of consensus algorithm which is called proof-of-work or “PoW”.  This algorithm has its advantages and disadvantages.  Obviously the biggest disadvantage is that you need specialized equipment and the faster machines win – causing centralization.  Example: if a single nation offers cheap power, high bandwidth/direct pipes, and low scrutiny on activities.  With this example, you could have China controlling all consensus for the entire world.

“In terms of Lexicon’s consensus algorithm, this is explain above.  Stellar has a whitepaper on their consensus algorithm in which you can read/watch here:  https://www.stellar.org/developers/guides/concepts/scp.html

“I think you are fundamentally misunderstanding the difference between a permissioned and open blockchain.  For reasons of data security in terms of competitor intelligence and information in a B2B environment it is essentially that there is a reasonable amount of information not available to competitors or a general public.

“I’m really not sure the reason for the poor language or how we could have anything handed to us.  Nor am I sure why there is a reason for aggression. No data is stored in a centralized state directly by us.”

 

Brendan Sullivan is a writer, producer, and author of the memoir Rivington Was Ours: Lady Gaga, the Lower East Side, and the Prime of Our Lives. Disclosure: he owns cryptocurrencies. Follow him on Twitter.