Blockchain

What is it

A blockchain is a distributed record of information — transactions, contracts, whatever — stored across an interconnected network. Each transaction is approved by the whole a network: Each batch of transactions—a “block”—gets a cryptographic code which is posted to every computer in the network. You can’t futz with any transaction unless you can futz with the whole network. Once written, the blocks are, therefore, permanent. Blocks are linked into a public “chain” of approved transactions that cannot be edited.

Blockchain therefore allows parties who don’t trust each other to transact in confidence. What’s done is done — what’s on the blockchain cannot be reversed. There’s a permanent record. No one controls the market. It’s truly anarchic, like, man: no government. No mendacious banks. just pure, untrammeled laissez-faire. Thus, bitcoin — a currency without the backing of the full faith and credit of a sovereign state.

This makes loads of sense to a tech guy. It makes almost none to a banker.

So how — ?

Because some bankers got a bit giddy - and some techo-unabomber types, but they were kind of giddy in the first place. Blythe Masters - she who invented the credit default swap^[1] — thought it was so profound that she joined a startup in 2015. And folks listen to Blythe — why wouldn’t you?

The FT reports that as long ago as 2016 Gartner put blockchain near the top of its “peak inflated expectations” curve.

Is it — you know ...?

In a nutshell, yes.

You’ll see a lot of hyperbolic nonsense about blockchain, and this Medium article by Kai Stinchcombe is a pretty good antidote. In short – the benefits of blockchain are mainly predicated on idealistic values and dystopian paranoias:

That you can’t trust anyone
That all intermediaries do is rip everyone off and gum up the system (and you can’t trust then either)

Blockchain solves those problems but, by design, creates a wodge of other ones:

It’s expensive, it’s slow and it consumes a ton of energy;
Transactions are permanent and irrevocable
There’s no mechanism to correct errors
There's no — ahem — trusted intermediary who can dab the breaks, nudge the steering wheel, pursue fraudsters or help enforce contracts (purist blockchain ideology assumes contracts can be and users will want them to be enforced “by code”). The bank of Canada put it succinctly: at “its heart, there exists a fundamental inconsistency or tension between a centralised wholesale interbank payment system, as we have now, and the decentralisation inherent in the DLT”
There’s no value that a trusted intermediary can add to the system: it’s caveat emptor, user pays, entirely at owner’s risk. A uber-libertarian's wet dream in other words. Great if you're holed up in a cabin in the woods with ammo and canned spam, a Spartan outlook for the rest of us who are prepared to live with a bit of benign intrusion so our GPS works okay. In other words, pure blockchain demands a tradeoff most pragmatic people aren’t prepared to make.

If you adulterate blockchain to correct for its nasty, brutish shortness — if, in other words, you overlay trusted intermediaries, fail-safes, benign enforcement and monitoring — then:

you’ve imported back in all the problems you thought you were trying to solve and
existing systems already do all of this stuff more quickly, reliably, cheaply and at greater volume than a blockchain could reasonably handle.

So — whither the use case, dudes?

Is it the same as distributed ledger technology?

Because that's okay, right? No - it is the same

References

↑ I know what you’re thinking. The Midas touch!

[1] I know what you’re thinking. The Midas touch!

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