|The JC pontificates about technology |
An occasional series.
A blockchain is a distributed record of information — transactions, contracts, whatever — stored across a network. Each “block” of information gets its own cryptographic code which is posted to every node on the network. Thus, you can’t futz with any information on the blockchain unless you can futz with the whole network, which is like boiling the ocean. Once written, the blocks are, therefore, effectively permanent.
Blockchain 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 it: it’s truly anarchic, like: no government. No mendacious middlemen like banks. just pure, untrammelled laissez-faire.
Thus, bitcoin — a currency without the backing of anyone. It just bootstraps itself into existence like a skyhook. This makes loads of sense to a tech guy. It makes none to a banker. (But you would say that, banker dude).
So how — ?
Because some folks got a bit giddy—and some techno-Unabomber types, but they were kind of giddy in the first place. Blythe Masters — she who invented the credit default swap — 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 ...?
Snake oil? 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 them 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, but a fairly Spartan outlook for those 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 trade-off most pragmatic people aren’t prepared to make.
Now 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.
The most fun and, frankly, brazen attempt to correct these shortcomings by undermining the whole idea completely is surely blockchain as a service. No, I'm not making that up.
So — again, whither the use case, dudes?
STOP PRESS + + + STOP PRESS + + + STOP PRESS + + +
We have a new report of a valid usecase, by that super-innovative futurologist Lex Luthor at Luthor Capital [it’s Greensill isn’t it? — Ed]:
[Editor’s note: unfortunately Oracle has pulled its video “the future of working capital management?”, by that working capital supremo Lex Greensill off their site for some reason.]
The sovereign individual
It's not all bad: the underlying model, like the internet - provides for a radical new way of organising affairs where data is not centralised, but kept at the edges and in the hands of the users. If the user has her own digital wallet with credentialised data, this can be passed, encrypted, only where and when required, to intemediaries. The intermediaries wouldn't be able to keep it, or harvest it, or sell it, and it would be less susceptible to being hacked (instead of hacking VISA's website and getting personal data of 400 million people in one go, you'd need to hack 400m people's individual wallets. Not impossible to hack a wallet but, but the value is in the aggregated data, not individual files, so the incentives are wildly out of whack.
It also passes the responsibility for keeping that data up-to-date to its owner, and it only has to be done once.
- Firstly, intermediaries who buy and sell your data will HATE this, since them collecting your data is extremely valuable to them. Don't expect to see Google or Amazon or Facebook promoting digital wallets any time soon. BUT for the person who does, and makes the case, a monopoly busting disruptive business model awaits.
- Secondly, which digital wallet? What if there is more than one? what if you lose your key? What will the poor meatsack do then? Does anyone even care about the meatsack any more?
- Thirdly, and what does this say about the distrinction between our online persona and our fleshly existence? Is this first step to synthesising our mortal frames into a virtual existence? Is this the trick we're missing? The robots are not going to turn into us, but we are going to turn into the machines?
Oh the irony.
Is it the same as distributed ledger technology?
Because DLT is okay, right?
Maybe. According to the excellent Deloittes report, think of DLT as the generic problem to be solved; a blockchain is a way of solving it; the blockchain is the particular blockchain underpinning bitcoin.
And bitcoin? Bitcoin is catnip for stupids.
If you want the case for blockchain, just google blockchain or even talk to any poseur or charlatan in any industry who is trying to sell you something. They’ll talk your ear off.
If you want to hear the case against, there's a bit more work to do. So the jolly contrarian is gathering some links for you.
- The daddy: Kai Stinchcombe's Medium takedown.
- Deloitte’s report: Bitcoin, Blockchain, and Distributed Ledgers
- The atlantic: Derek Thompson in the Atlantic - Blockchain silly season: “Bitcoin might be where Pets.com was in 2000—a technological curiosity in search of an enduring business need. But blockchain is not where the internet was in 2000. Even blockchain’s biggest defenders can’t say what the technology’s most obvious consumer use-cases are going to be, because they plainly don’t exist yet. It is possible they never will.”
- Cointelegraph: Cointelegraph on how 92% of the blockchain-related projects on GitHub are now dead.
- Izzy Kaminska in the Pink ’Un: Everyone's getting skeptical about the blockchain hype.
- Stephen Norman: The emperor has no clothes.
- The Germans: Aaaaaand here's Jens Weiderman of the Bundesbank
- I know what you’re thinking. The Midas touch!
- Update: in December 2018 Masters stepped down from Digital Asset Platform to spend more time with her giraffes, or whatever Masters of the Universe do, I guess. “Blythe Masters is stepping down as chief executive of Digital Asset Holdings due to personal reasons, the company said. Masters was not available for further comment.”