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 — 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 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.

Further reading

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.