The word “blockchain” has been thrown around over the last few years, promising to ‘solve all the world’s problems’. These promises have revolved around some sort of guarantee of security and permanence for digital assets such as cryptocurrency on a shared ledger.
The idea of removing intermediaries or ‘the middle man’ so that transactions can occur directly between buyer and seller is inherently alluring. But, this “blockchain” word, which is usually used by groups and individuals who want to raise ridiculous non-dilutive capital rounds (as with ICOs over the last few years) and recently by corporates who are late to the party wanting to sound ‘hip’ (so they can raise more capital), is completely misunderstood.
Blockchain’s broken promise
Blockchain is not all that it was promised, no matter how much these corporates dress it up. The blockchain on its own does NOT give you any form of security and permanence if it must be run by some ‘trusted’ institution, or if you remove elements from it like proof of work or economic incentives. Why would there be any reason to use a blockchain, which is supposed to remove ‘the middle man’, if someone is managing it? This just reinforces its inherent uselessness.
The zero to one moment, the creation of a network that achieves consensus (agreement by all parties) and is able to operate in an open, truly decentralized manner and that disintermediates the third parties is already here. In fact, it was launched in 2009 by Satoshi Nakamoto.
Immutability and security
Blockchain without proof of work, economics and game theory is just a glorified database. It’s like baking a cake with only one ingredient, like eggs. You don’t get a cake, you get scrambled eggs.
Immutability and security are functions of cost. The cost comes from securing the network via a probabilistically sound mechanism that combines proof of work and economic incentives and disincentives.
Bitcoin, as well as having a unique database architecture (that one might describe as blocks of data chained together) is secure & immutable because it has a currency baked into the protocol. This currency is priced by the free market and its value is inextricably linked to the security of the network by incentivizing each of the participants of the network economically to act in the interest of the commons whilst operating in their own self interest – whether they’re validators, judges or users.
Decentralised consensus: Getting rid of ‘the middle man’
One of the main arguments for using blockchain is to omit the central party in the transaction process. But if the network is run by a consortium, or even a set of node operators who know each other, it makes the use of a blockchain completely redundant.
If you’re looking to run some distributed ledger, amongst associated parties or nodes; then that’s fine – but that’s not blockchain in the way people try and conflate it or use it to describe something like Bitcoin.
Bitcoin’s unique recipe, design and its immaculate conception were a once-in-a-lifetime opportunity to create an autonomous network, made up of participants at multiple layers, all with skin in the game, all with the ability to opt in & opt out freely.
So, the verdict?
Bitcoin is NOT a payments mechanism, or a “blockchain”. It’s fundamentally a reinvention of money.
Very much like the internet became the most important communications medium in history, because it is made up of all of us, Bitcoin gives society a chance to use a free, open source money that’s owned by the people, and not run by some central authority.
The chances of something like this to have even been created is basically zero, let alone it having survived 10yrs in an adversarial environment. But it’s still here, it’s still the most resilient digital network the world has ever seen (it’s only been down once, for a couple hours in the early days), and today it’s a $150bn USD network that moves trillions worth of value around the world every year, and growing.
Blockchain on the other hand has been used for capital raising during the rise & fall of ICOs in the private sector, and seen hundreds of millions, if not billions spent on proofs of concept, with no real world applications in the enterprise & public sectors.
In fact, any “innovations” in those sectors that have been framed as blockchain, have in reality been database, data storage and business process improvement of which very little will ever trickle down to benefit anyone other than those large scale organisations & their bottom lines.
Real businesses, who build real products, without all the fluff have and always will be the ones to back. Blockchain can’t help them, and as explained; it doesn’t deliver on the promise of security or immutability.
Blockchain will have a hard time once people realise the emperor has no clothes.