Why Blockchain is Far from Perfection
With all the buzz about blockchain in recent years, many new to the technology often ask: Is it really that good?
Touted as a ‘revolutionary’ technology, or even ‘the next best thing since the Internet’, blockchain seems to have won the popularity vote when juxtaposed against other emerging technologies like A.I and IoT. Indeed, the features of the technology promises to eliminate many of the challenges we face today, from immutability to prevent fraud, to transparency to enable a panoramic view of the data.
However, blockchain is not the miracle cure that many envisioned. Blockchain is not perfect. In this article, I shall be the “tenth man”, the devil’s advocate, and argue for why blockchain is not as good as it seems.
Garbage In, Garbage Out
Transactions are only as good as the data that is uploaded. Blockchain can ensure that the transactions are secure and immutable but it sure does not identify and block inaccurate or fraudulent data. You may have seen QR codes pasted on fresh produce in the supermarket which reveals the provenance of the product such as the date and place of production. However, it is fairly easy for suppliers and manufacturers at the top of the chain to lie and upload fake data.
Essentially, one can upload fraudulent data and fool the entire blockchain network as well as the end-consumer into believing that the data is genuine because the tracking process employs blockchain technology. What goes under the table will never be detected; you can only trust that the individual or device that is uploading the data from the top of the chain.
We still need Trust
While blockchain removes the need for intermediaries as a third party to regulate transaction, it does not remove trust but rather, circumvents trust. When making a transaction, the technology ensures that one’s wallet contain sufficient money to pay for a good, while smart contract can be employed as an escrow till goods are received. I trust that I will get paid, and you trust that I will deliver the goods, nothing new. Essentially, the trust is entrusted on blockchain technology rather than some authorities or regulators.
Furthermore, ignoring asset-backed coins, most coins in the market are built on nothing. Yes, NOTHING! Individuals adopt Bitcoin because it is the ‘main’ coin and everyone trusts it! Herding behavior was a strong reason for the recent price rally, till someone realizes that cryptocurrency is overvalued and triggers a herd-selling in late December. Now imagine someone like Ed Sheeran issuing a “EDS” coin, it could potentially spark a buying frenzy simply because he is the famous, one and only Ed Sheeran! Value can be created out of thin air if you trust the coin and the “asset” behind it.
“Nothing has any inherent value except the value we put in it”
The Greed of Mining
Why do people mine? Simple, greed. Mining is a transactional behavior, and bitcoin relies on the inherent self-interest of humans to power of the whole network. Very smart indeed, but remove the incentivization system and the industry collapses. As mining equipments transited from an ordinary laptop to Application-Specific Integrated Circuits (ASIC) mining hardware, mining capabilities and hence Bitcoins have fallen into the hands of mining firms and the coins mined fuel the vicious cycle. The last Bitcoin will be mined in 2140, and it is expected by then that the transaction fees will be valuable to encourage miners to continuing mining. However, as these mining gear gets better and cheaper, we could see another dynamic shift in the mining industry.
Furthermore, current proof-of-work (PoW) system requires enormous amount of electricity, rendering the mining process inefficient and costly. Miners have to solve complex equations to obtain coins where the miner which gets rewarded will create the next block in this endless process; however, the work done by the rest of the miners are gone. While there have been adoptions of proof-of stake (PoS), a strong alternative to PoW, the mechanism is still at early stages of adoptions and problems (e.g. hoarding) awaits to be revealed.
It just gets Bigger
To participate as a full node in the network, one would have to download the entire database. Over the years, the database surged as the number of transactions increased. The immutable nature of blockchain meant that previous transactions cannot be edited and ‘reused’. Current Bitcoin blockchain size stands at 163GB. Ethereum is taking a shot at this by implementing sharding- the storing and validating of smaller pieces of data from the full database.
Point of Failure: Crypto-exchanges
This point is not associated with blockchain but rather, the cryptocurrency industry. It became apparent that the biggest issue with cryptocurrencies are the crypto-exchanges that facilitate the transactions. Mt.Gox, once handling 80% of Bitcoin transactions, was a prime example of crypto-exchanges that failed to carry out adequate security measures.
The list of problem goes on, from hacking incidents and system failures to enforcements of governmental regulations (e.g. KYC) and even outright ban (China’s ban on cryptocurrency forced all Chinese crypto-exchanges to relocate overseas). The problem with cryptocurrency lies with crypto-exchanges, or rather, the mechanics of buying and selling it. The crypto-world needs to solve this in order for the industry to move ahead. However, buying from these centralized organizations are still key to getting the masses to adopt cryptocurrenccy
Once It’s Gone, It’s Gone!
Transactions are designed to be irreversible. Many long-time cryptocurrency users have experienced sending the wrong amount or to the wrong recipient. There is no intermediary to cancel or reverse the transaction when one realizes that he or she made an error. A transaction can only be reversed when it is unconfirmed, because well, it is never confirmed!
Similarly, when users forget their private address, the wallet is essentially “gone” (Technically, it is not gone since they don’t exist in the first place; cryptocurrency are less tangible than tulips). There’s no “Forgot your Private Address?” button or customer support that you can reach out to. This is why while the maximum number of Bitcoin is 21 million BTC, the actual spending/ circulating supply is much less because approximately 25% of it will be “lost” in the digital abyss.
Double-edged Sword: Anonymity
Anonymity is a highly publicized property of blockchain, and it’s precisely this feature that had garnered attention among users with dark, hidden agendas. A paper written by academics from Germany’s RWTH Aachen University and Goethe University titled “A Quantitative Analysis on the Impact of Arbitrary Blockchain Content on Bitcoin” revealed that child abuse material as well as content related to the “Dark Web” are stored on the blockchain network.
Essentially, blockchain have became a safe haven for hosting data you do not want others to know. Don’t get me wrong, Dark Web users has been using blockchain & cryptocurrency longer than most people reading this article and has played a big role in ensuring the technology’s survival and popularization. But the world could be better off if monitoring measures can be implemented to deter proliferation of unwanted content.
To truly create a blockchain-enabled world, every individual and transaction must be distilled into a serial number (Public address in this instance); no more email verifications and Know Your Customer protocols. Termed as pseudonymous identity, one can ensure privacy as long as the public address is not linked to your physical identity.
It’s too Complicated!
Blockchain is a technology that is simply too complex for many to understand. Do note that those who own cryptocurrencies may not understand blockchain at all; you do not need to know blockchain to own them. The barrier to entry is so high that many simply skip the ‘blockchain’ phase and straight to ‘cryptocurrency’, a move that belittle the importance of understanding the technology behind it. Furthermore, there are many variations and ‘upgrades’ of blockchain that are far too complicated for the average Joe to comprehend.
This is why scams are fairly common in the crypto-world and every now and then you will see on of those silly scams on Reddit.
To conclude, blockchain in its entirety is still decades away from world-wide adoption. There are still other issues that I have not addressed such as scalability, transaction speed, political elements etc. Volatility in cryptocurrency prices is another issue that deserves serious attention, for it is key to getting businesses and end-consumers to adopt it in day-to-day transactions rather than as an investment vehicle. Nonetheless, one cannot deny the potential of blockchain to change the world, for it is already changing it. For once, the world is now equipped with a technology capable of changing the way we trust each other; its up to us to harness it.
Last but not least, HODL!
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Hi all! I’m a student currently interning in Shanghai! Also a tech enthusiast, I am overwhelmed and excited about the tech advancements happening in the world **Do leave a comment about your thoughts. I also welcome any opportunities that arises!**
