Blockchains Are a Waste of Time
Recently I keep hearing more and more hype and misinformation surrounding crypto currencies and the concept of the block chain. As an antidote to this I would like to take a look at the underlying reality.
As a primer to what I am about to say I recommend reading this article which nicely summarises what the block chain really is and isn’t:
Blockchains vs centralized databases
The crux of the article is this:
“If trust and robustness aren’t an issue, there’s nothing a blockchain can do that a regular database cannot.”
This is a critical point to understand. Instead of getting evangelical about it we need to approach the concept of the block chain with some rationality. In the same way that we would say compare SQL vs NOSQL databases. Each database type has it’s advantages and disadvantages. Some good use cases and some bad use cases.
As the article explains the advantages of the block chain are disintermediation and robustness while traditional databases have the advantage of confidentiality and performance. Now if we take a step back and look at all the new blockchain start ups jumping on the bandwagon we can more accurately assess which might actually be a good use case for block chain and which might not be. For each one ask yourself the question:
In the use case propose here, does disintermediation and robustness give a critical advantage which outweighs the loss of performance and confidentiality?
Now I haven’t gone through all the many start ups and examined their proposed use cases. But I am pretty sure that 99.9% (or more) of them would fail this test. How can I be so sure?
Firstly lets look at the advantage of robustness. Now one thing we can say which is a fact is that today we have the internet which is run almost completely on a traditional database model. Basically it works and is robust enough to be reliable to the degree that companies worth trillions of dollars have been built on the back of this model.
So we have something which is proven, works and is robust enough to build what we have now. On the other side we have something which is more robust, the block chain. Now ask yourself the question do we need something that is more robust that what we have?
In these situations, when it’s not your money at risk, when you don’t have to do the work, have the hassle of changing over or deal with customer complaints etc it’s easy to say - of course we need it! However the reality is that there is always a trade off and the extra costs associated with that increased robustness outweigh any gain. Why change it what you have already works?
So I think it’s clear that improved robustness is not a the “killer feature” that is going to change the world. So next lets look at disintermediation. What does this actually mean?
The roots of this concept grew out of a certain way of thinking. Let’s call it “Anarchist” or less flatteringly “Conspiracy Theorist” thinking. One aspect of this mindset is the idea that you really cannot trust anyone or anything. Of course if you have this mindset you will perceive many problems around you. One such problem which was the fact that we have to trust other people and institutions to be able to live.
Wouldn’t it be great if we could invent a way of recording data where we didn’t have to trust anyone to keep it safe and accurate? And so was born the concept of a cryptographically verified ledger called the blockchain that could be trusted in all circumstances. Now we can all just trust the maths and everyone can verify for themselves that everything is tickety boo.
This is is essentially what disintermediation means. To remove the person or institution that you need to trust to hold critical data and replace them with code and cryptographically verified data. Sweet, everything is cool now right?
Umm, no. There are a few small issues which tend to get overlooked in the stampede for the share certificates:
We don’t need to trust anything or anyone to keep our data safe now right? Because that’s what they said on the internet.
So you have read and fully understand the code yourself do you?
Err..No.
No…I hate to break it to you but you are actually trusting that the code is correct and doing what you have been told it’s doing. Everyone who is using a blockchain without themselves fully understanding the code has a chain of trust right back to the dev’s who wrote the code.
But those dev guys, they are tech nerds. Cool dudes who everyone knows can be trusted.
Is that so? How do you know they can be trusted?
Because the guys who are mining this stuff and run the nodes trust them. And lots of other people on the internet trust them too.
Sorry my friend but I think you will find that is just a chain of trust which links back to a group of people who we have faith in. We think they know what they are doing because nothing has yet gone wrong.
I hope you get my point. We cannot get away from having to trust someone or something. We cannot know and understand everything ourselves. So the only question is in who or what we trust.
So disintermediation itself is a red herring. There is no disintermediation to some powerful cryptographic god who can always be trusted. There is only a transfer of power from one group to another. A transfer from your bank to the bitcoin core dev team, or the Ethereum dev team or the start up down the road.
And this kinda makes it all a bit pointless doesn’t it? We are sacrificing a known system that works, with confidentiality and speed, for something called “disintermediation” that has just evaporated in our hands.
Ahh but what about consensus? If those guys mess up then nobody will use that code, all the nodes will just ignore the commit :)
Oh will they? How will they know what’s good/bad without understanding the code themselves? There is no magic in consensus. Without perfect information on which to base a decision, the decision maybe wrong. The human level reality is that we have to trust other people who know more than us. It’s a short cut we cannot live without. So when the word consensus is used it actually just means a big group who don’t know anything following a small leadership group who everyone believes knows what they are doing.
Ahh but what if some big bank / government / rich person starts a block chain? Then it’s going to be big and you’ll look stupid :)
Oh yes that’s going to happen. I advocated that something like 3 or 4 years ago with some of my first answers on here. But you know what? We have just come back to where we started. If we say a blockchain is only going to be successful with a big backer then we have just nullified it’s raison d’etre. Stories of Mexican fisherman and bankers come to mind.
I don’t care, I am going to invest anyway - you must be wrong look at the price of Bitcoin and Ethereum and others. Going through the roof.
I am certain that a lot of people will make a lot of money. This is more a function that our financial system is awash with excess money that has nowhere to go. See my other blog post for more about different types of asset inflation:
It’s a bit like that new Apple product - the i ron. I am told by someone that it’s something that gets creases out of your clothes. It’s really robust, like the AK-47 of laundry, because you don’t need electricity to use it. It has a little crank handle on the side, just crank away for a few hours and you are good to go…
