The Wacky Races of Blockchain Technology
This is a Wacky Blockchain post I have wanted to do make for quite some time so I’m really pumped to finally share it with all of you guys.
It all started late one sleepless night.
My mind was trying to make sense of the opaque Blockchain scene, in the hope of writing something constructive for my final dissertation the morning after.
I woke up and instead decided to make a post explaining the Blockchain landscape as simple and non-academic as possible.
Most advanced readers have probably already asked themselves why I’m still calling it “Blockchain”.
And that is a legit question. The “Blockchain” seems to have become the emperor’s new clothes for businesses of any size, maturity, scope and industry.
There are several examples of SME’s taking services and products that already solves customer’s problems just fine and then adding Blockchain to it as if it was some kind of magic spell that would make all the world’s problems go away.
We are however yet to see the appropriation of these so-called “same-but-now-with-Blockchain” businesses.
It seems that these companies are forcing a technology that doesn’t fit on top of their business. Much like the Cinderella story, where one of the stepsisters tries to force her foot down into a little magical shoe — That is not good for either the foot or the shoe.
(fun fact: in the real non-Disney version, the step-sisters ends up cutting their toes and heels off to fit the shoe, which only adds to my point)
On the other side, there are several examples of successful blockchain companies today that have tremendous success utilizing the existing Blockchain technology for what it is meant for: bitcoins and token trades e.g Coinify, Chainalysis to name a few from Denmark. (full disclosure: I’m from Denmark myself)
Big bank consortiums like R3, are also trying to exploit the Blockchain’s potential for disintermediating the financial infrastructure. R3’s Corda has made several iterations with the original blockchain to better suit the highly regulated and competitive finance market. (hint: 100% transparency doesn’t work well for banks)
To use the Cinderella analogy financial Blockchain consortiums, have been forced to re-engineer the magic shoe entirely, only leaving some of the glitters behind.
The result is something that is closer to a distributed ledger than a blockchain — A reason why industry experts now prefer the wording: Distributed Ledger Technology.
The inevitable problems that these Closed Finance Blockchain’s face are privacy and regulation.This is currently being solved by allowing certain notaries (legally accountable validators) to confirm validations on the network.
The governance system is however still questionable.
What is the sense of building something to disintermediate a market only to introduce the same intermediaries on a different system? This is very similar to the whack-a-mole game, you get rid of one problem only to face another.
Tim Swanson ( Director of Market Research at R3CEV) adds to this point with his highly provocative statement in a podcast interview on Epicenter 2015:
“Bitcoin has recreated all the problems we have had the last 400 years with intermediaries, custodians and currency itself, and we now get so see it in a very compact 6–7-year form all over again ”
Swanson’s statement may seem harsh, but I guess his point is: don’t just blindly add Blockchain without looking at the business case first — changing an entire infrastructure only to save a few dollars, doesn’t make sense.
A key question I believe that needs to be answered in this context is the classic political science question:
“Quis custiodier ipsos custodies” or who will guard the guards themselves?
Whenever I try to explain the difference between public and private Blockchains the discussion always ends up with how much human over computed governance is needed to best facilitate consensus.
The rational answer to this question is that it depends on what you want to use the Blockchain for (small, private and efficient or large and decentralized)
Looking past the security needs of today, I, however, believe that the “Computer-Over-Human” balance is going to be extremely interesting to follow in the near future, especially in the land of smart contracts.
How will smart contracts deal with force majeure, bankruptcy etc. and what will a smart contract court trial look like?
The answer today is probably that things are going to stay pretty much the same, with a few minor legal-iterations, but who knows 20 years down the row…
Another major discussion that has grown quite intense in Blockchain communities is:
How private blockchains are different from existing databases?
These discussions tend to get quite intense, and always splits the waters between panel experts and spectators.
The idealistic Blockchain (DLT) answer to this question is that private blockchains help to avoid replication, errors, and delays better than existing shared databases. (What Robert Sams from Clearmatics calls the 3 Sins)
A more realistic answer today is probably accessibility.
Projects, like Hyperledger, Ethereum and Tendermint are lowering the barriers for start-ups and other businesses to implement and customize distributed ledgers as part of their business. It is now possible to build smart contracts and implement advanced business logic, without having to spend an insane amount of money upfront.
Critical readers might have already thought if accessibility is the main difference why haven’t big market players like Google exploited this technology (e.g. a Blockchain extension to Google Sheets?)
The answer is… they already have!
Google have just launched Google Cloud Spanner, which Google argues:
“Is the first and only relational database service that is both strongly consistent and horizontally scalable”
A comparison between Private Blockchains and Google Spanner will be the content and discussion of another post.
For now, I think it is time for any blockchain business or stakeholder to look at the business case before looking at the technology.
Perhaps 2017 is the year where Business Cases will drive innovation and not Blockchains?
Perhaps the new buzzword will be “Accessible Business Logic” and not “Blockchains” or “Distributed Ledgers”
I will return to the dusty-old-world of academia while leaving the readers reflecting on this old Abraham Maslow quote:
“If all you have is a hammer, everything looks like a nail.”