“Blockchain technology” has become a hot topic in recent times, at first spurred by the speculative interest in cryptocurrencies and eventually having taken a form of its own via speculative use cases in finance, insurance and related areas. Past the buzzwords and marketing speak, few can really make a case as to what value blockchains really provide in their use case, and many mistakenly equate the benefits of “blockchainizing” with just the benefits gained from modernizing legacy infrastructure. Of course, a blockchain based platform with 21st century technology will be better than a 60 year old digital architecture, or worse, nothing at all, as is the the case with government issued identity as an example — in most countries, digital identity is still not a thing at all, and blockchain is one way to implement it, but certainly not the best or only way.
What, then, is the real benefit of applying blockchains to a problem, and when is the reward actually worth the cost? To answer the question first we must make a distinction between blockchains as an “abstract technology or architecture” and blockchains in “the real world”, when they’re actually deployed and in use. As an analogy, we can take the internet — which as a protocol, is merely a standard for how to construct and pass along messages, but as a system, is a complex web of interconnected players, markets, infrastructure providers and users, and common law and sets agreements between all of these parties. Talking about the internet just as a standard for passing messages misses the big picture just as talking about blockchains as a “better way” way to implement certain methods to share or verify data. To keep better track of things, we’ll use the term “blockchains” when talking abstractly about protocols, and the term “utility chain” when talking about a (hypothetical or real) deployed blockchain for a defined use case which fulfills real use cases or user needs.
Diving right into it, the core properties of current utility chains (and what drive their value, beyond speculation) are:
- Censorship resistance: No company or special interest dictates who can use the protocol, or for what purpose, or which uses have priority. The only thing that matters is the fee paid for writing to the chain, and that sets the priority for use. Pure economics.
- “Ubiquitous” access: Similar to censorship resistance, but from a data access perspective. All data is public, available to anyone with an internet connection, and stored indefinitely, without restriction on how can see it or who can process it.
- “Protocol rigidity and stability”: The fundamental rules of the chain’s code, how the chain runs, how the programs and data deployed on it are treated, etc, is fixed for the most part, and due to the diverse set of participants and players that run the software/foundations, one can have reasonable guarantee that the rules will be respected and won’t change under their nose randomly or without notice, and won’t be changed to serve special interest.
- Public infrastructure: The code that underlies the chain is open source, and free for anyone to download, modify, with no royalty or IP attached.
These are four very important (and expensive to maintain) properties that are fundamental to the only real current application for utility chains, which are cryptocurrencies like Bitcoin or Ethereum. Many take blockchain software or architecture, which is tailored to maintain the four properties above (again, at great efficiency cost) and try to apply them to private networks, where the properties are unnecessary or even undesirable (censorship resistance is not desired in banking, for example, and neither is open access to data). Many current “blockchain projects” would be better served by just databases and good development practices.
So, then, is there any real use for “blockchains” in “enterprise”, that is to say, outside of their use as cryptocurrencies? We’ll return to our analogy of the internet for an answer. The internet as it exists today is as close to a digital public good as you can get. The protocol (set of rules for constructing and relaying messages) is public, open, and royalty free. The access is mainly unfettered, as long as one pays the appropriate fees, and the “system” as a whole is made up of many different parties, with different interests and goals, that keep the network diverse enough to be healthy and maintained without too many central points of failure. When you pay an Internet Service Provider for a connection, you are not paying them royalties or for a product, as they don’t “own” the internet — no one does. You are merely paying for a service, or an access point to the internet. Even though the ISP is part of the internet, and all ISPs together are “the internet”, no ISP or collection of ISPs owns the internet outright, and you could make the case that any device, laptop, phone or smart TV, connected to the internet, is also itself part of the internet.
So, even though there are cases for private internet networks (whether it’s federated SWIFT-type networks, or the local network in your company office), if they were the only networks in existence they would have little value compared to the value they received as being connected to “the” internet.
So now we see that the internet, like “blockchains”, is not a zero-sum game. Just as with networked devices, the whole is greater than the sum of its parts. Until you have an internet type standard, which everyone (or most) agree on as the standard and “main” system, all private versions of it are more or less useless to anyone but the parties involved, and sometimes mostly useless to even those parties.
Blockchains as a concept have network effects even stronger than the ones that emerge from protocols like the internet, because while the internet is a standard for relaying messages, blockchains are in essence a tool to represent and prove digital events, and serve as a source of truth for them. Whether that event is a transfer of a digitally representable asset (money, stocks, legal rights) or real world events (e.g. the recording of a parcel for supply chain use case) doesn’t matter, the value comes from having a standard to represent any type of such event. When someone pitches their own proprietary, private, walled platform today, like Hyperledger as the solution to blockchains for enterprise, it is equivalent to trying to pretend that your three person walkie talkie comms setup holds the same value as the entire modern world telephony system. It’s not only a blatant lie, it’s a ridiculous one too. Until there is a public, agreed upon utility chain that ties all the different uses cases, players and systems together, all the “enterprise, private blockchains” are a waste of time at best, with the only exception being maybe finance, but SWIFT is so bad that more or less anything else would be massively better.
For now what can be seen as a main utility chain by de facto standards is Ethereum, as it is the only real decentralized utility chain that is live today, and properly supports smart contracts. However, it doesn’t necessarily need to stop there, just like there doesn’t need to be only one ISP in the entire world, but all ISPs must speak the same networking language and provide the same level of access. As we mentioned before, the internet as a system in use is a complex web of legal, technological and social components, and this too will eventually need to be applied to blockchains if we want to actually understand them in earnest. Most companies and people don’t want to “be their own bank”, and they don’t want to do away with common law or law of their own jurisdiction — if they did, nation-states and banks would not exist as they do today. Hence, just as the internet is a “global” system, within a jurisdiction specific laws can still apply to the “internet area” of that nation. Other nations don’t have to necessary care about those rules, just as Facebook is banned in China but not in the rest of the world. China may not be able to change the rules of how messages are processed globally, but they can choose how they process the messages in their own country.
Similarly, individuals, companies (or consortiums/groups of companies), regulated bodies or governments could run utility chains for various uses, and the proofs of digital events and the infrastructure they provide can be used globally, but locally the interpretation of those rules can have a specific defined legal basis, and on top of that, just as the government can require certain reliability from utility providers of electricity, water, or even ISPs, they could also require certain reliability or “fair access/legal unbiased operation” to providers whose job it is to maintain jurisdictional utility chains. This I see as the next real step in “blockchain technology”, before the rest of the world can actually start making real use of smart contract type systems. It would put to rest many concerns that many have (and in certain cases rightly so) about relying on cryptocurrency chains as a sole source of truth, when the chain is supported by a loose and unknown/obscure group of global players that are not bound to the rules of a jurisdiction and guarantee no real level of service — beyond any probabilistic guarantees from economic incentives.
When the world is ready to adopt such a standard, then the real “adoption” explosion will come, like your shipping company providing a proof of delivery that can be checked on a utility chain that can release a deposit without needing to rely on paypal (or similar) for dispute resolution/escrow, or delayed flights being automatically compensated without the need for third party oracles or insurers. The best thing is that, just as not everyone today needs to be an ISP to interact with the internet, most of these use cases don’t require everyone to maintain their own chain — just cryptographic signatures are enough for an immense amount of use cases, such as the ones list above, and the many more than we cannot even fathom today.
In this world, cryptocurrency chains would also have far more utility, as they would not be isolated from the real world, and would be able to seamlessly interact with many different existing systems without having to rely on overly complex or fragile methods like oracles or game theoretic incentives. There will always be a demand for extra-jurisdictional systems to exist, just as Tor and I2P still exist today, but just because they are extra-jurisdictional doesn’t mean they can’t also be helped by their jurisdictional counterparts. Tor still uses the public, “regulated” internet — and let’s not forget that so do cryptocurrencies.