On the utility and impact of blockchain technology

How about some concrete reasons to buy a computer today? An executive in your industry recently said, “We’ve given people computers, but we haven’t shown them what to do with them. I can balance my checkbook faster by hand than on my computer.” Why should a person buy a computer? #

If there’s one thing that hasn’t aged well, it’s 1980’s skepticism with regards to personal computers.

The industry executives and collective naysayers of the day missed an important point in predicting the rise of personal computing: that the technology was nascent, sure — but it had utility.

Hindsight is perfect, of course, and today we know that the development of cost-effective personal computers (coupled with the availability of a global communications network) has enabled all sorts of new productivity, seemingly completely unimaginable at the time.

This sort of argument is commonly used to defend Bitcoin’s inevitability as the next big thing: whether that’s as a new global reserve currency, decentralized banking, or a protocol layer that’s more valuable than the applications built atop it.

So there’s two things I want to look at. Let’s actually try comparing current-day Bitcoin to the nascent stages of computers and the internet, and try making some educated guesses about where it might end up.

In my opinion, there are two things to focus on: utility, and (potential) network effect. More than anything else, these are the common characteristics of innovations that ended up changing the world:

Electricity — had an initial utility (lighting), and became ubiquitous following early adoption (basic electrical grids)

Facebook — had an initial utility (social graph), and became ubiquitous following early adoption (universities getting on board)

Computers — had an initial utility (programmability), and became ubiquitous following early adoption (increasingly useful programs)

Telephones — had an initial utility (instant communication), and became ubiquitous following early adoption (telephone networks, and the birth of the network effect)

Cellphones — had an initial utility (portable communication), and became … you get the idea.

So in this very lightweight evaluation model I’m using, blockchain needs are those two things: An initial utility, and the potential for a network effect.

Even if the present-day utility seems clunky, slow, and better served by other present-day approaches, what matters is the potential for long-term adoption. If more people spend more time working on it, can it get better, and will more people use it?

Finally, it’s worth noting the impact of market forces on this. Even superior versions of technologies can be pushed to the margins (see Betamax vs VHS), and there’s no real way to predict that, given the amount of actors and competing interests involved in these markets.

So let’s get into it!

The actual utility of blockchain technology

The obvious answer is “digital currency”, right? Blockchain tech is powering a new form of currency (that defies current-day evaluation), and will revolutionize the concept of money itself. Or so we’re told.

I don’t think that’s necessarily true. Every token in the world today exists as the result of the application of blockchain technology (usually as an incentive for participants to sustain the network). It exists in, around, and as a result of blockchain technology, but is itself not the core utility of this innovation.

If you strip away that application — and all the dizzyingly-high paper valuations — what you’re left with is a much more “simple” utility:

The ability to create an immutable, distributed database, operating in the absence of trust.

Why is this a breakthrough?

First you have to understand the multiple forms of trust: There’s trust between humans, their peers, and institutions like governments, but there’s also machine trust. Trust in the integrity of underlying components, network peers, and governing rules. Trust that you’re connecting to the machine you think you’re connecting to, and that it’s giving you the information you’re supposed to receive.

Databases currently rely on trust all throughout the chain. Users have to trust the integrity of the records coming out of the database, and they have to trust all the software that compresses, stores, and secures it. The databases themselves need to trust the availability and security of the underlying hardware.

And by golly, there are holes. Just about every privately-held database of note has been hacked open in the last few years. Leaked records number in the tens of billions, and I don’t think the total damage to the global economy is even quantifiable yet.

Blockchain technology presents a solution to these problems. There are two parts of this that I think are especially valuable.

First, trustless authentication. You don’t need a central authority to validate who you are — you just need to hold the private key that’s used to lock your records.

This is a pretty big departure from more convenient authentication mechanisms like oAuth. In that model, you prove to a central authority who you are, and leverage that to authenticate to sites that implement the standard.

Those sites trust the central authority’s word that you are who you say you are, and the central authority trusts the integrity of passwords and 2FA to validate that you are who you claim to be. This system has not proven to be watertight.

Private key cryptography is not particularly new — it’s been around for decades, and is familiar territory to server administrators, academics, and whistleblowers. But it arguably hasn’t entered mainstream use yet: People don’t regularly encrypt their files with PGP, or unlock things with private keys.

The second valuable component here is the distributed nature of a blockchain database.

Putting the incentive model (tokens) aside for a moment — one of the big upsides to a distributed database is resilience. The more nodes you have with a full copy of something, the more likely it is that you’ll be able to reliably retrieve those records when you need them.

I’d suggest that we already have solid proof that this concept works: BitTorrent, the protocol that yielded the single most effective distributed database ever conceived. The incentive model existed in a moral gray area, sure, but you can’t argue with the powerful network effects.

So given a resilient, distributed database, and the ability to securely store and retrieve records in that database without the approval of a central authority, what does that get you?

The biggest open library in the world

Today, the killer app for blockchain technology is cryptocurrency. Modern-day currency pretty much exists as records in a ledger anyway, and while the issuing models are very different (central bank monetary policies vs miner rewards), the functionality is about the same.

Whether or not this lasts is a different question. I think this might be where the current version of blockchain technology has gone off the rails a little: when it became possible to trade those incentive tokens for real money.

That’s ended up perverting the overall goal. Instead of finding ways to improve the performance of the technology, the incentive now seems to be spinning up new forks and marketing them relentlessly, in the hopes of extracting some quick profits.

As of today, there are banks, regulatory bodies, and governments starting to become ever more wary of the threat posed by cryptocurrency. There are even some trying to adopt it — Venezuela and Russia with their Petro and CryptoRouble respectively.

Where will the phenomenon of cryptocurrency end up? That’s a complicated question, increasingly involving geopolitics and religion alongside the already-turbulent forces of venture capital and open source.

But putting all of that aside, the underlying utility remains. Every government in the world could try banning cryptocurrency all at once, but the technology involved in its creation can (and will) live on.

Ultimately, ledgers are just one type of database. There are many others that could potentially be stored on a blockchain:

Proof of ownership (Title deeds, etc)
Voting records
Educational certificates and credentials
Public company financial statements
Internet configuration data
Employment history
Patented designs and drawings
Digital artwork (books, videos, sounds, photos)
Software releases

Essentially, anything that can be reduced to binary code can potentially be encrypted, hashed, and stuck on the end of a chain.

And access to the data in that chain can be managed in a self-sovereign way — private keys, privately held, with the verification being cryptographic instead of centrally authorized.

Finally, the integrity of that data can be mathematically guaranteed. Off the top of my head, here are some use cases for a utility like that:

  • A DNS system that relies on consensus between participating nodes, making it immune to single point of failure attacks
  • A software patching system that cannot release tainted/backdoored packages, with the proof of authenticity starting all the way at the machine of the developer writing the code
  • A proof-of-ownership system that makes it possibly to legally enforce ownership rights of digital assets, and easily identify violations
  • Accountable public service, with an unalterable store of statements, arguments, promises and voting records of politicians.
  • Unfalsifiable work experience and credentials (LinkedIn minus liars), with the ability for the data owners to selectively hide things they’d rather not share, but not falsify credentials they wish they had.

As far as I’m concerned, these are the sorts of utilities that will cement the long-term use of blockchain technology.

And as for the potential network effect? That’s even simpler: The network effect is communication itself.

Technology is ultimately an accelerator — it helps us do the things we were going to do anyway, but better. Blockchain tech could potentially help us carry out all the communication we were going to do anyway, but in a way that cannot be intercepted or corrupted by bad actors.

My hope is, at some point in the future, we’ll look back at the 2000–2020 era of computing with astonishment: that we trusted such important information about our lives to such incredibly insecure, opaque systems.

Is this future possible? There are a couple of potential downsides to mention.

While computers have been getting more powerful and more capable over the last 20 years, the “centralized” systems (meaning the technically-distributed networks of Google, Amazon, Netflix, etc) have grown in almost exponential power.

On a purely cost/benefit basis it’s really hard for any decentralized system to compete. If you’re just after storage, compute capacity, productivity software, or entertainment, it’s proven really tough to compete against the big names.

Those big names have managed to centralize more than just computing power — they’ve also largely centralized talent, skills and ambition through very competitive hiring practices, and are currently using their economic and social power as political leverage.

If I had to guess, I’d say we’re approaching the end-phase of the open Internet. It’s become such an integral part of our daily lives that the operators now wield ever-increasing political power, and behave almost like a nation-state unto themselves.

That sort of thing is going to make current-day governments pretty nervous. Not just the despotic regimes, but also the open democracies that don’t want undue influence from other nations pouring over the border every single day.

Finally, the consensus model. One potential vulnerability is that blockchains determine the true chain based on the computing power of the network participants: The more hashing power you control, the more likely you can get your blocks accepted as the record of truth.

Broadly, this means that any actor with considerable resources to invest in hashing power can materially affect the integrity of the chain. The most common attack known today is the “51% attack”, in which someone who controls a dominant share of a chain’s hashing power could potentially double-spend coins (then erase their own transactions in the next block), or prevent certain users from adding records to the chain at all.

Those are the three main considerations against blockchain technology right now — that the entrenched players will be able to easily outpace open-source development along every dimension, that the Internet itself might start walling off thanks to geopolitical forces, and that ostensibly-decentralized networks can still be centrally-manipulated by powerful actors.

In this sense, the future of blockchain technology (and the utility of having public databases) seems rather inextricably linked to the progress we collectively make as a species, in terms of politics, trade and our idea of the nation-state itself.