The 2 Most Important Questions about Blockchain
Or how to avoid getting hit by brown-stuff
Some claim that blockchain-based solutions will solve all the world’s problems. From poverty to malnutrition, to war, to climate change. A panacea, elixir, and magic potion all rolled into one. These claims might even be true. Or they might not be.
But regardless, we can say one true thing about blockchain. A blockchain system (which typically consists of blockchains managed by peer-to-peer systems forming a distributed ledger) is a database. Or even more simply, a thing that stores data. And any magical powers derive solely from the fact that it is somewhat different from other things that store data.
Fundamentally, blockchain-based systems are different from most conventional data storage for the following reasons:
- Most conventional data storage systems are centralised. There is a single party that controls what data is stored and how the data is changed. Blockchain-based systems are decentralised. Multiple parties vote to decide what data is stored and how data is changed.
- Blockchain-based systems have reduced mutability, meaning that it is expensive to modify, while conventional data storage is easier to modify. Reduced mutability reinforces decentralisation because it is (often prohibitively) expensive for a single party to take over the blockchain.
Both the above properties result in significant overheads, especially in processing power, which translates into (often environmentally unsound) energy costs. In other words, maintaining a decentralised data store with reduced mutability is more expensive than one which is centralised and more mutable.
Hence, the first and most important question about a blockchain-based solution is,
QUESTION 1. Why do you need a decentralised data store? Why can’t you solve the problem with a more conventional, centralised alternative?
Usually, we would need a decentralised data store when there is some problem, deficiency, or weakness with a centralised alternative, often with the parties with central control.
For example, the central control of central banks in conventional national financial systems, and the various resultant policies that were considered unsound (by crypto proponents), motivated cryptocurrencies. High transfer fees and other overheads charged by banks (another class of party with central control) were another motivation.
Hence, another way of framing QUESTION 1 is,
QUESTION 1 (Alternative Framing): Which central party do you want to remove or weaken?
As I mentioned, blockchain-based systems have significant overheads. Hence, the second question is,
QUESTION 2: How do the benefits of a blockchain-based solution to the problem compensate for the overheads?
While the first question is more fundamental, the second question usually determines the business sense of the solution and must be quantitatively rigorous. In other words, the numbers must make sense.
If you are talking about how blockchain will take away the sins of the world, you should cut the proverbial brown stuff and focus on just answering these two questions.
If you can’t, you should take your brown stuff elsewhere.