Trust in Blockchain: Close, But no Cigar!

But then: What is Blockchain’s killer feature?

Now, that I have your attention, I will dial down my volume a bit. I will try to reason somewhat more thoughtfully, what I think is holding back wider adoption of Blockchain technology. In particular, I am more and more convinced that some of the things we are usually advertising as resasons for Blockchain are not — in fact — anything that the non-technically inclined users care about.

🚀 always help to make a point. (courtesy of SpaceX)

This post has been inspired by a discussion with another software architect whose opinion I value greatly. Despite having tried to convince him of Blockchain’s value he is giving Blockchain a 50% chance of succeeding in the long run. That had me flabbergasted. I have been (and I am) convinced of Blockchain’s potential for the last three-ish years. How could he possibly not be convinced of the upcoming, inevitable success? One thing in particular had me thinking: He is not seeing much that cannot be done without blockchain using more traditional approaches. So I set out to collect the main reasons for using Blockchain. The first attempt is this (highly opinionated) post.

So far, whenever I was talking to somebody about Blockchain, my main argument for Blockchain was that it replaces trust with verifiability. This would lead to disintermediation and thus to much more efficient processes. Nowadays, I am not convinced that this is the right order of arguments. I will disect the trust argument in more detail below. After that I will present the two arguments that I would like to use instead.

Do you trust them? (photo by Ridham Nagralawala on Unsplash)

Trust

One of the first arguments for Blockchain is usually the trustless nature of the technology (see GoldmanSachs, Wired, MIT Technology Review and countless others). That, of course, is true: By substituting the need for a trusted relationship between two parties with (1) verifiable actions and (2) predictable, deterministic outcomes, one can setup an interaction between two parties who do not trust one another. Indeed, they may have no intention of doing so. Using Blockchain as a mutual medium they can be certain that they get what they are paying for — there are no potential tricks or loop holes. There are many projects putting various things onto Blockchain.

Their common denominator is traceability and trust. Because something (e.g. the origin) is stored and tracked on Blockchain, the consumer does not need to trust the seller. Instead, she can verify the origin of a good herself; all data is provided on Blockchain.

This argument is usually extended with the corollary of Blockchain leading to disintermediation; the business model of intermediaries providing trust is extinguished because the technology provides a sound, irrefutable basis for interactions. On a technical level that is all true. Verification is a valid substitute for trust. If consumers can verify for themselves, there is no need for trust anymore.

Blockchain replaces trust with verifiability. Nice, but not good enough.

History, however, tells us that no one cares. Trustlessness is not a good enough reason for a technology to succeed. On the contrary, trust (or the lack thereof) almost never constitutes a valid argument for something. As we have seen during the financial crisis during 2008, rating agencies have abused the trust placed in them to a large extent. However, more than a decade later, the same rating agencies are still in business, rating the same companies without ever having made their methods any more transparent. Almost the same argument holds for many other cases: People do provide lots and lots of data to social networks or corporations, even though it has been shown multiple times that networks are not trustworthy holders for personal data.

Note: All links above have been collected during a short Google search. They serve as stand-ins for countless others.

In Blockchain space, however, people proclaim the trustless nature of Blockchain as its killer feature. This is a very technology focused, supply driven perspective. While the technology does provide the means for a trustless setup there is no real demand for it. Instead, people (and companies too) are happy to provide their data to trusted third parties in exchange for some service. Trustlessness is not a valid argument for Blockchain.

So, what features does Blockchain have that are truly unique to the technology?

So far, I have collected two main reasons that seem to hold water. They are digital scarcity and atomic transactions. I am still on the lookout for more!

So if you have more ideas on what consitutues the unique advantage of Blockchain that cannot be duplicated with traditional technology, please do tweet or comment. I will update this post accordingly.

Digital Scarcity

A rare sight: An ace of spades (photo by Farhan Siddicq on Unsplash)

Digital scarcity is one of the major advantages of Blockchain: Normally, digital goods are copied whenever they are distributed. When I own a song as MP3 (some readers may remember) and decide to give it to someone else, I will always distribute a copy of the original. The copy is indistinguishable from the original. With Blockchain, that is not the case: I can send you some tokens (e.g. bitcoin or ether). After the transfer the tokens are yours. I do not retain a copy. Of course, this is the main promise of Blockchain. Because the technology allows this (and no other technology does), we can transfer digital goods (and by extension value) via Blockchain transfers.

I can send you something digitally and prove that I don’t have it anymore.
 — @jon_choi_

Today, transferring ownership and digital goods is used for token transfers. Cryptocurrencies are transferred on Blockchain at a massive scale already. However, the idea does not stop there. Digital goods themselves can be on Blockchain and gain the same features as the cryptocurrencies. Non-fungilbe tokens such as cryptokitties are the first use-case of these possiblities: A collectible, digital good (the cryptokitty) is not only represented on the blockchain as a token, it is the token. If we attach not only ownership as a right to a token, but potentially more rights (such as usage rights), quite some new business models emerge (see for instance Bootleg by John Wolpert). A token can be a cryptocurrency or any other digital good.

Furthermore, the token could be a representation of a physical good. By using tokens to represent a physical good we can track certain features, such as ownership on Blockchain and could for instance put land title registers on Blockchain.

Also atomic. (photo by Heather Gill on Unsplash)

Atomic Transactions

Today, many of society’s activities are two step processes:

  1. Service Provision: Someone needs a service, but does not possess the skills to perform it himself. So, he hires someone else to do it for him. The other person provides the service. After the service has been performed, the customer owes the provider some form of payment. The service provision is the primary process; value creation happens in this process.
  2. Payment: The payment is decoupled from the service provison. The provider writes a bill, sends it to the customer, the customer pays the bill. This process has its own rules and regulations. The payment is a secondary process, which is needed to settle the debt created in the primary process. In terms of value creation, the secondary process does not add any new value.

Blockchain allows tying payment directly to service provision, making the two inseparable. Whenever a service has been provided, the technology ensures that the service is paid for. There is no possibility to consume the service and not pay for it. This is a very desirable property because it reduces the surface for potential frauds. Furthermore, it eliminates the need for a secondary process altogether. That is even more desirable because the secondary process does not add any further value. It just makes the primary process more expensive as it has to be paid, too.

This constellation allows for micropayments to become a viable business. The primary process just creates a tiny bit of value, but there is no additional cost covering a secondary process. Each transaction can be directly paid, there is no need to keep track of all open debts, however small they are. Any API-based business could thrive on this model. Another use case for these type of atomic transactions are machine-to-machine interactions that could be cross-platform when one machine is paying another directly. There is no need for a complicated contract setup in that case.

Note: I am well aware of all the current technical issues such as transaction fees and scalability. Of course these two alone prohibit micropayments directly on the blockchain in its current state. However, these problems can (and in my opinion will) be solved on a technical level (think layer 1 or layer 2 scalability or sidechains).

Is that all?

These are the two main reasons that I like to put forward in a discussion on Blockchain’s long term prospects. At first glance, that seems to be a bit of a downer. A technology that has been touted with so much fanfare seemingly providing a (very) limited number of use cases. I do think that we as technology inclined community need to think harder on what good reasons are to use Blockchain.

This whole post is just my current state of mind and I would be happy to collect more ideas. Feel free to post or tweet them as I would like to see more good reasons for Blockchain!