The three fallacies
Blockchain Doesn’t Work
About halfway through a few of last year’s talks, I presented what I called “the new formula”.
A formula, that if dismissed as an experiment, and allowed to grow large enough; would lay the foundation for a new form of global collaboration, consensus, value storage and transfer — but only if we take all the elements in combination!
This formula, this recipe would come to yield something that is:
- Technically and socially secure
- Natively Digital and Globally distributed
- Shut down and censorship resistant
- Practically immutable
And as a result of maintaining the sanctity of the above attributes,
this formula would also produce something that was, relatively speaking; slow, very expensive to run, and limited in “direct” scope (much like the internet — the only thing the actual internet can do is route packets of “dumb” data).
What do I mean by direct scope?
Well — it’s the number of things this formula can and should be used for, and that includes:
- Verifiable Digital Scarcity
- A Secure, unconfiscatable Monetary Unit
- A Self Sovereign, Digital Store of value, and
- A Global, Immutable, Digital Settlement Network
But here’s the kicker…
What we can then build with the above, and on top of the above — is endless.
Much like language, and the internet. Simple rules (i.e.; protocols) create a solid foundation. This gives you the opportunity to build infinite complexity on top.
So where did “Blockchain” go wrong?
In short: A complete lack of contextual understanding — both on a Macro and Micro level.
But let’s explore 3 key points:
- Context (Scrambled Eggs)
- Overkill (Rube Goldberg)
First of all, what I like to call “the scrambled eggs theory”.
The “blockchain” ingredient on its own does NOT give you any of the attributes we discussed earlier.
Security and immutability are not some inherent traits that magically appear “thanks to Blockchain”.
Security is a function of cost, and comes as a result of all of those ingredients combined.
In fact, anyone who tells you otherwise, has probably convinced themselves that a great cake is made with only one ingredient, e.g: Eggs.
And that they could make you a “better” cake, if they whisked the eggs much faster.
The reality is they’re not selling you cake; they’re selling you scrambled eggs.
I’m sorry — but that’s not how things work.
Taking the one ingredient out of context, does not yield the same result.
The innovation here is autonomous consensus!
Removing intermediaries means just that. If it must be run by some entity or ‘trusted’ institution, it just reinforces its inherent uselessness. There is ZERO reason to use a blockchain if someone is managing it.
It’s a much more practical approach to just build a tech product that solves the problem — there is NO NEED to slow it down by creating excess redundancy, especially when there is no actual disintermediation of a managing party!
You end up with the worst of both worlds.
You could be in the other camp that says:
“WE AGREE BLOCKCHAIN IS THAT ENTIRE RECIPE, WE JUST USE THE TERM FOR SHORTHAND. WE JUST BELIEVE IT SHOULD BE USED EVERYWHERE”.
I’m here to tell you that taking the entire recipe and applying it to anything other than the four “direct applications” I mentioned above is complete overkill. There is nothing as critical to the function of society as money or value transfer (as I’ll explain later), that could justify or require such an expensive method of disintermediating central authorities.
I mean — the very essence of ‘bad acting’ or ‘stealing’ is related to money (or value). A major reason why the institutions we trust to manage money exist in the first place, is that maintaining some form of integrity in the money
we use to represent our labor is the foundation of our ability to cooperate as a species.
Bitcoin is simply a better way to do this — and places that guarantee of integrity into code, backed by math, and agreed to via broad participatory consensus.
So to sum up, we really only have two situations when it comes to Blockchain.
(exemplified in my sophisticated chart below)
- Blockchain Alone
If we take one ingredient out of the recipe, or even just combine it a couple of the others, for example the distributed computing part (DLT as it’s now being touted as), it’s a complete waste of time and the fact that it must be run by some consortium or trusted institution just reinforces its inherent uselessness.
- The entire recipe
On the other hand, for anything other than what I described above, i.e.; Money or a settlement network; it’s a Rube-Goldberg machine. It’s too expensive, and if we needed that level of validation for everything we do as a society, then nothing would function anyway.
People, groups, companies, entrepreneurs, etc are generally trustworthy and doing the right thing most of the time. We don’t need “everything on a blockchain”.
The issue lies with groups or institutions that have disproportionate power, that have abused that power and that have very little (or no) skin in the game, and whilst there are less of those in number; they create distortions in society due to their size and ability to tamper with the core resource for human collaboration.
A network such as Bitcoin, that reinvents, codifies and liberates something as important as money (like the internet did for information/communication) changes the game for the better by re-introducing symmetry. But it’s expensive, and as I’ve stated, there is nothing else as mission-critical in the world that warrants the application of this formula to be successful.
In the next chapter, we’ll look at Blockchain’s broken promise…