The Hague Pioneers
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The Hague Pioneers

Myth-Busting Blockchain — Part 1

Learning from the Future as it emerges in an Environment of Misinformation

This is the first part in a series, see here for part 2.

Never has a technology experienced so much hype on a global scale. Everywhere you hear or read about ‘The Blockchain’. ‘We have to do something with it’ is the most common phrase around. The spike in interest has mostly been due to ‘get-rich-quickly’ types, which drove up the hysteria with the promise of Lamborghini's, while screaming ‘HODL’ and ‘to the moon’, instead of showing pure interest and understanding of the actual potential.

However, when engaging in conversation about the possibilities of this evolving technology, there are often misconceptions visible. Not only is there false information around, often blockchain technology is applied to situations where traditional database technologies could have also served. A recent (Dutch) article titled Blockchain: The Solution for Almost Nothing’, explained some worrying signs, for example, where a municipality got prizes for a blockchain project which was not really using a blockchain. Also, the article claims that the technology does not serve for anything and most applications can be done with traditional tools. The hype cycle appears to have started the downward trend, which looks like a good sign to me.

While, the article has some good points, it shows significant knowledge gaps about the sector and misrepresents data, thereby actually doing the same thing it accuses others of doing (for example taking inactive Github projects as a misleading indicator of a dying technology). Accusations about misinformation filled with misinformation. We truly live in the era of falsehoods.

But most importantly, the article focuses on the present and misses a bigger vision. For most situations, blockchains will not improve processes as they are designed today, but they will allow us to completely redesign the systems that govern our world from scratch. The next wave of poverty reduction and reaching the Sustainable Development Goals could be helped further with blockchain. We just need to dare drawing the world we want from a blank canvas. We are, literally, re-framing the concept of value and how we track it, but are merely at the beginning of it.

Don’t forget, it took 25 years from 1965 to build the foundations of the Internet before the World Wide Web emerged and the technology was opened up to a mainstream audience. People for a long time said we didn’t need the internet to talk to people, since we had telephone lines, right? Or similarly this famous video of Dutch people being asked if they needed a mobile phone, most of them laughing at the idea of it. Why we need a blockchain is not always so clear, because much of the benefits are still to be discovered (though you can find some arguments here).

In this article, therefore, I want to convince you that we need to start learning from the future as it emerges, as famous change management researcher Otto Scharmer (Theory U) argues we should do in this exponentially changing world. Because I believe we should not abandon this technology just yet, I see it as my obligation to inform those who want to dive a layer deeper into what blockchain can and can not do, with the help of some good old myth-busting.

The topics that are covered in this article in bold.

  • ‘The Blockchain’
  • Blockchains (or DLTs) will solve all our problems
  • Blockchains are great for criminals
  • GDPR makes blockchain impossible (in part 2)
  • Blockchains use a lot of energy (in part 2)
  • Blockchain is dying after the crypto-bubble burst (in part 2)
  • The best blockchain protocol will win (in part 2)

‘The Blockchain’

Bitcoin is only the first application of blockchain technology. Many more have come since then, with CoinMarketCap counting a total of 1885 cryptocurrencies that have popped up (most of them utterly useless). And this is only counting public blockchains or ‘cryptocurrencies’. So, ‘The Blockchain’ does not exist.

There are many blockchain varieties, flavors, sizes or versions. Public blockchains, private blockchains, different consensus protocols, low/high transactions speeds, small/large block sizes, various cryptoeconomic incentive schemes, token models and most importantly..
very
different
people.

Wow a lot of words there.. So where the hell do you start, right?

For a quick up to speed on the general concepts and what this evolving technology actually entails, watch this great video by the Centre for International Governance Innovation.

What’s important to note is that not all things that are being called blockchains today are actually blockchains. Often it is just a form of distributed ledger technology (DLT) (for a more comprehensive technical difference between the two, read this article).

All blockchains are distributed ledgers, but not all distributed ledgers are blockchain. DLTs are databases that are similarly stored in multiple nodes and are updated simultaneously with new information. In blockchains, data is structured in linked blocks that are created in a certain time interval and cryptographically secured, with an append only mechanism, ensuring that data can’t be tempered with.

Additionally, blockchains can be designed using ‘inverse game theory’, meaning you can create economic incentives within the system to make certain actors behave in a certain way. It establishes a token economic model, where a token can represent any value, like money, goods, energy, insurance or even less tangible values like education, cooperation or philanthropy. You can now design your own economy around the ‘value you value’. However, each system needs to be designed carefully with the contextual and physical factors in mind. There is no one-size-fits-all.

Also, blockchains can be made interoperable, allowing different ecosystems to merge. For example, imagine private blockchain-based supply chains tracking the value of goods, but also simultaneously interacting with a public blockchain-based carbon dioxide tax system, that tracks emissions and subtracts the tax value in real-time, instead of expensive, fraud sensitive and time consuming audits of databases.

So in short, ‘the Blockchain’, does not exist. Many versions exist and innovation is going crazily fast. While most are talking about Bitcoin still, realise that we don’t drive the first version of a car that was ever designed anymore, right?

Blockchains (or DLTs) will solve all our problems

We must not forget a physical world exist apart from the digital one. A container entering the port of Rotterdam, might be fully verified by a sensor, scanning a bar code and determining the origin of the contents that were registered. But if that funny looking banana is actually a load of cocaine, the ‘blockchain’ does not see the difference. You can still hide all kinds of things in containers. If a fake banana gets registered as a real one, it could even enforce assumptions that all bananas are genuine and make it even more easy for the criminals. The same goes for land registration, where a dispute over who owns the land is not solved by a blockchain if two farmers are both lacking the required proof but are stabbing each other to death. And if a powerful local convinces a ledger that he is the owner of the land, while he might not be, his false ownership is forever confirmed and enforces the injustice. The takeaway here is: Wrong data in, is wrong data out.

Blockchain does not necessary solve this. AI maybe?

There are only specific times when blockchains become useful. In this article by Mohammed ElSeidy, for example a nice flow chart is presented. Furthermore, Kate Dodgson has made a decision tree for HumanityX here in The Hague that will help you determine if you really need a blockchain technology in your line of work.

Still, whenever such fake bananas are detected eventually, the public and shared ledgers we have with all trade information can help to detect where the specific criminal activity in the supply chain has most likely taken place. Especially if you consider that the current recall systems are widely insufficient. In case of an event, law enforcement agencies are now hopping from centralised database to centralised database in search of the criminals or contamination of a product, taking up much time and effort, as the fipronil scandal showed us. This leads us to our next myth. Criminality.

Blockchains are great for criminals

Bitcoin was once renowned for its use by dark web criminals on the Silk Road. Bad guys loved Bitcoin and profited from it greatly. For sure. In addition, many are trying to scam uninformed individuals trying to ride the crypto-wave of investment in a variety of ingenious ways. Sometimes these scams are even completely out in the open, like the famous example of Bitconnect, which turned out to be nothing more than a ponzi-scheme.

But time does not stand still. Every criminal still trading large sums of bitcoins can expect the law enforcement to be on their backs within no time. That’s the benefit of a transparent immutable ledger. Beneath video explains how the US government was actually helped by Bitcoin to track down the criminals, who are not always who you think they are. And while scams are still happening in great numbers, we don’t blame the Internet for having scammed people on eBay, right? We should blame ourselves for putting large sums of money in organisations we are uninformed about.

Still, this myth is not completely busted. Innovation in the privacy corner has spawned a set of blockchain protocols specifically designed for users to remain anonymous. Monero, Zcash, Komodo and many more are promising fully private transactions. According to Europol, criminals are now switching to these systems.

My belief, however, is that this development is a necessary evil in the process towards a greater good. As we will see in the next article, some of our information we will want to remain private. In the future we will see hybrid blockchain systems, such as Polkadot is designing, combining different elements of decentralisation, privacy and transparency. This way we can let general information about the transaction be completely public, while sensitive personal information remains completely private to those who have no business with it.

This last insight is something quite relevant in the next myth, which will be part of the second article of this series on Myth-busting Blockchain.

(click here for part 2)

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Yvo Hunink works as an innovation adviser for the municipality of The Hague, but the views in his articles do not necessarily reflect the views of that organisation. However, in his professional career he does try to inspire people to change their way of thinking about the systems that surround us, to which these articles try to contribute as well.

Please leave a message for any discussion you wish to have and don’t forget to clap clap clap and help spread his views.

Thanks to Roeland Martijn for helping to make this a more readable story.

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Yvo Hunink

Yvo Hunink

Design goes where complexity takes it. Working on the boundaries of chaos and order, so that we can create a world of justice and peace @ City of The Hague