Myth-Busting Blockchain — Part 2

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

Yvo Hunink
Sep 3, 2018 · 10 min read

This is the second article in a series. Click here to go to part 1

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 often not been out of pure interest in the technology, but mostly due to ‘get-rich-quickly’ types, which drove up the hysteria with the promise of Lamborghini’s, while screaming ‘HODL’ and ‘to the moon’.

The first article in this series gave a more extensive introduction on why this article was necessary, so please go there to find it. For this second part, let’s quickly get to busting some more common myths around blockchain technology.

The topics that are covered in this article in bold.

GDPR makes blockchain impossible

The new Europian General Data Protection Regulation (GDPR) is meant to improve ownership over an individual’s data. And it does so, at least if you are targeting centralised company-owned databases. Some people are claiming that blockchain is completely incompatible with the GDPR, because it makes immutability, one of blockchain’s strongest characteristics, the weakest link for adoption in the EU. But let’s dive in a bit deeper.

Blockchains are immutable, meaning they can’t be changed and nothing can be erased without the consent of the full network, which is one of the things what makes them so secure. However, with the GDPR, one now has the right to have personal data removed from databases. There appears to be a conflict. But does this mean that GDPR is completely incompatible with blockchain? The answer is: If every blockchain would be like Bitcoin, yes it could be. But, as we know, that’s not the case.

Ironically, both the GDPR and blockchain technology are aiming for increased ownership of data. However, with the first proposal of the regulation done in 2012, GDPR had not considered the rise of distributed networks, even though it could have since Bitcoin started in 2008. You can see this most clearly in the restrictions of cross-EU-border data transfers. How do you do this in a distributed database environment, where data is simultaneously stored in almost every continent on earth, owned and controlled by many different entities, instead of a single data controller? It looks like a classic example of regulation running late on innovation.

While there are definitely difficulties for the blockchain space with this new regulation, there are already many ways being proposed for GDPR and blockchain technology to co-exist. While the complexity of the process is most likely increased and some advantages of the technology would evaporate, personal data could be stored off-chain, for example, in a way that is explained in this great article by Andries Van Humbeeck, or more techniques in this article by Dave Michels.

So why do I think this is just a little bump on the road of the evolution of blockchain technology? It is important to realize that this technology is in constant evolution. Nothing prevents people from creating a new version of a blockchain protocol that has the built in function of removing one’s personal data after a request to the network, where each node accepts the request and updates the database with your information gone and updating the hashes connecting all the previously stored information. The one’s not accepting the request don’t follow the same chain anymore, thus losing the benefits of being part of the ecosystem, while also breaking the law for everybody to see and law enforcement to track you down. This makes accepting the removal request as a node in the network something you want to do. Incentive design is everything in the crypto-world.

Also, it can be argued that from a data ownership point of view that blockchain is a be a better solution than GDPR. With a self-sovereign identity, the control over one’s data is not in the hands of organisations anymore, but in the hands of the individual. The immutable record of transactions is merely the record of organisations accessing that information, not necessarily the information itself. It is a profound switch in thinking about personal data ownership and it’s up to us to decide which future we want.

Furthermore, the EU has had blockchain technology on its radar for some time now, with an official blockchain observatory research team that acknowledges the problems with GDPR, but does not call game over just yet. Admittedly, the regulations are giving the blockchain world some headaches, but this highly flexible and innovative space is already creating solutions and I think it is only time before the EU fully realizes that this technology could actually help to strengthen the bonds between members and citizens of the union, in a time where the European identity is losing ground.

Blockchains use a lot of energy

Bitcoin uses the same amount of energy as a small country and is projected to use up 0,5% of the total amount of energy globally. This is true without a doubt.

What can be argued, however, is that this amount of energy use to have a global and secure currency, independent of any central authority, bank or government is worth it. Printing paper money, metal coins, mining gold, the salary of bankers, all of it also costs energy and resources. So which system would you rather have?

But let’s put that discussion aside for a moment, since Bitcoin turning into the world currency is not something I see happening, mainly because of it’s limited average transaction speed of 3–7 transactions per second and the inability of the ecosystem to make decisive changes to the protocol to improve that throughput.

Before we can bust this myth, however, it important to know that Bitcoin works with the proof-of-work (PoW) consensus algorithm, the very first blockchain protocol ever created. It is the method used by the distributive system to keep the shared ledger up to date by determining who can verify transactions. In simplified terms, PoW means that a cryptographic puzzle needs to be solved by ‘miners’ before a ‘block’ can be created, which requires an increasing amount of computer power. Upon solving the puzzle, the miner shows the solution to the rest of the network, which all confirm it was indeed the right solution to the problem, and officially allow the miner to create the new block, with all transactions that have been requested (and fit) in the time since the last block, thereby adding a new segment in the distributed ledger. It is to date the most secure way to manage decentralised systems and is used by many cryptoassets. And yes, this method costs a lot of energy and is not very scalable.

Hash Rate over time in the Bitcoin ecosystem — Source: blockchain.info

However, blockchain technology is constantly evolving. Already a vast amount of new blockchain consensus protocols are being proposed to improve scalability. In below video, the most widely discussed replacement of PoW is explained, namely proof-of-stake (PoS). It promises a higher scalability and much less energy use. There are even innovative protocols that can not even be called blockchains anymore. In the trillemma of scalability, decentralisation and security, somewhere an offer must be given, but the optimal balance differs per use case and is a current area of research in the space.

Blockchain is dying after the Crypto-Bubble burst

Did the Internet die after its bubble in the beginning of this millennium? Bubbles are horrible for investors, sure. Some people even lost their life savings. However, if we ever want this technology to truly change the world, we should be happy that the bubble burst. And now, we see claims around that the blockchain world is dying a slow death. So why is this not true?

Most of the activity in the cryptomarkets around December 2017 was hype-based. With a limited rise in adoption of actual use cases, the price rise could only be accounted to speculative reasons. For example, if we take the remittances market, Chris Burniske calculated that Bitcoin would only be worth $20,000.- if it would serve a 100% of the total market of remittances (utility value). While Bitcoin has more use cases than only remittances, it gives an indication of how speculation rather than utilization has driven up the price, since remittance market analysis reports do not even mention the cryptospace specifically (also possibly because of ignorance).

By now, the speculative purchases of cryptoassets have been significantly reduced and we have come much closer to the actual utility value of many coins. And while the activity of speculators might have dropped, developers working on the actual code of these open source systems have steadily kept on working. Downloads of Truffle (a development framework for Ethereum, which I urge you to read about in this clear easy language explanation) have been doubled in less than a year. Also the number of unique Ethereum addresses is still growing, showing people are increasingly exploring the field. The development on Cardano, an Ethereum competitor, is also increasing. Despite a dropping price.

Unique Ethereum addresses — Source: Etherscan
Cardano price (green) vs Github activity (purple) over time — Sourced from Santiment

All this shows that these projects are anything but dying. Rather, in the wake of the hype they are learning from experience, adopting more users that actually use the system for its intended use and are steadily improving their systems.

The best blockchain protocol will win

Traditional top-down centralised systems are easy to manage and, therefore, also efficient. A blockchain is essentially a slower database, where the data is no longer controlled and owned by one party, but distributed among a set of nodes. Only when there is a lack of trust between a set of stakeholders, which is now solved with third parties and extensive audit and verification systems, blockchain systems are potentially an interesting tool to share data.

Sure, the actual technical specifications of the blockchain are important. But no blockchain system will become successful without thinking about its community of users, because blockchains are not systems. They are ecosystems.

To illustrate, there are examples of blockchains that started as the same blockchain, but broke up in an idealistic war. Communities of decentralised systems can split (fork) over a conflict of, for example, the consensus algorithm or how a specific event in the ecosystem should be handled. By the way, do you notice how much this technology actually embodies democratic governance characteristics?

The importance of creating the right environment for an ecosystem to thrive, is perhaps most stressed by this video. We see a group of crypto evangelists who have taken it upon themselves to ‘safe’ the people of Puerto Rico. At one point, a woman in the group cites the 10 principles of Burning Man. Whatever you think about festival culture, these principles are very good community values to have, with our beloved buzzwords inclusion and participation among them. This shows that their intentions are not necessarily wrong. However, watch below video for the Puerto Rican’s perspective on their presence on the island.

Link to video — The Guardian

Again it becomes painfully clear that technology is never a solution on its own, but should always be embedded into social structures that we see around us. Did you feel the anger rising in the room when one of the crypto-guys said ‘You are also American’ to the Puerto Rican woman. It is as if they are speaking a completely different language.

A much better example of community creation can be found in the Humaniq project, who have taken up the mission to bank the unbanked in this world with new forms of digital wallets and money. All throughout Africa they have connected to local ambassadors that go into the communities to try and connect more and more people to the network. Whether they will succeed in banking the unbanked is something for the future to see, but their initial approach is looking much more sound than that of above video.

Conclusion

As with every technological innovation, we have opportunists that see pink clouds and people that take every problem along the way as a reason to stop moving forward. What I see happening in the blockchain sector, however, is that every problem that emerges, within no time has proposed solutions that pop up to overcome those barriers.

Most myths explained in this two-part article are, therefore, not based on complete misinformation luring around, but mostly due to partial and outdated information framed as complete. And you can’t blame people. There is just so much information around, that it gets hard to see the complete image.

Therefore, I hope that this article has helped to add different perspectives to the perceived problems, while also making you an opportunist for this technology along the way, so that next time you hear a reason why blockchain will never happen, you will find out which people are working on solutions to counter those statements, because most likely they are already out there. And most importantly start learning by doing yourself. Sketch and design the world you want to live in and start making it, we now have the technology available to realize that Utopia.

Because our world is becoming increasingly complex and the present does not accurately portray the lessons of the past anymore, our current ways of learning to not suffice anymore either. Especially in risk-averse organisations like governments, this is increasingly problematic, as the already lagging GDPR has shown us. Learning from the future as it emerges is, therefore, the new solution to progress. Emerge yourself, take a risk and construct your path while you walk. You will see you will reach your destination a hell of a lot sooner.

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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.

The Hague Pioneers

Stories by change-makers, idealists and opportunists in the international city of peace and justice.

Thanks to Dirk van den Biggelaar.

Yvo Hunink

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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

The Hague Pioneers

Stories by change-makers, idealists and opportunists in the international city of peace and justice.