Blockchain Hype

This spring I have been carefully exploring the potential and reality of Blockchain technology. To date, there are some real possibilities out there, such as provenance systems, which are believable and useful.

There is also a lot of poorly thought out talk about “smart contracts”, much of which is unrealistic (and possibly useless, even if it worked).  Nevertheless, it has been useful to work through these ideas to find use cases that seem the most important to push.

Unfortunately, there is still a lot of hype about Blockchain technology, making bogus and even silly claims for its potential. I generally ignore such arguments.

However, I think I should make a few notes about the piece in Coindesk, “How the Blockchain Can Unshackle the World” by Jalak Jobanputra. It’s a cute tag line (“chain”. “unshackle”. Get it?), but what is he talking about here?

The article is chock-a-block with a potpourri of not-at-all-new claims, mashed together into a confused paste.

The technology Jobanputra is talking about is “a distributed consensus system that allows transactions, or other data, to be securely stored and verified without any centralized authority”. Skipping over the unexamined claims implied by the phrase “securely stored and verified”, it is quite misleading to imply that the blockchain storage itself can store anything you want, or that using the blockchain alone assures “secure” or “verified” data,, without any authority or authorities.

He sees the Internet of Things as the key driver for “smart contracts”, and is particularly interested in three things:

  1. “They are micropayments enabling a larger number of friction-free transaction.
  2. “The amount of data created by this decentralized network will be staggering, and thus technologies such machine learning and cognitive computing become more importan
  3. “Due to lower transaction costs, more people around the world will have access to goods and services that were previously out of reach.”

This list is interesting, since #2 has nothing at all to do with blockchains. Items 1 and 3 are based on the as-yet-unrealized potential to support microtransactions. My own view is that Bitcoin style blockchains will never achieve such low transaction costs. I also think that the “friction” will be in human interactions with this sea of devices, not in the payment system.

I get it why the IoT is exciting, but blockchain technology isn’t really central to that promise, and may not even be relevant at all.

Jobanputra also sings a song that starts out about “digital barter”, but then talks about a “data vault”, which would allow us to super-securely manage our personal data, such as electronic medical records. What this has to do with blockchains or smart contracts, I’m not sure. On the face of it, it seems to me that a blockchain is absolutely the opposite of a data vault—everyone can see everything out there.

He considers use cases in finance, though his analysis of the problem is very confused, and the notion that a decentralized blockchain could ever be relevant to high speed trading is ludicrous. His big idea is that the blockchain can form a giant, world wide, database of who owns what. This will “unshackle” us from “overhead costs for all the people that double check records”. We will also be liberated from the burdens of mortgage title insurance.

I don’t know how the data gets in there, or why I should trust it. And there is no freaking way that a blockchain can scale up to record everything. This is basically silly.

Venturing into the realm of “unsinkable” Titanics, he imagines that blockchain will record the provenance of art works. In this brave new world, “Forgeries will not be possible”. Right. In any case, digital certificates are the important technology here, the blockchain itself is nearly irrelevant.

He concludes to note that since major banks are exploring the technology, that it must be here to stay. He means to imply that these large institutions intend to implement the concepts he describes. Unfortunately for him, they are actually exploring different uses which will make sure we stay “shackled” to conventional banking and legal systems.

So what exactly are we being “unshackled” from? And how is blockchain technology critical to that project?

It’s not clear.

I think Jobanputra means that “Our current system uses checks and balances at a cost to each of us.”, and a blockchain is a better way to do these checks and balance, one which “unshackles” us from the costs imposed by third parties.

Free us from high service fees?

This isn’t exactly the bold liberation from tyranny, war, and want that we might have dreamt of.

 

Cryptocurrency Thursday

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