Sometimes I have trouble believing the preposterous silliness of so many residents of Nakamoto’s Happy Kingdom.
Some people seem to believe, “If it’s on a blockchain—any blockchain—it must be wonderful.”
This is certainly a frequent theme in sales pitches.
And this blockchain fetish serves to screen out all reasonable thought on the topic.
For instance, I saw a note about a company that plans to offer “Crypto Price Data” “on Chain”, i.e., on one or more blockchains [1].
I’m sorry, call me stupid, but I don’t even understand what this is offering.
As I can tell, this is announcing a mechanism that will post prices via one or more blockchains, not sure which ones. Actually, they are using an existing system that delivers data on blockchains. So, the actual announcement is that they will deliver their own data via something that already exists.
So, what’s the data?
That’s a good question. It is described as “price data”, which must mean a snapshot of recent trading in various crypto and financial assets.
Which assets? Not stated.
What snapshots? Not stated.
From who? Via the company, but no info about how the data is amassed.
I don’t do financial apps, but even I know that the source of your price data kind of matters. A lot.
Another thing that matters a lot is timing. Getting yesterday’s price data today is pretty useless. In fact, every second of lag decreases the value of “current” price data.
Given typical lag times for blockchains, it would seem worth wondering just how “current” these prices might be. Even more so since the intended use of these “on chain” data is for algorithmic trading using blockchain based contracts, which have their own significant issues with lag.
My point is that telling me that this data is distributed “on chain” doesn’t really tell me whether the data is valuable or not. (And, I assume customers will pay for the data, one way or another.)
The other goofy thing is that if I want to build a business with this data, I really need to trust it, right?
Nakamotoans seem to believe that if it is “on chain” it is good data. (Remember: the first law of computation is GIGO. Look it up.)
But, of course, the real question is how the data is collected and what data is being provided. Where is the data coming from? Is this public data or private? Is this just repackaging other sources I can already get? How complete is it? How accurate is it? Etc.
On the timing front, the real question is what is the lag? Is the data timely enough to be useful? Is the lag consistent? How reliable is the stream?
There are also complicated questions that may be important. Like, who else gets this data? Who gets it first? If insiders and special customers get the data first, you may be front runned (or whatever the word is).
All these questions basically boil down to the need to trust the provider and the network. Nakamotoans tend to trust anything “on chain” implicitly. But this is a case where the blockchain offers little comfort. The value of the data mostly depends on where it comes from, not how it gets to you.
What does blockchain technology bring to the party, if anything?
Well, you could surely do this stuff with many different network technologies. We’ve been doing this stuff for decades, we know how to do it. And, the ultimate customer facing products would look pretty much the same with or without blockchain.
I’d say that blockchain may be cheaper and easier for the customer (i.e., app developer), depending on their experience and technical resources. I expect that the bar to entry is pretty low. There may also be other advantages to blockchain in some cases, such as the ability to cross borders.
These potential plusses need to be balanced against the actual value of the data. It might be easy to build an app that looks like a financial service, but actually is useless because the data is junk or just arrives too late to matter.
And blockchain qua blockchain doesn’t tell you whether this data service is worthwhile or not.
- Michael Bellusci (2022) Galaxy Digital Offers Crypto Price Data on Chain Via Chainlink. Coindesk, https://www.coindesk.com/business/2022/09/27/galaxy-digital-partners-with-chainlink-to-offer-crypto-price-data-on-chain/
Cryptocurrency Thursday
Robert McGrath's Blog 