But can it be the means to an end?
The Internet is raving about the wonders of cryptocurrency. It is touted as the future of the world, the technology that will change how we go about our everyday lives.
While blockchain and other types of Distributed Ledger Technologies (DLT) may have many applications, there is something very problematic about seeing it as THE solution — you assume that there are problems in the world that DLT can resolve.
The cryptocurrency enthusiast will stop me here, and say that there are plenty of problems it can resolve. Trust. Centralisation. Security. A universal currency. My question to them will be:
If it is a problem now, how is it being resolved without cryptocurrency?
There was a group of scientists who were researching on different chemicals for the longest time when they found a dangerously potent formula. They started brainstorming on how it can be used, and who will use it, and finally found a use case for it — it can be a rat poison, a chemical to kill pests. Then, they started approaching pest control companies to sell their product.
In another part of the world, there was a serious rat infestation problem and the local government was looking for ways to terminate the vermin. They explored a variety of ways — rat poison, rat traps, getting cats, putting a bounty on rats.
The group of scientists pitched their idea to the government but were unsuccessful. The final chosen solution was to install rat traps for economical, environmental, and practical reasons.
The problem with many cryptocurrencies is that they are like the group of scientists, looking for practical applications of the technology. They are looking for problems to solve, hoping to change the world with this spanking new, revolutionary technology.
On another hand, if we look at successful startup companies, they usually arise from a need to solve a particular problem. That is to say, there is a problem, there is a deficiency, there is a need to resolve the problem. Hence, the startup founders initiated projects to tackle their pain points.
The lack of trust is a problem.
eBay and Alibaba resolved that issue by having an escrow to assure both buyers and sellers that the platform and the users are trustable. Remittance services charge a fee because you pay for the trust. These are non-blockchain solutions to resolve the lack of trust.
There is no doubt that blockchain can resolve the issue of trust, without a central institution behind it, and it might be extra secure. But the truth is that its current state opens up a whole new set of issues:
- It is not scalable.
- The transaction volume is smaller while transaction fees are higher.
- There are safety issues with sending to wrong addresses.
- Mining takes up excessive energy.
I have confidence that these limitations will eventually be resolved, and that DLT is here to stay. Blockchain will be the means to an end, and the end represents new ways of transactions, new methods of operations.
My gripe is with the many altcoins and blockchain-wannabe companies out there who are looking to understand this technology, and apply it to their industry. Start with the problem, not the solution. Can you solve the problem without the use of blockchain or smart contracts?
We are only at the start of DLT and its applications, and it is a highly exciting space to be following. Feel free to comment below or check out my other articles on cryptocurrency.