Does the Blockchain have the potential to outgrow it’s maker?
As Bitcoin emphatically, and rapidly approaches a market cap of $200bn, the Blockchain industry, that continually promises to outperform Bitcoin, still seems to be producing more promise than substance.
However, Blockchain Technology will inevitably overtake Cryptocurrency soon, surely. Right?
Well, since around 2012, in private industry, analysts have become obsessed with this notion. To many, the Blockchain is the innovation, all by itself and Bitcoin is a fad that is destined for doom, and the Blockchain will disrupt EVERY industry (at least that according to some).
Why was the Blockchain created? — The double spend solution
To explore whether this is indeed a logical conclusion, let’s have a brief dive into the inception of the Blockchain.
I’m sure you’ve heard the story of how the Blockchain was created by Satoshi Nakamoto in order to solve the ‘double spend’ problem. That is, to prevent a single entity from spending the same coin on multiple occasions. The Blockchain was created to remove the need for an intermediary or authority to be present to verify/approve the transfer of funds from one party to another.
A quick technical overview
Looking at the Blockchain a bit more technically (but without going into exhaustive detail), blockchain works by broadcasting digitally signed and encoded (hashed) transactions openly across the network, then cross examining the validity with the pre-existing network ledger. These digitally signed transactions are then locked in place with a group of transactions that form a ‘block’ that is co-dependent on every transaction that came before it (the chain), and every transaction that comes after it. Because it remains completely open, it is impossible to hack without hacking the entire network and changing every transaction that ever took place on every machine that holds a copy of the ledger (since each block produces a new hash based on the information it holds AND the previous block). It sounds confusing, and to all intents and purposes, it is a very beautifully complex solution with a single, but powerful result. A virtually un-hackable, uncontrollable open and distributed ledger. Intrinsic trust and immutability as a package guaranteed for every user.
This nice illustration from Open University explains blockchain quite well. ImageCredit: http://blockchain.open.ac.uk/
The Blockchain Bubble
As you can see, there is no doubt that 9 years on from it’s inception, blockchain technology is a more than commendable innovation. However, these days, inexplicable attention seems to be given to this mythical ‘super-technology’ that ‘underpins’ cryptocurrency (ugh). In my view, the technological capabilities don’t appear to match the potential, and that itself seems to be forming (gasp!) a bubble.
Not just any bubble, but a rapidly expanding bubble that may go on to engulf a whole ecosystem of asset/token-based ICO’s and faux DAPP’s (Decentralised Applications) that currently have the investment world in an unregulated frenzy. It should also be noted at this stage that this bubble is not restricted to the unregulated Cryptocurrency sphere, far from it.
Organisations and Financial Institutions are being unwittingly duped into throwing considerable sums of money at anything Blockchain related, expecting amazing results, and in reality, the compatibility of Blockchain technology and private enterprise are normally about as complimentary as chalk and cheese (not including accepting Bitcoin for payment, something that every business should do).
If there’s one thing that history has taught us, it’s that where you have large sums of investment, overinflated valuations and limited real-world utility, you normally have reality check (euphemism) that’s just waiting to happen. Yes indeed, for those waiting for the spectacular dot.com-esque collapse of the Blockchain world, there may be a collapse of Blockchain, but perhaps not in the form that you were expecting. Bitcoin and real cryptocurrencies have the potential to fair much better than the private Blockchain industry.
Privatised Blockchain is an oxymoron
What many within private industries may be failing to grasp is that the main advantage of Blockchain is decentralisation. For this technology to truly work, one is required to relinquish control as the primary purpose of a Blockchain is to create trust without the need for centralised ownership and/or intermediary authorisation — the blockchain gives the owners full rights over their currency. Once you remove the decentralised network and replace it with an institution or corporation, you remove the need for a blockchain and go back to ‘trusting’ your institution’s database/server to verify interactions. It is certainly faster, and for the profit-centric goals of a corporation, it’s pretty much the ideal set up. Sure, it doesn’t sound as exciting as ‘Blockchain’, but it is, for all intents, fit for purpose.
Conversely, a privatised blockchain makes about as much sense as a LAN restricted smartphone. Blockchain for most privatised industry is a cumbersome accessory that really doesn’t serve any purpose. The very elements that are accentuated by Blockchain technology (decentralisation, immutability, consensus and trust) are by nature eliminated by private blockchains. The corporate effort to somehow forge a profitable industry out of (what is essentially) a deliberately communist solution is at best misguided, and at worst, just plain stupid. Decentralisation is the disruptive element of the Blockchain.
Selling Speculation?
However, this hasn’t stopped many a well-placed opportunist from spinning a convincing, but largely fictional yarn that is based purely on FOMO and piggybacking the remarkable success of Bitcoin. What’s promised is a replication of this success, and this (they say) can achieved by integrating Blockchain technology into antiquated, profit-driven business structures. The results won’t just be disappointing, if applied without considerable due diligence, they can be dangerous and may result in huge losses, particularly when the irreversible processes of a Blockchain are mismanaged. Just imagine a bank ‘accidentally’ erasing a library resulting in the permanent lockout of $300m of customer funds, like what happened with the Parity wallet.
Inevitably, what seems to be happening is that many organisations and investors are potentially being conned out of huge sums of money, for a technology that ultimately was completely incompatible with their organisational goals from the offset.
So, where is the real application of the blockchain then?
It seems that beyond decentralisation, the application of Blockchain is very limited. This is for a simple reason. Blockchains are slow and complicated to setup (correctly). They are also virtually impossible to maintain en masse with out built in incentives (such as mining and transaction fees). Once the ‘currency’ aspect is removed from a Blockchain, you have a distributed ledger dependent on voluntary upkeep… good luck with that!
This can be seen most poignantly in the dominance of tradable digital assets on the Ethereum platform. Most of the applications built so far are either really cool decentralised applications, or simply operating as ‘sub-cryptos’ on the ERC-20 platform. Compare this with Hyperledger, another Blockchain development platform, that doesn’t seem to be producing anything significantly transformative in the private sector in the many years of its operation. (I am willing and open to be corrected on that point by the way… comments below!)
It begs the questions: If the Blockchain is so amazing for private industry, where are the world changing applications? Where is the Bitcoin beating innovation that this technology supposedly offers? Does it exist, or are we still overlooking the single most significant application of Blockchain technology as it breaches the unfathomable $10K milestone?
In my humble opinion, Cryptocurrency is, and remains the largest and the most unequivocally useful application of the Blockchain. Bitcoin works because it combines the Blockchain with numerous other core technologies (i.e. Cryptographic Signatures, Open Source code, Neutrality of consensus via protocol, incentive-based participation etc.) to create an entirely immutable, trust-inherent community based platform. That is what makes it’s Blockchain so powerful. So, to claim that Blockchain in isolation will somehow ‘overtake’ Bitcoin (or Cryptocurrencies) is like suggesting that fibre-optics will overtake the Internet. The tool may very well find other applications, but as it stands, the primary use case is by a long shot the most appropriate and ingenious application of Blockchain Technology that we have seen.