Blockchain Q&A
by Louigi Verona
first published on the 9th of July, 2018
last updated on the 15th of May, 2022
"In order to test how much you know about a given subject, try to come up with a blockchain application that revolutionizes it. If you are able to, you probably don't know enough."
Blockchain has become an incredibly popular concept in the tech world. However, as an experienced product manager and someone who got involved with the blockchain back in 2010, I have come to the conclusion that despite all the hype, blockchain is not useful for anything in the real world. I am hugely skeptical not only of cryptocurrencies, but also of more generic blockchain applications, be it Ethereum, smart contracts, NFTs or all those other proposed ideas.
To find out why I am skeptical, explore the Q&A below. If you disagree and believe you have a satisfactory counterargument, feel free to contact me. If you have an idea of a problem that blockchain is a perfect solution for, drop me a line as well.
Note: While the Q&A addresses blockchain in general, as Bitcoin is still the most popular blockchain product, several questions focus specifically on Bitcoin.
Blockchain is an append-only database that contains cryptographically linked data records, with these records being added when multiple distributed parties come to a consensus based on predefined rules.
In simpler language: it is a long sequence of records, where every record contains a hash of a previous record, new data and an answer to a difficult math problem. Solving this problem allows you to append the next record and at the same time gives you a reward, typically in the form of newly generated money.
The most established blockchain is the original Bitcoin blockchain.
Can you summarize the problems you see with the blockchain technology?
This is the briefest summary possible. Each of those points is explored in greater detail throughout this Q&A.
- non-reversible transactions are inherently problematic, because people make mistakes
- non-reversible transactions protect the initiator, but expose the receiver of a transaction to fraud: blockchain provides increased incentives for malicious actors since transactions cannot be overridden
- the absence of a centralized authority means not only a lack of control, but also a lack of accountability: if a bug results in financial losses, nobody can be held responsible; if you were cheated, you are left to your own devices
- a loss of private keys means an irreversible loss of funds
- blockchain's reputation for security is misleading: it might be beneficial for decentralized peer-to-peer environments, but it actually reduces security for and compared to centralized solutions
- the only proven way to build consensus (proof-of-work) is designed to expend an excessive amount of electricity, an amount which will only grow if blockchain gets more traction
- the concept of "trustless transactions" is both undesirable and unrealistic: in many real world scenarios blockchain operators end up building in the factor of trust, one way or another
- due to deficiencies listed above, blockchain is a poor solution for financial transactions in almost all respects, as well as for any other proposed real world application
It doesn't.
For one, every blockchain, be it Bitcoin, Ethereum or something else, has a development team behind it. Proponents of blockchain focus on governments and banks, but completely forget about the authority that has direct access to how a given blockchain behaves. The development team will periodically make decisions that are capable of dramatically changing the algorithm. As demonstrated by numerous forks of both Bitcoin and Ethereum, these decisions can be quite controversial.
Even the promise of Bitcoin's limited supply can be overridden by Bitcoin developers at any moment. And while this is unlikely to happen, it is crucial to keep that prospect in mind.
As for governments, governments cannot control blockchain only if you define "control" in the most straightforward manner possible. If anything, blockchain is a technology that is especially vulnerable to manipulation by larger actors that possess vast resources. For instance, a government of any bigger country in existence today can mount a 51% attack on a decentralized Bitcoin network in a matter of days. It would not even need to override all of it. Rewriting the records of a year worth of transactions is enough to reduce the price of Bitcoin to somewhere around zero.
Even now we are seeing miners becoming more and more centralized. In 2014 the GHash.IO mining pool exceeded the 51% threshold. While many mining pools have decided to not exceed 39.99% to avoid this situation in the future, there is nothing inherent in the Bitcoin protocol to prevent this from happening. The increasing complexity is going to make mining more and more expensive, and thus more and more concentrated in the hands of those who can afford the equipment. And while the 51% attack does not guarantee success, it can probably guarantee the destruction of trust in Bitcoin as a currency.
How can governments ban Bitcoin?
Based on my conversations with proponents of cryptocurrencies, as well as reading their writings, the myth that blockchain in general and Bitcoin in particular cannot be banned by a government seems to be based on a very superficial reading of what a Bitcoin ban might look like.
Somehow, Bitcoin proponents understand it as seizing mining equipment and banning the ownership of Bitcoins themselves. Having constructed this strawman, they then easily cast it down, explaining that no government would ever have enough resources to hunt down every Bitcoin mining operation, while banning bits and bytes is an even bigger logistical nightmare.
This, of course, has nothing to do with how an actual Bitcoin ban can happen. In fact, a ban of any kind of currency rarely involves seizing the coins themselves. Rather, what's banned are transactions using that currency.
So, all a government has to do is make Bitcoin transactions illegal. This would suffocate the adoption of the cryptocurrency very quickly, since most businesses would not want to risk criminal prosecution. At the same time such measures would significantly drop Bitcoin's price.
This mechanism can be seen in action in cases of ICOs being banned in China and Hong Kong. The latter case is especially interesting, since it shows how quickly an ICO can be banned. And the Hong Kong government did not need to mine Ethereum or compromise the decentralized network in any direct way at all.
The history of Bitcoin's rise to fame is important in order to understand the roots of today's widespread myths and misconceptions about the technology of blockchain in general, and Bitcoin in particular. It is important because the beliefs and core soundbytes of Bitcoin's early adopters have made their way into the technological and business sectors.
Initially, blockchain was championed (and perhaps even developed) by the so-called crypto-anarchists, a community of anarchists who try to use cryptography as a tool to enact their political vision. They believe that cryptography is capable to weaken the power of government and other centralized institutions. A famous crypto-anarchist Timothy C. May writes:
Governments will have a hard time collecting taxes, regulating the behavior of individuals and corporations (small ones at least), and generally coercing folks when it can't even tell what _continent_ folks are on!Cyphernomicon
The failure of this prediction should be fairly obvious by now. While perhaps such naivete is understandable coming from computer engineers in 1994, even back then it should have been clear that such a blissful state of things would only last up to the point that cryptography becomes more regulated. Today, as Bitcoin and other cryptocurrencies begin to enjoy the attention of governments and financial institutions, regulation is being promptly developed.
Some of May's statements, though, should have been puzzling even in 1994, like his contention that cryptography would somehow help people avoid taxes. It's not entirely clear how he envisioned it, unless he thought the whole world would switch to cryptography and move all life entirely to the Internet.
Although today many blockchain proponents would say that cryptocurrencies are, of course, not actual currencies, initially Bitcoin was envisioned as a decentralized currency that would trump the current banking system and put power into the hands of the people. Satoshi Nakamoto, the enigmatic inventor of the blockchain, in his well-known white paper writes:
In other words, Satoshi was aiming to solve the problem of double-spending in order to create a decentralized digital currency.
And it is this crypto anarchist ideology of ultimate decentralization that has sold its soundbytes to technology and business as being advantages and solutions. Only what many people involved in the blockchain hype might not know is that the problems that crypto anarchists are solving might have little to do with what the rest of us would like to solve.
Immutability is a feature of blockchain which means that its records cannot be (easily) changed outside of the consensus mechanism. This makes all of blockchain transactions irreversible and immune to chargebacks. It is often hailed by pro-blockchain companies as an important advantage of blockchain which they claim improves security.
It is one of the most impressive-sounding claims in the world of blockchain. It is also one of the most misleading ones.
Reality is, immutability is important only in peer-to-peer environments. It demonstrably improves security within such environments, but benefits of immutability cannot be trivially applied or compared to centralized systems.
Additionally, immutability is rarely, if ever, a solution in itself. When applied to problems blockchain companies claim to solve, there is usually no problem that requires a solution in form of immutability. In fact, in many cases immutability introduces drawbacks that are seldom mentioned or even acknowledged.
The problem of immutability positioning in the blockchain world is one of the most important issues for an investor to understand. But at the same time it is not immediately obvious, and it is a problem easy to obfuscate. It is especially difficult to notice when reading through an actual whitepaper or listening to a pitch about a blockchain use case.
But it is a fallacy in reasoning committed frequently by blockchain proponents, and understanding the actual place of immutability in the blockchain landscape is important for investors, entrepreneurs and the public.
Let's take a look at this problem in detail.
1. Mutable transactions are not a problem for centralized environments
Many blockchain companies are trying to sell immutability as an important part of their offering. A lot of their whitepapers underline the fact that transactions are immutable, but they do not explain why immutability would be an advantage in a problem space they are targeting.
For instance, an online identity verification startup I was researching lists immutability as an advantage in their whitepaper:
This is positioned as an advantage of their solution. However, when I asked their Marketing Director whether there is a problem in the identity verification industry with chargebacks, his response was: "I don't have data around that".
Which tells me that there is, in fact, no such problem. And immutability is not an advantage of their solution, it is simply a feature that comes with it, whether identity verification needs it or not.
AIDChain, a startup trying to utilize blockchain for charity assessment, has the same gap in their reasoning:
This strikes me as a thinly veiled implication that charity assessment organizations are likely to collude with the charities they assess. So likely, in fact, that we need AIDChain to solve that problem.
But we are presented with no evidence of such a fraudulent scheme ever emerging. Unless there is a proven record of charities submitting documents to charity assessment organizations and then someone tampering with them, blockchain's immutability adds absolutely no value. And submitting documents in order to then tamper with them seems like a very unpractical way to cheat anyway. I was able to find no scandals involving a charity assessment organization being bribed by a charity so that they allow access to already submitted documents. And yet, this is a problem that AidCoin proudly announces to solve. Where is the value in solving a problem that nobody has?!
And the answer is: there is none. But blockchain requires immutability in order to function, which is why it is there. The nuance here is that the startup is trying to sell it like a security feature relevant to charity assessment, where in reality it is only relevant to blockchain.
Same with many other cases. Many cryptocurrency supporters, for example, will say that the advantage of immutability is that transactions cannot be reversed arbitrarily by the sender. But are transactions being arbitrarily reversed by senders on a scale that warrants a special solution? Research shows that this problem does not exist.
Cryptocurrency supporters sometimes bring up credit card chargebacks, but abuse of credit card chargebacks is in most cases severely punished, and abuses of chargebacks are not at all numerous.
Which means that positioning immutability as an advantage is more of a rhetorical device. By claiming that your technology will make sure that problem X will not happen, when in reality problem X is not happening anyway, you make it feel that your technology is more useful and revolutionary than it really is.
2. Immutability is only necessary for decentralized environments
So why would companies based on completely different premises, such as a cryptocurrency project, a charity assessment organization and an identity verification startup, be so obsessed with chargebacks? An alien from another galaxy looking at these whitepapers might be forgiven to think that chargebacks are the biggest concern of our civilization.
But what all of these companies are not saying is that immutability is a necessary feature in a decentralized environment. In other words, immutability is a solution to a problem that exists in a peer-to-peer environment only. Therefore, immutability is not an advantage, it is an inescapable feature of blockchain, whether you like it or not.
The reason why immutability claims are misleading is because all of these whitepapers rarely, if ever, point out that immutability adds security as compared to a peer-to-peer environment without immutability, not as compared to a centralized environment.
This is incredibly important, because only this understanding allows to begin comparing apples to apples. In the vast majority of cases claims about blockchain security make it seem as if blockchain is being compared to current solutions in the real world, whereas in reality it is being compared to an uncontrolled peer-to-peer environment.
The identity verification company's whitepaper actually does say it. Let's look at their wording again:
This time I highlighted the relevant phrase in bold. It gives away the real reason why their solution uses immutability: because it has removed a centralized controlling component. It has no choice but to have irreversible transactions.
3. The downsides of immutability
So, immutability is not helping solve the initial problem, instead it is a mechanism that makes it possible to operate in a distributed peer-to-peer world with some sort of consistency. But does it have any downsides?
From the point of view of the initial problem, immutability can either be neutral, or have downsides. In the vast majority of cases, immutability will have downsides.
These downsides are rarely, if ever, mentioned by blockchain proponents. Instead, things like chargebacks and transaction disputes are being painted as inefficiencies that need to be removed because they are inconvenient for businesses. Here is an actual quote from a reddit discussion, and it is one of many expressing a similar sentiment:
But reversibility and chargebacks are primarily consumer protection mechanisms! Isn't being complacent with theft more inefficient than setting up mechanisms to return the funds to rightful owners, as well as punish and block perpetrators?
It is especially interesting to read such comments, given the fact that many of cryptocurrency proponents are so anti-corporation. But in this case they side with businesses and not customers. The problem they see here is not people being cheated or people trying to fix a mistake, but that it is a huge headache for businesses. I think that this fluke is the result of motivated reasoning, with the aim to protect blockchain from any criticism.
So what would be the typical downsides of immutability? They are generally the same for everyone: not being able to fix a mistake, not being able to reverse a transaction to cancel malicious activity, guaranteeing that no chargeback mechanisms are possible in the future. In other words, immutability dramatically reduces consumer protection.
In some cases these downsides might not be as glaring. A crypto-kittens game might afford a bit of theft and a bit of mistakes. But as the stakes grow higher and higher, and wander into finance, identity and legal areas, immutability downsides become central considerations.
Conclusion
The difference between understanding the role of immutability in blockchain solutions could be the difference between adopting blockchain or not. It must be made completely clear to the public: immutability is not an advantage, it is not anything that adds to contract security or financial security. Immutability is the cost of decentralization.
Which is perhaps why blockchain companies prefer to largely obfuscate the matter. The sole fact that immutability downsides are never mentioned is a sign that rational evaluation of blockchain technologies is in short supply.
And it is also entirely possible that an understanding of the downsides of immutability is what will eventually kill blockchain.
Are you saying that decentralization is not an advantage?
Decentralization might be an advantage in one case, disadvantage in another. I do not view decentralization as the holy grail of human society. It has become a kind of a buzzword in the blockchain community, with people assigning it all sorts of advantages, but usually without evidence.
Decentralization has its costs, from the need to have irreversible transactions and running the more and more expensive proof-of-work, to having nobody accountable for anything. Therefore, the case for decentralization has to be very strong. But usually no case is made at all. Instead, by "making a case" blockchain proponents understand throwing out unsubstantiated claims about security, transparency and low-cost. And they seldom, if ever, compare the efficiency of their proposed solution to what we already have today.
This is not to say that decentralization does not have legitimate use cases. For instance, Wikipedia is a project that has definitely benefited from decentralization. Decentralization allowed to pull together resources which otherwise would either be too costly or simply unavailable. However, notice that the cost of making such decentralization work is actually quite significant. Wikipedia is highly regulated and over the years has implemented a complicated hierarchy of contributors and policies. Also notice that it is not fully decentralized. It is ran by a centralized foundation without which the project is highly likely to collapse: at the very least, someone needs to be paying for the servers.
So, decentralization has its uses, but it is a piece that would not fit into every puzzle.
And, finally, even if there is good case to be made for decentralization, decentralization does not automatically mean "blockchain". There are many decentralized technologies which get the job done without being a blockchain.
Bitcoin's history is irrelevant. What's relevant is what the blockchain will end up being used for.
A historical perspective is useful in helping one realize that perhaps the main advantages of blockchain should be re-examined.
Because most people who have invested their time, money and efforts into Bitcoin seem to be idealistic engineers with no understanding of economics, commerce and product management, and because at the time what a cryptocurrency could offer seemed to them like genuine improvement.
As someone who had followed Bitcoin since 2010, sat on panels with crypto-anarchists and even mined a little bit of the famed digital coin, I can say that the level of ignorance on the subject among early adopters was colossal. People misunderstood fractional reserve banking, did not know the difference between types of money, such as commodity and fiat, believed all sorts of conspiracy theories about banks and corporations, and held bizarre and emotionally charged views about what function money plays in society.
Satoshi's original white paper outlines what he believes to be problems with the current monetary system - problems his electronic cash was to solve. These problems include:
- the inability to make completely non-reversible transactions for non-reversible services due to not being able to avoid mediating disputes
- the cost of mediation increases the costs of transactions, preventing casual micropayments
- the need for merchants to ask for more information about buyers than they would otherwise need
From the tone of Satoshi's white paper and from some of the writings of crypto-anarchists, like that of Timothy May, and from my own past experience as an anarchism-leaning youth, I get a feeling that their belief in cryptocurrencies is based on the advantages that a cryptocurrency offers, advantages that are obvious and clear to them, though probably not so much to everyone else. The whole concept of exchanging trust-based relationships for a blockchain is based on a thorough distrust of financial institutions and governments.
Bitcoin started out as an incredibly ideological project. It was a way to "fight the system" and identify with a rebellious worldview. I believe that it was this energy that fueled early backers to take Bitcoin seriously.
Afterwards Bitcoin began to be adopted by people who simply decided to make money off of it, including those who utilized it for illegal trading, and this phase of Bitcoin was as important. But it would have been completely impossible without the ideological infusion that ocurred in the beginning.
The engineering background of many of the Bitcoin supporters also plays a role. Blockchain is a clever idea and engineers tend to get too focused on this cleverness. Many of them are disconnected from practices of translating technologies into actual products, and are often unable to recognize the ineffectiveness of blockchain as a solution to real world problems.
Outside of this relatively small community of ideological supporters, skepticism towards blockchain is pretty common. Even people who join blockchain startups find it normal to voice doubts about the long-term relevance of blockchain technology.
Blockchain is useful because it is a truth preserving machine.
This commonly promoted sound byte is mostly a terminology misinterpretation, although one that has confused many technical people as well.
In many technological areas, a term like "the source of truth" is a metaphor for the original state of an app or some configuration that needs to be propagated through several layers of a system, which is why it is important to somehow get access to the "source of truth", be it original user input or a saved state, etc. In that narrow technical sense blockchain is a truth preserving mechanism, meaning that it preserves a certain state, in this case a record of transaction.
However, this has nothing to do with the common meaning of the word "truth" as in "authenticity" or "legitimacy". In that wider sense blockchain is not a truth preserving mechanism at all. Unfortunately, many people's belief in the usefulness of blockchain rests on that erroneous interpretation of the word "truth".
The critical problem of blockchain is that it cannot handle mistakes. In other words, the blockchain concept assumes that we start with a true statement, and then focuses on preserving that statement. But what if the initial statement was an error?
Blockchain has no mechanism of handling errors, and this is by design. Anything inputted into the system and then verified by the distributed consensus process is treated as "truth", truth that blockchain will not let go of. This makes blockchain a perfect environment for fraudsters and thieves, because whatever a malicious actor does becomes irreversible.
So, from the standpoint of the usual meaning of "truth", blockchain is not a truth preserving mechanism, it is a history preserving mechanism. And it will preserve both true statements and false statements with equal rigor.
Blockchain is useful because it removes the need to trust a third party.
This is mostly false.
Blockchain removes the need to trust a third party if you are a seller. The buyer is actually disfavored by blockchain, since non-reversible transactions are good for a seller, but not for a buyer.
In fact, in the original Bitcoin white paper Satoshi Nakomoto openly states that to protect buyers from fraud "routine escrow mechanisms could easily be implemented", which are a third party service based on trust.
This is why there is so much fraud surrounding Bitcoin. This is not a coincidence. Since the system has a disbalance and one of the parties is at a disadvantage, malicious actors are able to abuse this property of blockchain to enrich themselves.
But this is not the only dependence on a third party. The blockchain development team can change how the algorithm works at any time, fork the database at any point in time and at any node, therefore a certain amount of trust should be put into the developers behind a given blockchain.
The Bitcoin whitepaper lists problems that can be solved with the help of a blockchain.
Satoshi's original white paper outlines what he believes to be problems with the current monetary system - problems his electronic cash is to solve. The whole introductory part of the work consists of two paragraphs, which represent mere 12 sentences. Therefore, Satoshi's reasoning can't help but be cursory. Nevertheless, here are the problems he lists:
- the inability to make completely non-reversible transactions for non-reversible services due to not being able to avoid mediating disputes
- the cost of mediation increases the cost of transactions, preventing casual micropayments
- the need for merchants to ask for more information about buyers than they would otherwise need
Let me briefly comment on them one by one.
i. the inability to make completely non-reversible transactions for non-reversible services
Satoshi introduces a term "non-reversible services", but does not define it. It is not entirely clear what he means, as any service is an intangible good and, thus, non-reversible. At the same time, a poorly executed service might justify a customer asking for a refund. Is such a service non-reversible?
Either way, a completely non-reversible transaction is a transaction that protects the seller, but not the buyer. It is precisely because of this circumstance that transactions need to be at least somewhat reversible. Modern consumer rights legislation allows the customer to demand a refund within a certain period of time, depending on the jurisdiction. This way a sort of balance is struck between the interests of a buyer and a seller.
Bitcoin unhesitatingly skews the balance in favor of the seller.
But what about the buyer? With all the talk about not having to trust a third party, Satoshi states that in order to protect buyers from fraud "routine escrow mechanisms could easily be implemented". In other words, a third party service based on trust.
And, of course, completely non-reversible transactions are a haven for fraudsters. They add an additional incentive to thieves, because once cheated, the buyer has no recourse but to move on.
ii. the cost of mediation increases the cost of transactions, preventing casual micropayments
The Bitcoin protocol does not necessarily solve this problem, as it has a fee embedded into every transaction, and although it is not a blocking fee - one can send the payment without it - due to the very low transaction threshold a fee is very mandatory in many cases. During the heavy traffic of December 2017 Bitcoin fees jumped to as much as $50. So much for casual micropayments!
It is also not clear what enables Bitcoin to be so attuned to micropayments. Satoshi seems to argue that the absence of disputes mediation leads to low cost transactions. And yet his system introduces a new cost, a cost of proof-of-work. While in the beginning miners could be relied on to mine for a reward, increasing complexity and decreasing rewards are bound to eventually force them to ask for a fee. So, how does that lower the transaction cost? It actually raises it in the long run.
Thus, we are forced to conclude that blockchain is not especially fit for casual micropayments. The only reason why most of the time using Bitcoins for such payments works is because most of the time traffic is low and fees are unnecessary. A wide adoption guarantees fees to be high.
iii. the need for merchants to ask for more information about buyers than they would otherwise need
Satoshi writes:
As I mentioned earlier, Bitcoin white paper focuses on technology, not on philosophical reasoning to introduce it. Therefore, one would not necessarily expect it to provide in-depth argumentation. It is also possible that Satoshi was addressing people who had enough of a context, and he might have felt no detailed explanation was necessary.
Having said that, Satoshi's analysis as it's presented in the white paper is incredibly superficial and problematic.
First of all, we must again notice how he seems to be identifying with the merchant's point of view. As if merchants are not able to cheat customers! The only concern for buyers expressed in this paragraph is that buyers are "hassled for more information". An inconvenience, perhaps. But either Satoshi believes that merchants rarely cheat customers, or is simply uninterested in that use case.
Second, he seems to claim that a certain percentage of fraud is accepted as unavoidable due to the current state of affairs in the financial world, with the implication that his system is such that any fraud is avoidable. Even on a theoretical level this is ludicrous: a certain percentage of fraud is accepted as unavoidable in all cases, due to the fact that we are humans, we make mistakes and can thus always be cheated under the right circumstances. No technology would be able change that.
But we are in a position to go further and look at the empirical evidence. The amount of fraud surrounding Bitcoin and other cryptocurrencies is immense. Definitely, not less that in other areas of human activity. And, due to the lure of non-reversible transactions, lone hackers were able to kill off whole businesses and force blockchains to fork due to the unthinkable sums swindled. Computer viruses routinely scam people out of their Bitcoins.
Satoshi seems to base his confidence in Bitcoin on a ridiculous statement that physical currency somehow avoids payment uncertainties. This again makes sense only from a merchant's point of view, whose goal is to receive the payment. Nothing is solved for the buyer. If the buyer was cheated, their physical currency is gone.
But yes, the merchant no longer needs to know anything about the customer. Was that such a big problem to begin with?
Conclusion
The conclusion must be that Satoshi's case is simply unconvincing. His analysis of the financial world is superficial and riddled with shallow insights. His Bitcoin solution is contradictory and of questionable quality:
- He claims to have designed a system that requires no trust relationships, but offers an escrow as a solution to protect buyers from fraud.
- He claims to have designed a system that accommodates micropayments, but builds in fees with incentives to increase them with time.
- He claims to have designed a system that removes worry of fraud, but instead does that only from the point of view of a merchant. The only advantage to a buyer is that they need not disclose additional information about themselves to a merchant, which is not a problem humanity seems to be especially struggling with.
The only thing that Satoshi's solution definitely does is solve the rather academic problem of double-spending. And the solution is academic as well: clever and impractical.
Can't blockchain solve problem [insert anything here]?
One of the main mistakes I see people commit when assessing the usefulness of blockchain is limiting themselves to finding a problem blockchain can solve. Once such a problem is found, blockchain is then exonerated.
The mistake here is in not considering competing solutions, and failing to do evidence-based analysis of costs versus benefits. The main criticism of blockchain is not that it cannot solve a given problem. It is that it fails a cost–benefit analysis against other solutions.
The reason this frequently goes unrecognized is that people tend to come up with blockchain usage cases in areas which they are not experts in. As a result, their understanding of the problem they are trying to solve tends to be superficial and at times even completely wrong.
The only way blockchain can be thought of as the most effective solution is if one considers decentralization to be the main goal, with governments, banks and other institutions viewed as malicious actors.
Proponents of blockchain-based technologies need to understand: blockchain is a political anarchist project to build a currency that would work outside of law. It is tailored towards solving a particular ideological problem, and this problem is to try to remove any financial and governmental authority from a transaction between individuals - not make this transaction quick, scalable or efficient. To a crypto anarchist speed and efficiency are quite secondary.
And, unfortunately, crypto anarchist goals have been perfectly translated into blockchain, which is good at removing an authority from a transaction between individuals, but not particularly good at anything else.
Bitcoin has multisignature transactions which are as reversible as credit card transactions are.
This is false.
Multisignature transactions are transactions that should be approved by more than one party. Once the transaction is signed off, there is no way to reverse it.
What proponents of Bitcoin are referring to is one of the use cases of multisignature transactions, as described in the Bitcoin Wiki, "2-of-3: Buyer-seller with trustless escrow".
The idea is that if the transaction goes smoothly, then both seller and buyer sign off on the transaction. If something goes wrong, both could choose not to proceed and cancel the transaction. If there is a disagreement, a third party arbitrator decides who is right and gives them their additional signature, thus moving the transaction forward. The scheme is misleadingly called "trustless escrow", because the arbitrator cannot steal the money as they have only one key. But, obviously, both sides of the transaction should trust the arbitrator to not be biased, so the escrow is not entirely trustless.
The problem with this scheme is like with any escrow: it makes the initiation of a transaction more involved, but once it is signed off, there is no way to reverse it.
Consider a situation when a product is delivered to the buyer, they are happy and sign the transaction. A week later a serious problem with the product is discovered, something that was impossible to notice on delivery. However, the transaction is non-reversible, and the only recourse the buyer has now is outside of blockchain.
Blockchain is like the early Internet. Nobody thought the Internet would be useful in the early 90s!
This seems to be a very popular argument among blockchain enthusiasts. The idea here is that if you look at many successful technologies, in the beginning they probably made little impact on our everyday lives and seemed useless to many people.
The primary weakness of this argument is that it can be applied to failed technologies as well. After all, skepticism is a reaction reserved not only for revolutionary ideas, but also for genuinely bad ones. And while a given technology might seem useless because it is still very new, it might also seem useless because it really is.
Another way to put it is this: a blockchain proponent must explain why they are comparing blockchain to a technology that was ultimately successful as opposed to a technology that ultimately failed.
For instance, we can say that Bitcoin is like Google Glass: it sounded great and revolutionary on paper, but turned out to be unhelpful in the real world. Currently there seems to be no overwhelming evidence that blockchain is not destined to become the next Google Glass or, say, Segway. The latter was touted as a revolutionary transportation vehicle, but instead became a niche and gimmicky device for mall cops and tourist groups.
The only way the statement works is if you already believe that blockchain is a revolutionary technology, and your goal is to explain how important you think it is by comparing it to something as pioneering as the Internet. It, however, is not an argument that lends credence to the claim that blockchain actually is as pioneering or useful as the Internet.
Additionally, I don't think that there is much evidence that the Internet did not seem useful in the early 90s. Of course, nobody knew exactly how much it will reshape our lives, but the core difference between Internet technologies and blockchain is that Internet immediately started solving real problems. Blockchain so far has solved none, unless you count illegal trade and unregulated ICOs.
ICOs (Initial Coin Offerings) are often cited as the most visible achievement of blockchain: a solution to a problem of raising funds. And indeed, although by middle of 2018 most ICOs have already failed, there are several success stories.
Unfortunately, the argument that this proves blockchain has found its niche use case is flawed.
First of all, I would argue that the only reason ICOs are a thing is due to the hype around blockchain and digital coins. In any other situation it would be very difficult to imagine anyone wanting to invest in a business by purchasing an unregulated virtual token. And if the blockchain hype is unfounded, arguing that a misguided public interest in blockchain proves the usefulness of blockchain is textbook circular reasoning.
But the most important argument is that ICOs are useful only as long as they are unregulated. Investopedia writes: "An Initial Coin Offering (ICO) is used by startups to bypass the rigorous and regulated capital-raising process required by venture capitalists or banks."
And this is exactly what's happening. ICO is simply a cheap way to raise funds for companies that would otherwise not qualify for a proper IPO. Not only that, but in the vast majority of cases these coins come with no guarantees or rights for their holders, which means they are essentially a way for the company to get funds with no strings attached. After all, there are reasons why IPOs are highly regulated: this regulation is not a conspiracy of bankers, but instead measures to tackle problems that typically arise in financial investment.
And it is important to point out that I am not arguing that most ICOs are scams. Even if we imagine that none of them are scams, they still usually come with no legal strings attached, because this is precisely the point for a startup to go for an ICO.
So, sure, in the short-term blockchain is solving a problem. But it is a temporary solution, similar to taking advantage of a legal loophole.
We are already seeing regulation catch up with blockchain startups. After China banned ICOs completely, companies promptly moved to Hong Kong, only to find themselves being regulated by the Securities and Futures Commission (SFC). And the regulation came down to forcing companies halt their coin offerings and refund the value of tokens to their investors. This, by the way, is a good demonstration of how a cryptocurrency may be banned - quickly and effectively, in spite of all the decentralization.
Of course, blockchain proponents might actually say that they would value ICOs being properly regulated. In that case, I see no reason why ICOs are not going to enjoy the same level of regulatory scruitiny as IPOs, if not even higher.
But once ICOs are regulated they way IPOs are, I no longer see a case for blockchain.
Cryptocurrencys' scalability is being addressed, and solutions are already being deployed!
The solutions that are being deployed are marginal. The current limit of Bitcoin is believed to be 7 TPS (transactions per second). Bitcoin Cash, crypto-world's enterprise to deliver scalability, has increased this number to maybe about 35 TPS by increasing the block size limit from one megabyte to eight megabytes. The change was so controversial that Bitcoin Cash had to hard fork.
Now consider the throughput of Visa, which can handle over 24,000 TPS according to the 2010 numbers. Today a number of 60,000 is thrown around, although I could find no sources for this.
But let's say that eventually one of the coins does reach a satisfactory throughput. After all, Paypal claims to have TPS slightly over 190, which is not that far off.
Another scalability factor is the cost of proof-of-work, which grows rapidly. Even today Bitcoin mining consumes as much energy as Chile. If more people start using Bitcoin, energy consumption will continue to grow, and that contest is unlikely to stop. I consider the cost of proof-of-work to be a bigger issue than TPS.
But, most importantly, I don't consider scalability to be the killer bug of blockchain. This is an engineering problem, and I can imagine developers eventually figuring it out.
Buyers are protected from fraud by blockchain being transparent. Stolen funds can be easily tracked.
This is neither protection from fraud nor a reliable way to get back stolen money.
First, tracking stolen funds does not help much. It might prevent a thief from spending them through legal means, but that's pretty much it. Even if a criminal is somehow completely prevented from spending the money, at the end of the day your money is now stuck in someone else's wallet with no viable path to get them back. Computer viruses have sent people's Bitcoins to wallets where they sit idly for years.
But in reality criminals are cashing out, even in cases of high profile crimes. This is done by using bitcoin mixers, which make it very difficult and eventually plain impossible to tie cryptocurrency that ends up in legitimate exchanges to the initial attackers. The owners of the WannaCry ransomware attack wallets have cashed out in August 2017, three months after the attack. Same happened to the Bitcoins from the Petya/NotPetya attack. An impressive animation put together by the Quartz journal shows how this looks in the blockchain.
Identifying criminals is also very difficult. If criminals proceed with caution, they might never be found. An interesting article in the Science magazine documents FBI's hunt for the administrators of Silk Road. The only reason several people had been caught was due to their indiscretion. And while newer data science methods might help make this search easier, it will continue to be a very difficult and long process nonetheless.
It is not.
From the definition of store of value:
Bitcoin's value and usefulness are not at all guaranteed, and so it does not conform to the definition of store of value. What Bitcoin is, is a speculative instrument, like stocks of a publicly traded company. And speculative instruments are not stores of value.
The real purpose of blockchain is to run smart contracts.
Smart contracts are algorithms which run on top of blockchain. They are envisioned as a more flexible instrument than cryptocurrency to allow people to create complex agreements. General claims of benefit generally match those for blockchain: the removal of a need to trust a third party, reduction of bureaucracy, reduction of costs by removing the need for lawyers.
All of these claims strike me as poorly thought-out and unconvincing.
First of all, anything based on blockchain inherits problems of blockchain: irreversible transactions favoring a seller; a permanent loss of access to funds/contracts with a loss of private keys; huge cost, expended to run the blockchain for smart contracts in exchange for questionable advantages.
But, in my view, it's even worse. Smart contracts significantly enhance deficiencies of blockchain: by proposing to regulate complex and sensitive business operations, smart contracts raise the stakes, and can be argued to ultimately make matters worse by increasing the cost of setting up contracts, as well as introducing security problems which are potentially unsolvable.
i. a fundamental security problem
In today's world security measures surrounding contractual obligations are solved through both preventive and corrective measures. In other words, you make sure to think of as much possible problems as you can, and try to prevent them beforehand, but if something unanticipated happens - you have further legal recourse to amend your contract or argue your case in court.
In the world of blockchain corrective measures are no longer possible. This happens due to the irreversible nature of blockchain transactions. Remember, similar to what we have addressed in the question about multisignature transactions, all smart contracts really are - are a more convoluted way to initiate a transaction. But once a transaction occurs, there is no way to reverse it.
Therefore, the full weight of providing security is shifted to preventive measures. Given that the future can never be modeled with a 100% accuracy, and in many cases the accuracy of predictions is far, far below what we want it to be, this becomes a fatal security problem, unsolvable in the observable future.
This is an incredibly important point, routinely glossed over by blockchain proponents. Again - a smart contract is useful only in a world of perfect information. Any deviation from perfect knowledge of the future will create unanticipated situations which will empower the seller and disarm the buyer. And as blockchain transactions are non-reversible by design, a seller will now have an additional and, in fact, an enormously increased incentive to pore over a contract in the hopes of finding a loophole. Special experts can be hired to look for loopholes in smart contracts in order to exploit them.
This in turn will make the initial work of setting up a contract a lucrative and widely demanded service, with the best minds of humanity designing contracts that are difficult to break. And instead of driving down costs and removing "the middle man", smart contracts will only dramatically increase the costs and create an even bigger and more sophisticated industry of lawyers.
That this security problem is ultimately unsolvable can be grokked from a simple empirical fact that any software always has bugs. And the more complicated the software is, the higher the probability that it contains bugs. Now imagine that you cannot even iterate over software. You release it once, and if there are bugs to be exploited, all you can hope for at this point is that no one notices.
Of course, it can be argued that standard contracts can eventually evolve to be very safe. But life is permeated with special cases. Real world demands flexibility, flexibility that would be very difficult to provide within the blockchain environment, since a unique requirement could also introduce unintended loopholes.
But there is a deeper issue. As Karen Levy of Cornell University writes in her article "Blockchain-Based Smart Contracts and The Social Workings of Law", security is fundamentally sociotechnical: it involves the confluence of both human/institutional measures and technological ones
Smart contracts is an intellectual fantasy of over-reliance on technology, a belief that we can create perfect programs that will automatically run our lives. This is magic in a form of technology.
ii. the business limits of smart contracts
Non-reversible transactions seriously limit smart contracts to a very narrow niche of use cases.
It is easy to imagine that many people would simply never agree to the harsh conditions of a smart contract. Mistakes happen, circumstances change. Real world often requires much more flexibility than a pre-written software algorithm, and practicing specialists know it all too well.
Moreover, not all transactions fit into the one-way scheme to begin with. Blockchain's feature/bug of being able to deal in one-way transactions only, excludes a whole class of agreements that require transactions in both directions. For instance, any contracts that involve investment in risky assets. Dr Gideon Greenspan in his excellent article "Why Many Smart Contract Use Cases Are Simply Impossible" writes:
There is no way for the bond issuer to make use of the funds raised, while simultaneously guaranteeing that the investor will be repaid. It should not come as a surprise that the connection between risk and return is not a problem that blockchains can solve."Why Many Smart Contract Use Cases Are Simply Impossible"
And so again we see that the biggest practical gap of blockchain is its inability to adhere to the interests of both sides. Blockchain inevitably favors a seller, and blockchain's "trustless" nature is always at the buyer's expense. And so the only way to invest is to give up your money and hope for the best.
But smart contracts have another problem, which might make them unreliable for serious transactions, and it is the enormous risk embedded into the technology: the loss or theft of laptops, hardware private keys and flash drives would lock people out of their contracts and fortunes forever, with absolutely no legal recourse. Unlike a loss of a password to your bank account or a loss of your ID, there is no authority that is capable of fixing this for you.
This chink in the armor of blockchain technology makes it completely unacceptable as a serious business tool. It is just way too risky.
iii. law is more than code
And, finally, the advantages of smart contracts are based on a flawed understanding of the breadth of what the law does. As Karen Levy writes in the already quoted article:
Contracting, in particular, is a deeply social practice in which parties engage for all sorts of purposes, and the effects of contract negotiation reverberate outside of the “four corners” of a formal agreement, in both time and space. In legal studies, the legal realist perspective has long focused on how law unfolds in in vivo practice, and emphasized that these practices may diverge significantly from “on the books” codes and agreements."Blockchain-Based Smart Contracts and The Social Workings of Law"
While I cannot over-emphasize the importance of reading the complete article which is available in full free of charge, one of the examples that is brought up by the author is writing or acceding to purposefully vague terms, which is done to facilitate stable and flexible long-term relations. Another is the inclusion of mutually unenforceable terms in order to influence and communicate norms for future behavior.
But what that really means is that the view that a proponent of smart contracts holds about law is an oversimplified opinion of a dilettante, who has little understanding of why law exists, how it emerged, developed and why we need it if we want to enter into flexible long-term relations, facilitated by complex mutual agreements. This non-expert proposes a solution which he thinks will just work simply because it is a database that cannot be tampered with, but in reality this is a naive suggestion which would have been promptly taken down by any legal expert if only one would have been consulted.
iv. Conclusion
Smart contracts is a concept which is clearly way too risky for any serious business transaction, has the potential to explode the costs of writing contracts to unimaginable proportions, and is a poor substitute for law and its function in human society.
Even if smart contracts could be applicable to some narrow use case like buying digital assets in an online game, at this point it becomes unclear if the immutability of blockchain is even necessary at this point.
Blockchain is useful for adding transparency to charities.
One of the alleged use cases for blockchain is charity transparency. A project that aims to do that is the AIDChain platform with their AidCoin token. In their whitepaper (v.04) they note a decline in the trust of big charities because of high profile cases of charity fraud. They further claim that current methodologies of assessing charities are limited to self-reporting or third party reporting, which itself is based on charities' self-reporting.
The whitepaper then claims that AIDChain/AidCoin is a solution, because it offers a lower cost of transaction; more efficient tracking of funds; transparency based on smart contracts, which would return the money to the donors based on certain conditions; tax deduction, since currently blockchain tokens are not regarded as cash. They also add that adopting AIDChain/AidCoin would be very simple for charities and allow them to not have to invest in the IT sector.
Unfortunately, the picture painted by AIDChain's authors is very misleading.
They are right about the decline of trust in charities, and they even provide links to relevant studies for UK and US. But this seems to be the only non-controversial statement they make.
There are three fundamental problems with their narrative:
- they limit the assessment of charities to tracking of funds
- they are incorrect about the range of currently used methodologies to assess charities
- their AIDChain solution as it is described in the whitepaper does nothing to make the situation any better
Since the answer to this question focuses on someone's startup, which is trying to raise money, I decided to add a disclaimer.
Disclaimer: Please note that this analysis focuses on the AIDChain project simply because it was brought to my attention as a viable use case for blockchain. Since AIDChain is the first project of its kind, I am thus analyzing their approach to this problem. In other words, I have no stake in this, I have no connections to either AIDChain or their possible competitors, if those even exist, and all I am doing is analyzing their publicly available whitepaper.
Having said that, it is clear that the AIDChain approach is nothing original as far as it goes, and matches the general approach blockchain solutions tend to adopt.
i. assessment of charities is more than tracking of funds
Charity assessment today has significantly evolved, and tracking funds is only part of it. The modern way to assess charity effectiveness is impact based (see Effective altruism) and involves a complicated analysis not only of the charity finances, but the scientific research behind the chosen method of helping, interviews with both charity employees and the people they are trying to help, on-site visits, follow up, the degree of transparency of a charity in question and evidence-based analysis of whether there is room for more funding (the impact of marginal dollars).
The interest of such charity assessment organizations is not limited to where the money goes or overhead. They are focused on assessing what a charity is doing and how effective and evidence-based its activities are, every step of the way. The set of discussion topics is different for every type of charity.
For instance, GiveWell, a notable charity assessment organization, provides an incredibly in-depth description of their process of charity evaluation, as well as documents, conversations, on-site visit reports for charities they have reviewed, including those they decided to not recommend.
That this is more than just an opinion of one organization is attested by the fact that it is basically going mainstream, with such notable organizations as GuideStar, BBB Wise Giving Alliance, and Charity Navigator writing open letters urging nonprofits and donors to end the use of the overhead ratio as the sole or main indicator of a nonprofit's performance.
A study from the Stanford Social Innovation Review has further criticized some of these organizations themselves for relying heavily on financial data that is not adequate for evaluating a nonprofit organization, and that a more comprehensive approach similar to one of GiveWell and Giving What We Can should be used.
So, the AidCoin whitepaper's implicit premise that it all comes down to tracking funds is a demonstrably outdated approach. Which means that their understanding of charity assessment is extremely narrow and superificial, and falls short of the approach that evolved out of years of experience in organizations that are actually doing it.
And, most importantly, the whitepaper authors seems to be really focused on preventing fraud, whereas a charity can be completely honest and very transparent, but poorly run and a bad choice to invest your money into. AIDChain does not offer a lot in this regard.
ii. the range of currently used methodologies to assess charities
AIDChain whitepaper claims that the methods of assessing charities are limited to self-reporting. It does mention recipient reporting as well, but does not expand much on it, instead focusing on the assertion that the only option the public has is to just trust what the charities are volunteering about their operations.
As can be readily seen from the previous section, this is demonstrably incorrect. The methodologies used by modern charity assessment organizations go far beyond trusting self-reporting from charities. A big chunk of assessment is based on independent scientific data, as well as on on-site visits and financial audits. The latter is important to note. Nobody just takes charities at their word, and their self-reported data is being critically evaluated and cross-checked. If a charity is not forthcoming with additional information, this lack of transparency is noted and a charity has a good chance of not being recommended.
Failing to accurately describe how charity assessment works today allows AIDChain authors to exaggerate deficiencies of the process, thus creating a false sense that assessment of modern non-profits is in complete turmoil. It also allows them to embolden the importance of their solution and downplay the success of currently existing solutions.
iii. AIDChain is a poor solution
AIDChain whitepaper lists the following as advantages of using AIDChain to assess charities:
- Tracking the actual use of funds, from the time money is donated up until its conversion into local fiat currencies.
- Verification of the identity of the recipients and reporting on the blockchain of their funds use.
- Tracking of administrative costs of nonprofits.
- Ensuring money earmarked for specific projects actually gets to those specific projects.
- Comparison of the effectiveness of a euro spent in one charity versus a different charity.
- Tracking of the investment policies of charities with the money they hold.
- Reduction in transaction costs of money transfer through cryptocurrency rather than financial intermediaries. This becomes especially relevant when dealing with organization that operate in developing countries, where transfer fees for remittances can be as high as 20%
Since one of the selling points of the AIDChain solution is that it removes the need to trust an authority, what must be immediately noted is that quite a number of these advantages simply exchange trusting established charity assessment organizations for trusting the company behind the AIDChain platform.
For instance, the very first item claims the ability to track the actual use of funds. However, tracking money from donations to conversions into local fiat currencies does nothing to tell us how the funds are used once they are converted. So how will they do it?
The whitepaper explains this several pages later:
In other words, the tracking of actual use of funds is going to be done through the open APIs of European banks, which are required to provide them as the result of the EU Payment Services Directive (PSD2). That this curious fact is mentioned only several pages later is quite deceptive. And immediately raises a question: why is a cryptocurrency middleman required at all here, when it all comes down to tracking the actual use of funds through the normal banking system?
The AidCoin whitepaper does have an answer to that: "traceability of the entire donation flow will depend on the mainstream adoption of blockchain technology and cryptocurrencies". In other words, AIDChain's model will work only in the case of a very hypothetical scenario of the world rejecting fiat currencies completely and switching to cryptocurrencies. And the current solution of using bank APIs is temporary. But given the unlikelihood of cryptocurrencies ever becoming widely adopted, or at the very least becoming adopted enough in the observable future, this temporary solution is probably as permanent as it gets, and AidCoin's services are not going to be any more transparent than any other assessment organization.
But this is where the authors' poor understanding of modern charity assessment methods really shows. Tracking the use of funds, be it through blockchain or the banking system, might perhaps make it a little more difficult for the charities to cheat, but it does nothing to address the actual impact of a charity or whether one's money are likely to be spent effectively. And this is where fraud may actually be happening. Even authoritarian governments, routinely and almost openly misappropriating taxpayer funds, typically have their paperwork in order, with the fraud happening outside the context of purchase receipts.
A simple, but illustrative example would be to conspire with a local pharmacy and buy medicine for one price, while have the pharmacy log a different price - and pocket the remainder of the money. In this case blockchain records are going to be entirely clean, transparent and tamper-proof. The AIDChain platform will only create a false impression of security, while doing nothing to detect or prevent such fraud. This, however, is more likely to be discovered or prevented if a charity is regularly assessed from multiple angles, like it's being done by many modern charity assessment organizations.
Verification of identities is presumably going to be done in the same fashion as any non-cryptocurrency service does it - through reliance on ID documents and other standard methods. The public will have to trust the AIDChain platform on this one too.
Tracking of administrative costs of nonprofits, as well as ensuring that money for specific projects actually gets to those specific projects, is also completely outside of the AIDChain platform. Authors of the whitepaper suggest that charities submit scans of receipts into the blockchain, implying this is more transparent. But, as already discussed above, fraud frequently happens outside of the paperwork. And simply adding receipts is no different than these same charities submitting documents to charity assessment organizations.
The whitepaper states:
Which looks like solving a problem that nobody has.
First, a lot of charity assessment organizations already publish financial documents that they review, and the public is able to independently audit them today, without having to use a blockchain.
But also, this strikes me as a thinly veiled implication that charity assessment organizations are likely to collude with the charities they assess. So likely, in fact, that we need AidCoin to solve that problem.
But we are presented with no evidence of such a fraudulent scheme ever emerging. Unless there is a proven record of charities submitting documents to charity assessment organizations and then someone tampering with them, blockchain's immutability adds absolutely no value. And submitting documents in order to then tamper with them seems like a very unpractical way to cheat anyway. I was able to find no scandals involving a charity assessment organization being bribed by a charity so that they allow access to already submitted documents. And yet, this is a problem that AidCoin proudly announces to solve. Where is the value in solving a problem that nobody has?!
Again, as discussed earlier, if someone wants to cheat, all they have to do is add fraudulent or misleading receipts to the AIDChain platform, the same way they would do within a normal charity assessment process. AIDChain solution does nothing to address this and gleefully announces that it will basically rely on charities' self-reporting, just like they claim everyone else does (and which we've already seen to be demonstrably false).
The whitepaper then claims that AIDChain would provide a comparison of the effectiveness of a euro spent in one charity versus a different charity, but the authors do not elaborate on how this will be done, by whom and using which criteria.
Finally, they claim the reduction in transaction costs of money transfers through cryptocurrency rather than financial intermediaries. This is a standard claim frequently made by blockchain enthusiasts as an advantage of blockchain in general. We have addressed it multiple times, specifically here. Suffice to say, the advantage is questionable and comes at a cost: if anything happens, no authority will be able to help and, say, return the funds. Same goes for the advantages of smart contracts in general, discussed here.
Introduction of blockchain will also introduce a risk of funds being lost through hacking or phishing, as well as through accidental private keys loss. Once the funds become inaccessible for one of the listed reasons, there is no way to return them.
Blockchain also introduces an additional incentive for insider cheating, because unlike centralized payment systems, where the payments are tracked and mediated, and even unlike cash, which needs to be physically transported, a cryptocurrency is easier to manipulate. Someone managing charity funds may just send them from the charity wallet to their own anonymous address. Such a crime would be very difficult to prosecute, and bitcoin mixers would guarantee the thief cashing out. See this question for more details on how this was done in case of high profile crimes like the WannaCry ransomware, where thousands of eyes were tracking the respective Bitcoin addresses. This security loophole is critical and very difficult to prevent.
iv. Conclusion.
The AIDChain whitepaper does a poor job in explaining why blockchain is the future for charity assessment, but does a good job of demonstrating why it is not.
I was left with the impression that the team behind the project was more focused on trying to find a use case for blockchain, rather than trying to actually fix issues in the non-profit world. The authors of the whitepaper demonstrate only cursory understanding of what actual difficulties charities and donors face, have either little interest to conduct basic research into modern charity assessment, or perhaps little interest to present it in their whitepaper, as doing so inevitably compromises the value of their solution.
Their description of charity assessment methods is critically incomplete and very misleading, creating a false impression that current charity assessment organizations are not effective.
They then proceed to claim that AIDChain is a solution, but fail to convincingly demonstrate why this is so. All they do is reiterate blockchain's basic properties, such as immutability and relatively easy public access, without explaining how these properties translate into something useful. Neither did they care to address any of the possible objections, although a lot of them should have been easy to predict if one would think critically.
This makes their whitepaper impressive only to those who have a superficial understanding of how blockchain or smart contracts work. The public could be temporarily lured into a false sense of security, until the first scandal emerges and it becomes clear to everyone (if it hasn't already) that blockchain is not a mechanism magically making everything honest and transparent.
Not only do the authors completely misunderstand the breadth and depth of charity assessment, but their proposals to increase purely financial transparency are sketchy, implausible and are not based on any data or real problems that are encountered in charity fraud. A lot of what they are offering is also contingent on an almost universal rejection of fiat currencies in favor of cryptocurrencies. Without this revolutionary and unlikely change in the world financial system their methods are conceptually no different to that of other organizations. In practice, AIDChain is likely to be less trustworthy due to their obvious lack of expertise.
AIDChain is a great example of a poorly thought out startup, based on popular misconceptions about blockchain, with a shallow whitepaper, dealing mostly in oversimplified versions of reality and buzz words. I don't see how charity assessment is in any way a good use case for blockchain.
2022 update:
As of 2022, AidChain's original website is no longer operational. On their other website they have posted an update on the failure of their startup with a very telling blogpost.
To quote some excerpts from the post:
The founders have unfortunately chosen to blame their customers for the failure of the business. Their only lesson was to create a new version of the same idea called AidPool which completely removes decentralization and has the company do everything for their customers in a centralized way, because "it’s better to start off with that rather than never onboard on the crypto journey at all".
In other words, what their customers really want is a trust-based system that can be outsourced to experts, not a decentralized wild west, where everyone has to mend for themselves, and a small mistake or a loss of private keys would mean an irreversible loss of funds.
If blockchain is useless, how come banks are looking into blockchain?
"Looking into blockchain" means nothing until there are actual results. Banks are businesses and they don't want to be left behind. All sorts of businesses invest in all sorts of technological products - and then many of these products fail. If anything, banks are exactly the kind of entities that have the funds to invest in prospecting technologies en masse, with the hope that at least one of them becomes the next big thing.
In other words, banks' interest in blockchain is not an argument that blockchain is viable or useful. In fact, I know at least one bank which had announced with much fanfare that they are looking into blockchain. However, an insider source informed me that having looked into it, they could find no application for it and quietly wrapped up. Of course, this part of the story never ended up being reported to the public.
So, it is entirely possible that most banks and financial entities that have announced their interest in blockchain have done so in order to appear relevant, and have already realized that blockchain, at least in its current state, is not useful for them. The latter is likely to never be announced.
Sometimes a company or a bank would use the term "blockchain", but their projects are nothing like a public decentralized blockchain that blockchain proponents have in mind. So, there are definitely cases of banks simply using a buzzword to refer to projects that have no direct relation to blockchain.
What kinds of responses are you receiving from the proponents of blockchain?
This Q&A is getting traction and has been seen by thousands upon thousands of readers, many of whom are blockchain proponents. Unfortunately, I am not offered a lot in terms of actionable responses.
Responses fall into several categories, which I've organized by popularity:
- You make valid points, but just like with other ideas, blockchain will become more efficient and secure with time (never explain how)
- I started reading and I already disagree (never go beyond first couple of paragraphs)
- Here is a use case for a blockchain (I am always happy to receive those)
- You just don't understand how blockchain works (I do)
- Everything you write is relevant to cryptocurrencies only, not to blockchain in general (this is completely false, but I do get comments like this from time to time)
To date I have not received even a single counterargument to any of the specific points made in this Q&A.
If anything, blockchain proponents quickly agree with my analysis, and then proceed to say that the problems are solvable. None of them ever explain how, or at least which direction these solutions can go.
The consensus seems to be a reliance on comparisons to successful technologies of the past, which have also been problematic at first, but then became more secure with time. No justification is offered as to why blockchain should be compared to technologies that made it as opposed to technologies that eventually failed. I address this fallacious argument here.
Since the shortcomings I point out are there by design, it is very unclear to me how some of them can ever be fixed without removing a large part of what makes blockchain interesting in the first place.
The second most popular reaction is notable, although not surprising: TLDR. A lot - and I mean a lot! - of people refuse to even read. They then proceed to debate me, which takes the form of proselytizing and unproven pronouncements about the usefulness of blockchain, most of which are directly debunked in this Q&A. I am endlessly impressed by the amount of people who buy into the blockchain narrative without doing much research or even giving it more than a passing thought. That's how hype is created.
I am constantly asking for and receiving some interesting use cases. A couple of new answers are in the works, one has been already added to the Q&A, here. So far none of the use cases are convincing and are either trying to inject blockchain into a problem that seemed to have been figured out just fine without it, or are very exotic things, like sending money to people during war. A number of use cases are taking an actual problem and claim that blockchain solves it, but none make a convincing case as to how blockchain is a solution.
One thing that makes me happy, though, is that the Q&A is starting conversations and forcing people to apply critical thinking. This cannot be a bad thing.
Are you even qualified to talk about blockchain?
I believe that I am. I have the necessary technical background, solid insight into the philosophy of anarchism and crypto-anarchism, involvement with Bitcoin in its early days, and I am a professional product manager.
I have stumbled upon Bitcoin in 2010. At that time I was a rather anarchism-leaning youth and Bitcoin interested me a lot. It also fascinated me from a purely engineering, geeky point of view. I have taken part in a number of blockchain panels as a technical expert. Have purchased Bitcoin and mined it. Was cheated by the infamous Butterfly Labs out of all of my Bitcoins, although I was one of the lucky ones in that I actually received the device, albeit in a barely usable state.
For several years I have distanced myself from cryptocurrencies, partially being frustrated by rampant fraud, but mainly because I moved on to other interests. When Bitcoin came claiming the mainstream in 2017, everyone started talking and writing about it, my friends and colleagues began joining blockchain startups. Having refreshed my memory and carefully read everyone's rosy view of blockchain's future, I realized I don't see it this way. This Q&A was born out of numerous discussions as a single place to present my reasoning on the topic.
I don't have a stake at this and my interest is purely academic. If I am wrong and blockchain turns out to be a transformative technology - great. I will acknowledge I was wrong. After all, predicting the technological landscape of the future is always a thankless job. I am at least basing my criticism on what I believe to be sound reasoning. If I am right - this is not because I am a genius, but because I have enough of a technical background to understand how blockchain works, and enough of product management experience to see that it's unlikely to be good for anything.
If you would understand how blockchain works, you would find it useful.
This could be a valid argument when someone questions the features of blockchain. Say, a blockchain proponent claims that blockchain records cannot be forged, but a critic maintains the opposite. In this case a better technical understanding of blockchain would help a critic realize their mistake.
However, most of the criticism I am aware of is not questioning blockchain features themselves, but instead focuses on blockchain's application to solving varius real world problems. In this context technical understanding of blockchain is completely irrelevant, as critics grant all the technical claims assigned to blockchain.
An appeal to technological complexity is frequently used as red herring, which is a rhetorical device to derail the conversation. A blockchain proponent would take a random point in the critic's analysis and start arguing over minutia of blockchain implementation, and then claim that this invalidates the whole of the argument and the critic's credibility, because the person doesn't understand how blockchain works.
Do you agree with such blockchain critics as Nouriel Roubini?
Generally, yes. I perhaps wouldn't put it exactly the same way as Roubini does, but he is basically making the same points I am.
In his now known piece, "The Big Blockchain Lie", he basically says this:
- blockchain is a glorified spreadsheet (inaccurate, but he tries to make a point that the technology at its core is actually just a special kind of database, in contrast with the claims of what it can fix in the world)
- that blockchain is a political project by anarchists and libertarians (true)
- that the "decentralized" blockchain universe is actually very centralized (true)
- that most crypto is mined out of non-democratic countries such as Russia, North Korea and China, and these players control the prices of crypto (seems to be true)
- that if your funds are stolen, there is no way to return them (true)
- that the maxim "code is law" is constantly invalidated by blockchain developers changing the rules and forking blockchains (very true)
- that wealth in the crypto-universe is concentrated in the hands of the few, much more so than in the fiat financial world (true)
- that no financial institution would want to make their proprietary transaction information public (probably true)
- that blockchain solutions claimed to be used by banks today are not really blockchain in the popular understanding (seems to be mostly true)
- that no financial institution would allow their transactions "be verified by an anonymous cartel operating from the shadows of the world’s authoritarian kleptocracies" (most probably true)
Let's assume you are correct. Can blockchain still end up being used?
I am no longer considering whether blockchain is going to become mainstream. It is clear to me that it will not. Rather, an open question is whether blockchain will end up being Google Glass (a completely failed product) or Segway (a failed product that found several very niche use cases).
It is not impossible that blockchain or something very close to it, will eventually find its home in a very specific narrow use case. However, I still think this is unlikely, and currently believe that blockchain is beginning to look more and more like Google Glass.
Blockchain is useful for cryptocurrencies, so how can you say that it is not useful for anything?
This would be a spot on objection if cryptocurrencies would be an established product. However, they are not.
Think of a cryptocurrency as one of the proposed uses of blockchain. After all, a cryptocurrency is currency powered by blockchain. As currencies powered by blockchain have not proven their usefulness as currencies, saying that blockchain is useful for currencies is incorrect, just as saying that blockchains are useful for enforcing contracts is incorrect, since nobody is using blockchain for contracts.
Also, when I am talking about usefulness, I am talking about mainstream, scaled usefulness. Obviously, there are loads of ideas out there, each of which might be useful for a select group of people, but cannot muster enough support from the public to become a viable business.
For instance, I am sure Google Glass has its fans. But, alas, it still failed as a business and the product was discontinued by Google. I think at this point it is quite fair to summarize the situation as "Google Glass was not a useful product for anyone", although a more pedantic statement should be "Google Glass was not a useful product for the majority of users, targeted by Google".
If someone insists on a similar kind of pedantry when talking about blockchain, I am afraid blockchain is not doing that well either.
Finally, blockchain obviously has a number of short-term use cases, like powering illegal trade, making money on trading tokens, making money with a distributed kitten app, etc. A lot of these use cases are possible only insofar as blockchain is not regulated, does not have a huge userbase, has hype value, etc. In other words, all of these are very temporary, and not something that blockchain proponents actually claim about the future of blockchain.
Irreversible transactions make digital money as secure as cash transactions.
Many blockchain supporters consider irreversible transactions to be a feature. They then make a bizarre claim that cash transactions are more secure than modern digital payments.
The reason why they do it is because they harbor deep distrust of modern financial institutions, backed by conspiracy theories about banks and governments, as well as ignorance about how economy works. Many of them also don't take the time to think through the implications of the world of irreversible transactions, and only focus on the standard talking points. For instance, blockchain proponents typically do not recognize the disbalance between a seller and buyer in a blockchain setup. Many of them dismiss the problem without explanation.
The stance that cash transactions are better than modern digital payments attempts to cancel decades of progress made in this area. For instance, cryptocurrency proponents are happy to remove the feature of transaction disputes. For some reason, many blockchain supporters consider this to be a problem. Here is a typical quote taken from a reddit discussion of blockchain:
It's especially interesting to read, given the fact that many of cryptocurrency proponents are so anti-corporation. But in this case they side with businesses and not customers. The problem they see here is not people being cheated or people trying to fix a mistake, but that it is a huge headache for businesses.
What proponents of blockchain do not understand is that being able to settle disputes is a major feature of modern digital economy, and the reason why companies invest into it is because customers want it.
Mutable transactions make it much more difficult for people to cheat you, as subsequent investigation might backtrack the transactions and cancel them, returning money to its rightful owners. If a pickpocket obtained your credit card, your bank will deactivate it and cancel all the transactions that a thief was able to make with it. This, in turn, significantly lowers the initial motivation to steal credit cards.
Going back to the world where losing your money is irreversible, just like cash, is basically promoting a wild west environment, where everyone is on their own. This is the kind of world we have been walking away from for decades and decades.
But not only that, a blockchain world ensures that no institution will ever be able to develop a consumer protection mechanism which will return your money to you, unless blockchain is completely regulated and centralized, in which case it would not be clear why replace the current system with it.
There are a couple of approaches to this.
If we are talking about a blockchain with an access control layer, a permissioned blockchain, then the difference is very small, and most of the arguments against the usefulness of blockchain in this Q&A would still be relevant.
If we are talking about solutions that employ something completely different in place of components which define the whole idea of blockchain, like lack of a consensus building mechanism and distributed nodes, then such "blockchains" are just shared databases or shared ledgers. A lot of companies have decided to ride the hype by offering technologies that on cursory examination appear to be something like blockchain, but can't actually be classified as such.
In case of blockchains with an access control layer, this could indeed alleviate some of the challenges leveled against blockchain. For instance, if there is a select group of nodes permitted to do the mining, then that might mean that they can also be held accountable for any fraudulent transactions that they end up validating - at least, in theory.
However, building a business case for permissioned blockchains may actually be harder. As these blockchains are walking back the pure peer-to-peer nature of the original concept, the decision to opt for blockchain with its non-reversible transactions becomes even more questionable. Why not just use some sort of a shared database then?
Blockchain allows to remove unfair bank fees.
Even if we agree that a lot of bank fees are unfair, which many blockchain proponents do a poor job of proving, a classical proof-of-work blockchain does little to remove fees. On the contrary, with time fees are expected to rise dramatically. During the hype of December 2017 transaction fees went up as high as $50. And this was nowhere even near mainstream use! Imagine the kinds of fees that would need to be instituted in order to fight for a spot in the small throughput of Bitcoin.
Fees are also thought of as the main mechanism to maintain blockchain after reward mining goes away. The reader is encouraged to read, for instance, research papers which show the problems which arise in the post-reward world (this and this). Not only is this not-so-remote future problematic, it promises very substantial fees.
Moreover, even when the transaction fees are low, this cheapness is superficial. In reality, the cost of running the blockchain is simply distributed throughout the whole network, and it's exceptionally high.
Whether it's possible to create a blockchain that would on one hand maintain the level of security that the proof-of-work method has, and at the same time be less costly, is up for debate.
I personally suspect that a system which would be cheap to calculate and yet secure is a contradictory proposal, and any idea of that sort will always compromise either security or decentralization. Proof-of-stake, for instance, seems to mostly sacrifice decentralization.
Blockchain's real use case is open and publicly queryable data.
This is a common suggestion. A typical claim goes something like this:
In my view, this blockchain use case is very difficult to defend.
While having open and publicly queryable data is a good idea, it is not clear why we would need blockchain to achieve this. Specifically, why would an append-only database be required.
There are many open and publicly queryable resources already in existence today, none of which use a blockchain, and at the same time none of which give reason to doubt the authenticity of their records. An obvious example is Wikipedia. While centralized and not built on blockchain, its operational transparency seems to be enough to build trust, not the least because faking a constant stream of edits without nobody noticing is not simple, even if only for a selected group of pages.
At the same time, such a solution does not require expensive proof-of-work or a database which cannot be amended. Perhaps strict security is non-negotiable for a financial use case, but definitely not for a publicly available information resource.
Finally, simply because something is centralized does not mean it is going to be restricted or abused for financial gains. Wikipedia is available for free and without ads. And at this point it is almost impossible to imagine a situation when monetizing Wikipedia by either restricting access to it or adding ads is going to go well with its community of editors or the public. If anything like this happens, Wikipedia is going to be swiftly forked. And we don't need blockchain to ensure such a level of commitment and trust.
Cryptocurrencies are going to save Venezuela!
"Cryptocurrencies are going to save Venezuela!" is a form of a more general pro-blockchain argument that states that blockchain is a technology to save the poor.
The argument began rising to prominence around July 2018 when a story of a Venezuelan nicknamed "Hector", which tells how he had used a donation in NANO cryptocurrency to buy food, went viral. Instantly, blockchain proponents saw it as evidence that blockchain is destined to fix world economy.
The author of the original story made a very big deal out of it, proposing that perhaps cryptocurrencies are a "fix for Venezuela's suffering". He finished the piece by saying: "Many cryptocurrency proponents believe that cryptocurrencies will begin to replace fiat currencies, with Venezuela’s economic situation showing how indispensable cryptocurrencies can become."
Several days later another widely shared article, titled "Interview: How NANO Community and a Brave Venezuelan Helped Save People from Starvation" was published, in which Hector was interviewed.
There are two key problems with this argument: the initial story seems to have been blown out of proportion; how exactly cryptocurrencies are going to save the people of Venezuela is never explained.
Let's start with the unraveling of the initial report. What had actually happened?
It turns out that all that had happened was that someone sent NANO coins to a reddit user from Venezuela. This user then convinced an acquaintance with an interest in crypto to exchange some food for NANO. The reddit user then expressed hope that this same person might exchange a bit more of food later on.
That's it.
Based on that simple story people started making sweeping statements about Venezuela being saved by the NANO community, about cryptocurrency saving Venezuelans from starvation, about cryptocurrencies replacing fiat in Venezuela, etc. The reddit user in question had himself proclaimed NANO to be the salvation for his community. To quote him:
But while this individual's emotional declaration can definitely be excused, there is no reason the rest of us should fail to assess the situation rationally.
Obviously, the detail which is of paramount importance to the story is that there is no adoption of NANO in Venezuela. There was but a single person who happened to be interested in crypto. There is no evidence that anyone else would accept NANO or that even this same person would agree to accept it again.
It's also not clear how Hector trying to convince his immediate family and friends to use NANO is going to help, and what exactly is he going to convince them to do, if no one else in Venezuela is using NANO. He says that "this is already improving and changing their lives", but this improvement, as far as we can tell, was just a one-time case of good luck.
Hector also wrote that he had had to hide from police officers, because they could have arrested him. It's not clear why they would arrest someone carrying food and what the charge would be, but if it is that bad, it definitely makes claims about NANO or any other cryptocurrency helping the people of Venezuela less believable: if using crypto can get you arrested, its adoption is likely to choke pretty quickly, if it's to ever ignite at all.
And, of course, using crypto means using smartphones, computers and the Internet. It's not immediately clear what percentage of the population has access to that, in light of people having nothing to eat.
Another notable aspect of the story is that if we think carefully about it, there is actually no hard evidence that it even happened. This could have been a ploy to trick people into sending cryptocurrency donations: unfortunately, such cynical scams happen in crypto space all the time.
The reason why I would consider a possibility of a scam is because the user in question seems to have a suspicious message history. If you scroll down to see the whole history of his posts, it seems that they started in June of 2018, the user was posting throughout July when the story broke, and then disappeared immediately after that. At the time of writing (end of December 2018) this person's last comment was posted on the 24th of July, listing cryptocurrency wallets for people to donate to. No updates, no later posts.
There are, of course, other possible explanations as to why the messages had stopped. But I think it is important to understand that there is little corroborating evidence for any of the things he had said, and his footprint on reddit is scarce and unconvincing. His insights about the situation in Venezuela left in various comments are also not especially deep, and anyone who follows world politics is capable of coming up with pretty much the same.
But even if the story is completely true, I don't see how it can justify any of the wild speculation that followed. The statement in the original story that "Venezuela’s economic situation shows how indispensable cryptocurrencies can become" is debatable to say the least.
What the story really shows is that a donation from wealthy foreigners to a given person can help such a person buy some food. That this exact transaction had succeeded hinged on there being someone ready to accept a relatively obscure coin, and that they actually had some food to offer. It also hinged on Venezuelan authorities not being aware of such channels at the time and, thus, not trying to close them down or prosecute for using them. All it was, was a singular case, with no further updates and with a lot of questions left unanswered.
And, most importantly, nothing in this story provides any insight into what the effect of mass adoption of cryptocurrency in Venezuela would be, let alone that this effect is destined to be positive. Part of the thinking here is that adoption of cryptocurrency might stop the hyperinflation of the bolívar. But it's not clear that this would actually be the case. Definitely not on the basis of someone using several NANO coins to buy food from a local crypto enthusiast.
Blockchain is a technology to save the poor.
This argument typically focuses on cryptocurrencies, as opposed to blockchain in general. The main difficulty with the argument is that it is very generic. Blockchain proponents rarely, if ever, explain how exactly cryptocurrencies will help people in poor countries. The argument often has a flavor of ideological propaganda, with its tendency to generalize and oversimplify.
The undeclared assumption behind the sentiment seems to have anarchist roots: that all economic problems are because of the state and the financial system based on fiat currency. Give people the ability to transact independently from the state - and society will automatically become wealthy. Conspiracy thinking and distrust of all things Wall Street seems to contribute to this as well.
Another fundamental idea which drives cryptocurrency supporters is the idea that the gold standard is the solution to poverty. Since Bitcoin and similar coins have a limited supply, cryptocurrency is viewed as the revolution against fiat.
This simplistic worldview is quite far from the real world, but the interesting bit here is how radical anarchist views are distributed through the idea of blockchain, since it is often clear that blockchain proponents are not even aware of where their political opinions are coming from. This is perhaps why blockchain feels so revolutionary to its ardent supporters: because it is based on anarchistic ideas of rebuilding the world into stateless societies with little or no hierarchy, and a belief that it would be a paradise. If one carefully thinks about it, these are exactly the premises behind the belief that blockchain will fix the world.
Obviously, there is no evidence and, in fact, no good reason to think that there is a single reason why a given country is poor, let alone that this reason is fiat currency. There is even less reason to believe that all one must do is abolish fiat currency in favor of crypto - and suddenly the situation will change. Unless blockchain proponents can explain the mechanisms behind these alleged magical transformations, there is nothing to even discuss here. The argument is as naive as the original writings of crypto-anarchists suggesting that cryptography would allow people to stop paying taxes. And I am not even focusing on the fact that the gold standard was abolished only in late 20th century, yet poverty, strangely enough, was quite prevalent all the centuries before.
One suggestion that does seem to have a bit more particularity to it is that cryptocurrencies could allow people to send money to war-torn countries, as well as countries which are under sanctions or in dire economic circumstances.
This is basically a question of foreign aid. Because what this form of the argument suggests is that cryptocurrencies would allow for decentralized, unregulated foreign aid.
The difficulty here is that achieving high effectiveness and impact of foreign aid is far from trivial even when done in a very organized, carefully thought out manner. The reader is invited to explore the problem space by reading a Wikipedia article on the topic. Even without getting deep into the trenches, it should be immediately clear that the scope is vast and there are no simple solutions.
In a way, it should be obvious to any intelligent person that if solving poverty had been a matter of simply sending poor people money, poverty would no longer exist.
But psychologically the argument can be very compelling, especially if a blockchain supporter lives in a poor country and has personally benefited from using a cryptocurrency. For these people it might be helpful to notice that one reason they are benefiting from crypto could be precisely because it is not widely adopted. There is no telling what the effect of mass adoption would be. It could be detrimental as easily as it could be beneficial. It is also not impossible that the effect would be indifferent. And just like people in a poor country have been poor, introduction of cryptocurrencies would leave them as poor.
Again, there must be an understanding of an economic mechanism that will make people wealthier. Introduction of a new currency will not by itself make people wealthier. Also, an attempt to adopt cryptocurrency in an authoritarian state might lead to massive prosecution and eventual destruction of the cryptocurrency channel. Perhaps, in many cases cryptocurrency is helpful only as an opportunistic solution.
Blockchain is a technology to fight corruption.
This argument assumes that corruption is fought by exposure alone. Corruption, however, is a complex social phenomenon with many contributing factors. Transparency is just one of them, and arguably its more a function of the political system in place, not a causal factor in itself.
This doesn't mean that providing transparency could not be part of a solution to fix a troubled society. Blockchain proponents, however, tend to assign revolutionary value to blockchain and, therefore, transparency, without much justification.
They also limit themselves to strictly technological ideas, without developing frameworks on how to actually make corrupt governments use these solutions. This is because corruption is not a technological problem. And any hope that technology will solve sociopolitical problems by its mere introduction, is an intellectual fantasy that has led whole generations astray. In today's world of never before seen technological transparency, authoritarianism is standing strong, and populism is on the rise even in democratic countries.
But even the technological ideas themselves tend to be incredibly naive and poorly thought through. In many cases they are mere talking points rather than projects to be taken seriously, a way to quickly respond to objections. After someone makes a claim that blockchain is great because it can help the world get rid of corruption, people rightfully ask how exactly will blockchain assist us in this noble cause. And this is where the blockchain supporter would quickly come up with something, usually an idea of some database that would store government records.
In one case, I was offered a revolutionary idea of storing citizen records on the blockchain, so that when an authoritarian government kills a citizen, they cannot claim that this citizen had never existed. And that's not me picking out the weakest comment, that's unfortunately the usual quality of argumentation.
There are many articles published about blockchain everyday. Here is a small selection of writings on the topic from both sides. I don't necessarily agree with everything that critics of blockchain write, so consider my views to be reflected only by material I write.
Generally supporting blockchain:
- A personal look at the early days of Internet vs blockchain today
- Where do you stand in the debate about blockchain?
- Why blockchain will change the world?
- Why the Price of Bitcoin Doesn't Matter
Generally criticizing blockchain:
- Ten years in, nobody has come up with a use for blockchain
- Blockchain is not only crappy technology but a bad vision for the future
- Block-chain — Solving imaginary problems that nobody has
- Why the intrinsic value of almost all ICO/airdrop token today is zero
- Blockchain-Based Smart Contracts and The Social Workings of Law
- The Blockchain Is a Reminder of the Internet’s Failure