A Hopeful Skeptic’s View of Blockchain
Ambivalence is the right word for it. I’m stoked about the tech and promise of the blockchain. I’m a believer, almost addicted to reading and learning about it. And yet, I just can’t get past my skepticism. One side of me is emotional and excited and the other is analytical and not impressed.
In this article I’ll explore two of my main concerns with using the blockchain outside of its currency origins, and then I’ll share some of my hope and skepticism for the future.
Concerns: This thing just can’t do what we believe
Whether or not you know the blockchain protocol well, there’s one thing I can tell you that will make sense intuitively. In order to make sure there are no bad actors, every computer in a blockchain network has to validate every transaction. In the world of currency, this is maybe a tolerable amount of work because a transaction is nothing more than lowering the balance in one wallet while at the same time raising it in another by the same amount. But when we start doing stuff like Ethereum has done by adding a Turing complete scripting language, then the difficulty of verifying a transaction is arbitrary. What if the transaction requires a lot of calculation such as doing a facial recognition match on a few hundred faces? That’s a lot of effort, and asking every single computer in the network to do that is going to be slow. In fact we already know how slow it will be: it will be at least as slow as the slowest computer in the network. This post isn’t about diving into the details of the scaling problem and the possible solutions to them. For those go read that great article. But also realize that when you hear about new ideas like managing healthcare processes on the blockchain, people are somehow conveniently leaving out that every interaction in every smart contract would need to be run on every node for things to be trustworthy. And even if we somehow do successfully incorporate things like ‘side chains’ there’s still a TON of duplicate processing that has to take place. In a centralized system, the processing happens one time.
So what problems do benefit from or require all the nodes (computers) in the network to do the same work as all the other nodes? So far, it seems surprisingly few. I absolutely love this article that breaks the problem down from an engineering perspective to only those problems that benefit from true decentralization.
But isn’t the blockchain going to take over all of commerce?
If you read some articles that hype blockchain, they paint pictures of worlds where everything you do is another notch on the ole blockchain. But going back to the point I and others have already made, lots of things don’t really benefit from, and are actually hurt by decentralization. This article suggests that insurance companies are going to sell their services directly to robot cars via the blockchain. Why is it so bad for an insurance company to own all the data and processing related to the policies it sells? Do we really need to divorce them from any company or government? I think there’s a misconception that contracts between multiple commercial entities can’t be run and automated with plain old non-blockchain software. People hear “Smart Contracts” and think “oh I want that! With those I’ll be able to automate my business!”. The reality is that there are plenty of examples in the world today of smart contracts written into regular old code. Here’s one: T-Mobile recently launched an offer where they will pay for your Netflix bill if you switch to them. There are lots of rules involved. How many people can be in the household, what are the available switch dates, what is the offer duration, if you don’t want Netflix do you get some other discount or cash benefit? How could we possibly handle all that stuff without Smart Contracts? Easy! With APIs. They’ve been around a long time. But who will adjudicate if one of the parties breaches the contract? The government. Or an arbitrator if that’s your cup of tea. That’s what they’re there for.
Smart contracts get valuable when the participants in the agreement can’t trust each other and are not bound by the laws of any region to uphold their agreements (or don’t trust those laws to effectively protect their interests). I would argue that most business transactions do not fall into that category. And even when they do, there can still be payment structures and other things that can be implemented with regular old software that enable participating companies to hedge risks without resorting to using slow-non-scalable blockchain solutions. Eg I don’t need a blockchain to use the classic technique of getting 1/2 of the payment for a service in advance.
Finally, there is a whole world of things that blockchains by their very nature can’t do. 1) they can’t talk to 3rd party services 2) they can’t enforce on-chain payments and 3) they can’t protect private data. But wait! That’s what everyone is shouting that they’re going to do! This is perhaps the most damning argument against the idea that the world will be oozing blockchains that I’ve ever read.
That’s a lot of concerns, is there any hope?
Sure! Crypto-currency has already proven to be awesome. It’s a great use case for blockchains. Decentralizing a digital asset appears to work perfectly for enabling people to get access to liquidity in countries with corrupt or irresponsible governments. You can’t shut it down, you can’t make it worthless, you can’t take it away. This is great stuff for currencies. I’m 100% convinced that cryptocurrencies will continue to be important.
As for other use cases, I really don’t know. I believe there might be some out there. What kinds of things are people trying to do to transact with one another that are under threat from bad actors and are hurt by centralization? I don’t know the answer but I assume that it’s more than just currency exchange. I also want to point out that the US’s current problem with corporate consolidation would be better off fixed by the government than by the blockchain. First, we can’t wait for the blockchain to help us with Google owning all your searches or Amazon owning the world’s most efficient supply chain. And second, even if we could wait, the blockchain isn’t currently technically capable of truly replacing those very efficient, and highly scaled centralized services.
Libertarians out there love the blockchain and want it to replace and disrupt all kinds of government power. Part of me is with them — especially in areas where governments abuse power. But I’m not 100% with them. There is solid evidence that in the history of humanity governments have improved people’s lot and that the current batch of democratic governments are responsible for this golden age of peace we live in. Steven Pinker wrote the book on it and it’s absolutely brilliant. Bottom line? He uses the same types of game theory and philosophy that resulted in the invention of the blockchain to demonstrate the importance of government. We still live in a world where we have to be able to trust each other, and the blockchain doesn’t cover every scenario. Several weeks ago I explored this topic in quite a bit more depth.
If I were to try to put my finger on it, I would say that there’s a feeling of exuberance out there that blockchain will make the hard part of doing business easy. The current hard part of doing business is the people part. The wiggle room that contracts have in them; the what do we do when we disagree; the how can we get everyone in a room at the same time part. Hammering out business agreements between multiple parties is just plain difficult and slow, and requires experience, and is resistant to automation. Recently Mark Suster covered this from his point of view as a VC with respect to whether or not ICOs are going to replace traditional VC. Guess what? They’re not.
“What I can tell you from my vantage point?” he says, “I see companies that have been trying to raise professional money for years and have struggled suddenly gearing up for ICOs because they know there is so much demand from them — precisely because so many people speculatively made money on Bitcoin and Ethereum.” That certainly doesn’t sound like the road to regulation-free libertarian Valhalla.
So where do I leave off? How do I really feel?
I continue to be excited that people with more vision than me will come up with ideas that aren’t occurring to me. I feel certain that the blockchain isn’t going to upend society as a whole, but I also feel certain that some use cases of the blockchain are going to feel in 10 years like the internet felt in 2006 — everywhere and all important, a vision realized. I probably won’t be investing in ICOs until they figure out how to value themselves with some sanity, but I will also continue to buy, use, and hold bitcoin and other quality cryptocurrency. I’d love for my company Kelsus to get involved in building a blockchain solution, but I’ll want to hold out for a solution that feels real and not fight uphill battles against impossibilities like calling 3rd party APIs from smart contract functions. I also don’t think I’ll be betting Kelsus on the blockchain. There are other areas of software growth like machine learning, secure software, and containerization that are much more real and have a similar froth and hype surrounding them. As a technology optimist, more than anything I’m looking forward to an astounding and breathtaking future.
