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The Great Backlash Against Blockchain Hype

  • Skeptics say that centralized blockchains are 'sanitized tanks to shop for groceries'.
  • However, much of the technology laying at the heart of blockchains could have a bright future.
The Great Backlash Against Blockchain Hype 101
Source: iStock/titoslack

The world is falling in love with blockchain. USD 945 million was spent globally by organisations on "blockchain solutions" in 2017, while this annual figure is forecast to rise to USD 2.1 billion in 2018 and USD 9.2 billion 2021.

But as much as the wider world is enamored with blockchain tech, there's an emerging dialogue among crypto figures and outside observers on whether blockchain tech is really applicable to anything other than cryptocurrencies such as bitcoin, monero and ethereum.

However, while it’s becoming increasingly likely that blockchains won’t be applicable to all of the world’s problems, the immutability of the records they provide means they’re still likely to bring benefits in certain focused areas.

Too expensive, unscalable and slow

On May 12, noted "bitcoin advocate" Andreas Antonopoulos took to the stage at the Polish Bitcoin Congress, where he argued that blockchains without crypto lose much of the decentralisation that makes them radical. "The reason Bitcoin is interesting is because it’s not controlled, because it can't be censored" he explained.

"If you take all of that out, what you’re left with – this blockchain – is […] a corporate plaything that has been sanitised of everything interesting."

Antonopoulos’ criticisms were more ideological than practical, yet someone with plenty of practical criticisms for ‘applied blockchains’ is Jimmy Song, Bitcoin Core developer and partner at a venture capital company Blockchain Capital.

Having already made a bet that non-cryptocurrency blockchains will disappear within five years, he wrote a couple of blog posts in mid-to-late May explaining just why he believes it's unrealistic to expect blockchain to work well with anything other than cryptocurrencies.

"Using a blockchain to write a receipt, perform a centralized service or backup data is like using a tank to shop for groceries," he wrote.

"There are already tools that do all of these things better and a blockchain is simply too expensive, unscalable and slow for most tasks."

Proof-of-work is 'bad'

The above criticisms were voiced by bitcoin acolytes who arguably feel threatened by the idea of ‘sanitised’ blockchains replacing the blockchain they known and love, but there are in fact prominent critics of applied blockchains who aren’t card-carrying crypto advocates.

Aside from Kai Stinchcombe, CEO and cofounder of True Link Financial, a banking and investment service for seniors, and blockchain developer Preethi Kasireddy, one of these is UK-based author David Gerard, who published Attack of the 50 Foot Blockchain in July 2017.

Agreeing with the likes of Song and Antonopoulos, he tells Cryptonews.com that, of all the use cases proposed for blockchain, "the only case where this is the thing you need is if you're trying to do a bitcoin-style cryptocurrency."

One of the primary reasons why blockchains don't apply to contexts outside of cryptocurrencies, Gerard explains, is that the consensus mechanisms they rely on prevent them from scaling. "Proof-of-work is just 'bad,'" he says.

"It was a horrible quick hack because Nakamoto couldn't see any other way to get the effect he wanted. But it's the reason Bitcoin uses stupid amounts of power. No business blockchain would want to use this."

To make matters worse, alternatives to proof-of-work mechanisms are a long way off. "Proof-of-stake has some toy examples in cryptocurrency, but not serious examples - Ethereum's Casper project is working hard, but they basically have to come up with new computer science, so there's no release date."

Gerard acknowledges that certain businesses and organisation may implement different consensus mechanism and may overcome scaling issues by making their distributed ledgers private. "But if you have a private blockchain," he adds, "with only authorised participants … [then] you have a centrally managed distributed database."

Merkle trees rather than blockchains

However, despite his belief that blockchains are mostly inapplicable in 'the real world,' Gerard and others believe they do have some narrow application beyond cryptocurrencies, although Gerard is once again doubtful as to whether they'd remain bonafide, decentralised blockchains in a business context.

"The good bit is the ledger," he says.

"This is a 1979-model Merkle tree, a way of building an append-only ledger that's very hard to alter without it being really obvious you did so. This is obviously useful."

And as we noted with regards to Jimmy Song's infamous bet, there are already numerous examples of organisations experimenting with and adopting blockchain, including the Swedish Land Registry, Walmart, Maersk, HSBC, Microsoft, UPS, Amazon, Salesforce, and others. These projects might not be guaranteed success, and they might not involve 'blockchains' in the strictest sense, but they show that much of the technology laying at the heart of blockchains could have a bright future.

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