12 November 2018 (Paris, France) — Earlier this year my video team and I began shooting a documentary about blockchain and I quickly realized the research requirements to do that properly dictated I have a through knowledge of distributed ledger technology (DLT). I did have a good base of experience of distributed ledgers having been to multiple workshops on DLT which presented this new paradigm for how information is collected and communicated, poised to (possibly) revolutionize the way individuals, enterprises and governments transact.
But I found that was not enough so I read the key texts/sources (there are about seven primary books you need to read plus about five seminal papers) and I also took the intensive Johns Hopkins University blockchain technology course (two of those professors are leading authorities on blockchain and will appear in my video).
And while most of the literature about DLT and blockchain tends to talk about the immense possibilities on one side and technology issues on the another, it also tends to ignore the issues located between these extremes, such as implementation (not simple; failure-in-execution), trade-offs, limitations, materiality, and governance aspects which will limit the possibilities. For instance:
- I am presently involved as a “Subject Matter Consultant” in a “smart contract” case (contracts written in computer language that most non-coders cannot decipher with ease) that has created a challenge in the discovery process where it is critical that the contract is analyzed in its entirety. On top of that, the contract was designed and executed by coders (no attorney was involved) and one side now claims this may constitute the unlicensed practice of law.
- There is a story about a blockchain building in Switzerland that has been “sucked into” a coin mining farm orbit (an illegal activity that also steals power from power providers), so now it’s clearly debatable whether or not the chain is safe from hacking.
- But on the plus side, there is quite a bit of activity that uses block chain to investigate cryptocoin criminal activity. For just one example: Breaking Bad: De-Anonymising Entity Types on the Bitcoin Blockchain Using Supervised Machine Learning
In the following exposition I will not blind you with science but hopefully provide some basic knowledge and explain why blockchain is just a complete mess.
Setting the table
“Blockchain” this, “blockchain” that. It’s a concept so momentous that it has even managed to shed its article. Proponents don’t speak of “the” blockchain or “a” blockchain. Instead, they reverently preach “BLOCKCHAIN”. And it’s THE solution to all enterprise needs (in particular, supply chain management). The brute, unassailable, self-evident concept has disrupted not only the rules of commerce but those of grammar. Question it and you’ll be exposed as a hopeless rube and a Luddite. Use it sincerely and you’ll be lumped in with the hype men and techno-utopians.
It began on the 31st of October 2008 when the white paper “Bitcoin – A Peer-to-Peer Electronic Cash System” by a mysterious Satoshi Nakamoto was circulated among an email list of cryptographers. The described system Bitcoin was launched as a digital service on the 3rd of January 2009.
NOTE: In 2016, Craig Wright, a controversial bitcoin figure, proclaimed to the world that he was, in fact, Satoshi Nakamoto. He turned out he was a fraud. I’m actually hoping it turns out to be Justin Bieber or Kim Kardashian.
And just to clarify one thing. Most histories of the term “blockchain” will mention that Satoshi Nakamoto created the first one. Except, that’s not quite accurate. Nakamoto never referred to bitcoin as a blockchain, calling it instead a “chain of hash-based proof-of-work,” a “chain of blocks,” and even a “timechain” (in an early comment within the original codebase). Nakamoto was careful to emphasize that the chain was a set of proofs of work, each linked to the hash of its parent. The proof of work is absolutely essential to the concept. So why I do tend to “scald” this specific technology for the manner in which some “initiates” have chosen to use and misuse it, and I am fully aware of the need for the proof of work.
Blockchains are one form of DLT. Not all distributed ledgers employ a chain of blocks to provide a secure and valid distributed consensus. But the key thing to understand is that the advent of the internet made the transfer of information around the world instantaneous. The transfer of value, however, remained stuck in the past. The past couple of decades have seen giant leaps forward in just about every industry, yet much of the financial world is still governed by regulation and infrastructure from the 19th century, and that includes payments. Now all that seems to be up in the air, as DLT is giving people everywhere more options when it comes to how they move their money around the planet. The hope has been that DLT could finally provide long-awaited breakthroughs for cross-border payments, peer-to-peer payments and micro-payments.
A blockchain is distributed across and managed by peer-to-peer networks. Since it is a distributed ledger, it can exist without a centralized authority or server managing it, and its data quality can be maintained by database replication and computational trust. However, the structure of the blockchain makes it distinct from other kinds of distributed ledgers. Data on a blockchain is grouped together and organized in blocks. The blocks are then linked to one another and secured using cryptography.
A blockchain is essentially a continuously growing list of records. Its append-only structure only allows data to be added to the database: altering or deleting previously entered data on earlier blocks is impossible. Blockchain technology is therefore well-suited for recording events, managing records, processing transactions, tracing assets, and voting.
Cryptocurrencies, such as Bitcoin, pioneered blockchain technology. Bitcoin’s big rally in late 2017, and the ensuing media frenzy, brought cryptocurrencies into the mainstream public imagination.
So, every blockchain is a distributed ledger, but not every distributed ledger is a blockchain. Each of these concepts requires decentralization and consensus among nodes. However, the blockchain organizes data in blocks, and updates the entries using an append-only structure. Distributed ledgers broadly, and blockchains specifically, are conceptual breakthroughs in managing information and can be expected to find application in every economic sector.
And let’s be clear about one thing: none of this means that blockchain is unalterable. The controlling parties that set up blockchain (ranging from citizens to public or private organizations) can decide to alter the history of a blockchain (best example: the split in the Ethereum blockchain in 2016 because of diverging points of view of how to handle a major hack). So whereas a blockchain is tamper evident because of the hash-based linking of blocks, that does not mean that it is unalterable. No blockchain can guarantee total immutability, and social agreements between the controlling parties can lead to adaptation in the blockchain. And in the case that a discrepancy in the process of adding blocks occurs which leads to a fork in the chain, then the network solves this by continuing to build on the longest chain, e.g. the chain with the most cumulative resources behind it.
A problem of perception
Whenever we have these debates on technology we are subject to our culture’s chronic and patterned conditioned response to new technology: resistance, subversion and, eventually, surrender. And these are difficult times because we are witnessing a clash of cataclysmic proportions between and among multiple technologies (artificial intelligence and genetic manipulation being just two more). And sometimes we approach the new with the psychological conditioning and sensory responses to the old. This clash naturally occurs in transitional periods.
Worse, the whirlpool of information fathered by digital media means all the world’s a sage. The media has pulverized us with blockchain articles so we feel great because we’ve “read so much!” that we feel we’ve sufficiently “got the gist” to forego actually having to study blockchain. And the media tsunami is confusing. Blockchain is a literal technology, not a metaphor. Writers have made a number of implausible claims about the future of blockchain, like that you should use it for AI in place of the type of behavior-tracking that Google and Facebook do. This is based on a misunderstanding of what a blockchain is. A blockchain isn’t an ethereal thing out there in the universe that you can “put” things into, it’s a specific data structure: a linear transaction log.
But there is this weird feeling. 2018. We mark the tenth anniversary of the publication of the Bitcoin white paper and therefore it places blockchain technology in a stage equivalent to the internet’s 1998. True, innovations now diffuse faster than they used to, but our expectations should turn centuries into decades, years into days. And yet, with Bitcoin’s entrance on the mainstream stage in 2017, it feels like blockchain should’ve solved all our problems already, doesn’t it? It is 10 years old … but still in the fourth grade?
And our technology got us to the point where users have come to expect near-instantaneous gratification: “make blockchain work … now!! And make it seamless!!”
NOTE: my eDiscovery readers may recognize these points. In my post “What’s REALLY wrong with technology assisted review in e-discovery? Perception” I noted these same points apply to explain why TAR has gone through such slow adoption.
Worse, in the case of blockchain, so many times it has been “sold” as an app and not what it really is (more or less), middleware.
NOTE: during the recent baseball World Series in the U.S. IBM touted its blockchain services in TV commercials for “tomato tracking”. And just like AI, I have seen firms over-hyping its usefulness or simply repackaging existing services as “DLT”, what the industry describes as “blockchain washing”.
And why did the term become so poplar? Early bitcoin developer Hal Finney might have nailed it:
The reason “blockchain” is such seductive marketing is the subtle implication that the data structure alone — absent proof of work or open validation — could convey the same benefits as bitcoin. It doesn’t work like that. It was a tech marketing shift.
We see it in the mobile interface war going on. The step change in user interface abstraction and simplicity means that we can now do things on a phone that we didn’t know how to do on a PC. That is, the step change in user interface models that comes with the shift from Windows and Mac to iOS and Android is really a shift being forced by the tech industry in the accessibility of capability. So now we all want capability … capability everywhere, for everything!!
So it gets to my central point: it’s too complicated for lay people to understand or use right now, and there’s no standard way to use it. The only way to get mass blockchain adoption is to create a plug-and-play version that all of us can use and understand. I do understand the appeal: imagine if you had a service provider that provided properly vetted data summed up in a single trusted reference. If well-regulated, it would benefit tremendously.
“If”. This technology … like all other “new” technologies … will be corrupted. Its failure to achieve adoption to date is not due just to its opaqueness but because systems built on trust, norms, and institutions inherently function better than the type of no-need-for-trusted-parties systems blockchain envisions. I get it, though. Following the blockchain “rules” means it is mathematically enforced – no government or police force need come in and tell you the transaction you’ve logged. It’s a powerful idea. But many times blockchain-based trustworthiness falls apart in practice (see, for example, the Maersk/IBM blockchain deal).
Solve these issues or blockchain ain’t goin’ nowhere
Here are my top issues with blockchain (I know there are more but I think these are key) or it isn’t going anywhere:
1. No Universal Use Case
Borderless, close-to-free payments, financial anonymity, impossible-to-rig elections, universal authentication of goods, un-hackable data storage, verifiable crowd predictions, accurate public health records, ensuring charity fund distribution. Yep. A list of potential use cases – potential problems the blockchain could solve – is endless. But that’s a problem as much as it is an advantage.
Since there is no obvious, primary application, we won’t all adopt blockchain via the same path. Bitcoin just happens to be the first and largest and it chose the currency approach, but even that gets debated all the time. Should it be a means of payment? A store of value? Eventually, we may all use something that relies on blockchain. But that something won’t be on a web browser or cell phone for everyone.
2. Ease Of Use
Hat tip to Niklas Grogan (platform designer) for this one:
Ok, this is more crypto-currency but here goes. Right now, if I want to send you 0.01 ETH, I have to:
- Go to the MyEtherWallet website.
- Triple check it’s the correct one, and not a phishing site.
- Upload a file, enter a long string of letters and numbers, or a sequence of unrelated words.
- Enter your unique address, which is yet another string of numbers and letters.
- Set not just the amount, but also the maximum gas I’m willing to send with the transaction, including the price I’m willing to pay for it.
- Triple confirm that I want to send the transaction.
- Watch it and wait to see if it goes through.
That’s way too many, complicated steps. Yes, I’m a nerd and I don’t mind, but the majority of the world isn’t and they do. PayPal now has a link structure with which I can tailor a custom link for you to send me any amount of money with two clicks. It looks like this: http://paypal.me/xxx
THAT’S how easy sending cryptocurrencies needs to be, or rather will be, by the time everyone uses them to pay for coffee or reimburse their friends.
3. Invisibility
When you were using a computer to crunch some numbers in the 1940s, 1950s, 1960s, or even 1970s, it was hard to hide the fact you were doing so. Why? Because you needed to rent an office to put it there. Now, IBM makes computers that are smaller than salt grains. Computers are included in anything and everything, hidden from view. Your phone, your passport, your light switch at home, everything runs on processing power. Similarly, everything, besides half of humanity, is connected to the internet. Yet most of us only have a vague idea of how it works.
That’s because in order to use technology, we don’t need to know what powers it, let alone realize a certain technology is in place at all. We don’t need people wearing “I love blockchain” shirts and explaining it to all their friends, which are then weirded out by it. Don’t get me wrong, that’s a noble effort, and whoever shows interest, do tell them, but most people don’t want to change.
They don’t want to “adopt”. They want to live their lives. The trick is to make the change so subtle they don’t notice it. Thus, what we ultimately also need is blockchain to be so invisible in easy-to-use applications that we can skip the explainers and go right to “yeah, it’s on-chain … whatever that means.”
4. Ease Of Setup
The internet may be everywhere, but whoever’s wifi you hop onto, they had to set it up first. Luckily, it’s only plugging in a few cables and turning on a box. Or calling a guy. Blockchain applications need the same plug-and-play infrastructure in order for the many ideas we have for using them to come to life.
Right now, you need a dedicated team of seasoned developers to potentially even learn new programming languages, then crank out a custom-coded solution. There’s no tap-here-to-start-tutorial and no software. The only way blockchain innovation can reach critical velocity is if the barrier of entry is low enough for enough people to take a swing at their ideas.
I could discuss energy consumption but that is more cryptocurrency. When a single crypto network’s annual energy consumption is lodged somewhere between Greece and Algeria … yes, that’s a problem. But that’s for another post.
And I will discuss regulation but that is right below.
CONCLUSION
Blockchain is just one protocol out of many DLT options, as data mining is just one in AI. Its success (if it happens) will be seen through the development of the network and application layers which comes to the main points in this post. That packaging is the key to its adoption.
But I also think that in the near future the most innovative work on blockchain will center on the tokenization of assets. Such tokenization, which doesn’t involve cryptocurrency, is already gaining traction in the real estate sector, where many companies are using distributed ledger technology to divide ownership in new ways.
And blockchain may not be the answer to decentralization, perhaps, but it does not mean that decentralization cannot answer or help to resolve the issues of a complete lack of trust held by voters, bank customers or any keeper of personal identity. I think that the concepts of taking ownership of identity and integrity are tantalizingly close with blockchain but are not there yet. Blockchain is an elegant piece of technology that can do something very complicated, and do it very well. It therefore offers the potential to reduce the necessity and power of centralised intermediaries and platforms.
My guess is a lot of smart developers will continue to work on realizing the potential of blockchain, but I’m of the mindset that we will enter a “blockchain winter” much the like the AI winter and it will be 4-5 more years before we start to see any real traction from all these promises. I would assert that there is NO SINGLE PERSON in existence who had a problem they wanted to solve, discovered that an available blockchain solution was the best or only way to solve it, and therefore became a blockchain enthusiast.
So be wary. Be suspicious of anyone who routinely uses “blockchain,” especially if they are trying to sell you something. Overuse of the term, especially in a general context and without qualifiers, most likely reveals one of three things about a person:
1.They are well-meaning but forced by convention to use subpar linguistic tools
2.They are a bit muddled and trying to mask their ignorance with technobabble
3.They are trying to posture as an expert in an industry which realistically has no experts
And a note to computer scientists from my bitcoin maven buddy (and very much in-the-know) David Puell: stop mocking nontechnical people for using “blockchain.” You’re missing the point. They aren’t really referring to the data structure, so it’s beside the point to say, “Just use MySQL.” “Blockchain,” for better or for worse (definitely for worse) has become a term of art that is typically used to refer to the whole system — economic and social — rather than just the data structure.
And my note to the regulators reading this: please do not try to define “blockchain” or create blockchain regulation. You will fail, not due to your lack of astuteness (ok, full disclosure: you are all idiots) but because the term “blockchain” is so semantically dispersed as to be undefinable. Definitions need to be specific and useful and also general enough to encompass all of the members of the set. However, these tensions tear “blockchain” apart. It is used too generally to be useful.
To conclude: I do not see bitcoin as “pretty much inevitable” but it is logical progression in the state of technology. And in my research I learned that for looking to an expert I was best to talk to a technologist, and not a lawyer or a finance/economics professional. That should be obvious to all. It’s very frustrating to argue with people who haven’t done the same work involved in learning the technical details.
And I am fully prepared, in five or 10 years, to look back at the popularity of “blockchain” … and be slightly embarrassed by this post.