If you take away the hype, blockchains remain mega-cool

Photo by Johny Goerend on Unsplash

I’ve heard some valid crit­i­cism of blockchain tech: it is a very inef­fi­cient data­base, there’s noth­ing sub­stan­tial­ly new peo­ple are doing with it, DeFi is self-ref­er­en­tial. All of these have some truth in them. On top of this the indus­try is over-hyped and inun­dat­ed by star­tups with mil­lions in fund­ing and flashy web­sites with a lot of buzz­words. This makes the prob­lem worse because infor­ma­tion on the real tech and inno­va­tion is often buried under lay­ers of mar­ket­ing material.

Blockchain is hard and the tech is still in a prim­i­tive phase, often still sub­ject to active research. I think this is a new era of com­pu­ta­tion and we are still fig­ur­ing out the par­a­digms — of course the qual­i­ty of the appli­ca­tions is going to be all over the place. Think how cum­ber­some it must have been pro­gram­ming com­put­ers with punched cards. I’m sure peo­ple were promised a brand new era of automa­tion even back then! But it took decades to get there, with many bumps on the road.

At their core blockchains work by a clever com­bi­na­tion of cryp­tog­ra­phy and game the­o­ry. I find that many engi­neers crit­ic of blockchain often under­es­ti­mate the impor­tance of the lat­ter. The eco­nom­ic incen­tives are used in a blockchain to cre­ate a very hos­tile envi­ron­ment: nodes com­pete to get rewards. As a side effect they run the infra­struc­ture of the blockchain for oth­ers to use. While cryp­tog­ra­phy is essen­tial to pre­vent cheat­ing, it is the eco­nom­ic aspect that makes it appeal­ing for the nodes.

Blockchains are often referred to as trust­less sys­tems: they are a nov­el decen­tral­ized com­pu­ta­tion mod­el where the user does not have to trust any sin­gle actor. I think the term is slight­ly mis­lead­ing because trust is still required: instead of a per­son or a com­pa­ny, the user is trust­ing the archi­tec­ture of this math­e­mat­i­cal, cryp­to­graph­ic and eco­nom­ic system. 

This would be a per­fect fit for “appli­ca­tions” typ­i­cal­ly run by gov­ern­ments such as: iden­ti­ty cer­ti­fi­ca­tion, tax sys­tems, ten­ders, online vot­ing and of course the bank­ing sys­tem. Because of the poten­tial for cheat­ing, for all these you would rather trust a [trust­less] sys­tem than a com­pa­ny or a gov­ern­men­tal agency. The sys­tem can be designed in the open and every­one can check its fairness. 

I think blockchain is even­tu­al­ly going to be the back­end tech for many of these use-cas­es. As with all back­end tech­nolo­gies, there won’t be very vis­i­ble changes for the end-user. It will prob­a­bly just amount to using a new app or web­site. Right now how­ev­er gov­ern­ments are still fight­ing a tech they don’t under­stand and peo­ple are find­ing oth­er use-cas­es to make some­thing with it. And yes many ride the hype wave and don’t real­ly add value.