Opinion Blockchain – a solution to a non-existent problem

Zach Corman, the founder of Awesome Power, a financier, and programmer, shared his opinion on what problems the blockchain solves and whether we need this solution.

In my opinion, the blockchain will not be able to revolutionize the global economy or fundamentally change the existing corporate structures. Also, he will not be able to eliminate intermediaries. The fact is that the blockchain is a solution to a nonexistent problem.

The era of the blockchain began with Bitcoin (Bitcoin). At that time, the conviction prevailed that existing payment systems did not allow making irreversible payments online, which meant that micropayments were impractical. Bitcoin was supposed to be the solution to this problem. However, do not take my word for all of this in the introduction to the Bitcoin White Paper.

“Necessary intermediation of financial institutions prevents the implementation of irreversible transactions. The cost of these services increases the cost of transactions and sets their minimum price, making it impractical to carry out infrequent and small transactions. In addition, the absence of irreversible transactions increases the cost of services whose services are irrevocable. “

Blockchain allowed to create a payment system without financial intermediaries, in which the transaction can not be canceled. In theory, this would reduce costs and make micropayments possible.

The point is not that trust and intermediaries are necessarily bad or ineffective. Just the presence of a trusted intermediary calls into question truly irreversible transactions and leads to an increase in costs, making micropayments unprofitable.

But by the time I became deeply interested in this topic (in 2013), everyone seems to have forgotten about the original idea. As a payment system, Bitcoin was more profitable than credit cards. Most people associated with Bitcoin, at best, talked about the “inefficiency and obsolescence” of intermediaries, and at worst, predicted their complete disappearance from the market. As far as I can tell, no one has ever thought about the useful functions of intermediaries.

However, the blockchain did not save us from the need for intermediaries. In fact, they perform useful functions, and the idea behind Bitcoin was that sometimes we simply do not need these functions and the associated costs. Remember irreversible payments for irreversible services? Alas, it was a long time ago.

Suddenly, Bitcoin was the best way to buy on the Web just because you can save 2% on costs and still hope that the seller will still send the paid goods. Let me remind you that this system was designed to eliminate any need for the trust!

Bitcoin never managed to fix the problem it was created to solve. Its costs are still too high for micropayments, and confirmation of transactions takes too much time. However, the attempt was really worthy – we must pay tribute to Craig Wright and Hal Finney (that is, Satoshi?) …

This does not mean that there will be no place for the blockchain in the future, but a healthy share of skepticism will not hurt. This is not to say that the blockchain simply eliminates intermediaries and the need for trust, and to end there. I need details. Why do I need to remove intermediaries? Why not trust any third party? Does the elimination of intermediaries really reduce costs, and will we not lose anything because of this?

Not surprisingly, virtually every proposed use of the blockchain does not answer any of these questions. Time after time I observe the same logical errors and omissions. I want to discuss some of them to try to answer at least some of the questions. The problem is not that the description is not complete enough, the authors do not think about these things.

The first common mistake is statements like “thanks to the blockchain, you can now …”. Usually, these words are spoken by a person who is convinced that his idea can be implemented only with the help of the blockchain. However, in most cases, it turns out that he simply did not consider alternative ways. Such statements will not work in any other technological area. It’s like saying that thanks to NoSQL (approaches aimed at implementing databases without the SQL language), we can finally store data.

Or imagine the following my car, which is already essentially a computer, enters into a lease agreement with a parking lot controlled by another computer. He “signs” the contract at the time of arrival. As a payment, the car transfers a small number of bitcoins to the parking wallet.

Computers control the whole process, so we will never forget to pay for parking. The only problem may arise when my car runs out of bitcoins. But she has a simple solution because the ignition is controlled by the on-board computer, the parking can simply give the order and turn off my car.

Scenarios like this are possible when the blockchain – a digital registry of transactions originally invented to verify Bitcoin transactions – will be used not only for payments.

In other words, your car will make its own payments … It all looks like a normal transponder, but with the ability to turn off my car if I don’t pay. As long as I can remember, I always had a transponder in my car. I don’t think it works on the blockchain. Perhaps the blockchain here would be useful and would allow reducing costs, but the essence is something else.

As I said, I need answers. This story perfectly illustrates the author’s reluctance to consider alternative ways of implementation and the associated subtleties. Here is another example. I constantly come across slides describing the advantages of the blockchain for small businesses, but I just can’t understand why these ideas can only be realized on the blockchain.

Traditional databases are maintained by some organization, and this organization completely controls the database, including changing information at its own discretion, prohibiting changes or adding data fraudulently. In most cases this is not a problem, since companies usually maintain their own databases and are not interested in falsifying their contents, however, there are cases (for example, a financial network) where the stored data is too important and the temptation to manipulate is too large to allow one organization to fully control them. . Even if we are confident in her honesty and know that she will never change the data in her own interests (already a rather bold assumption), there is still the likelihood of hacking and theft of information by hackers.

Of course, reversible payments are the case when the existence of a central governing body is a plus. There are many such examples. I am surprised that people are not intuitively aware of this. As a co-founder of a startup, I perfectly understand the negative reaction of people when I tell them that I cannot “fix” something on my website. They just want me to do everything that is necessary.

What will they think about the blockchain that no one can fix in the event of a breakdown? An indicative (and funny) example is the case with DAO. DAO, if anyone knows, was to become an investment fund in the Ethereum network, based on the rule of software code. However, the attackers found the vulnerability in it and stole millions of others, after which the furious investors demanded that they are found and brought to justice.

Another common misconception is the idea that all problems can be solved technologically. It is best illustrated by the following blockchain application in the energy industry.

The blockchain reduces transaction costs by storing a single logical copy of transaction records. As a result, there is no need for reconciliation and calculations. Due to its unique qualities, blockchain can play a significant role in the energy sector and potentially change it beyond recognition.

The technology will reduce utility bills or the need for working capital in the wholesale gas and electricity market. At the same time, the blockchain will allow millions of consumers (heating, ventilation systems, air conditioners, boilers, electric cars, batteries, solar batteries) to pay each other directly, providing support to operators of power grids and making it possible to integrate renewable energy sources with minimal costs.

This is an absolutely beautiful and sensible idea. However, she also became a victim of the delusion “now this is possible thanks to the blockchain.” Blockchain is not needed at all so that different devices can communicate with each other. However, the implicit assumption that the development of the energy market is hampered by the lack of advanced technologies is more important. In other words, if we can develop a more advanced system, it will be implemented, and everyone will benefit from it.

The blockchain may be excellent for the energy sector, but the allegedly impending economic revolution will be accompanied by active rule-making and advice. For the time being, people are responsible for everything, and you need to be prepared for this.

Blockchain is trying to solve a problem that you have never thought about the problem of a trusted intermediary. Being a programmer, I never went to Stack Overflow to ask “How to develop a system that functions as a database, but at the same time no one can control it, including the creator?”. And I never saw this question being asked by someone else. As a private consumer, I never thought “In this product/service I absolutely do not like a trusted intermediary.” Such thoughts simply do not arise in the minds of most people.

Satoshi these features were needed for very specific purposes. He also explained in some detail why these functions are necessary. His followers, who picked up the baton, seem to have forgotten about the original goals of the project. Suddenly, his main and self-sufficient task was to eliminate intermediaries.

In other words, the blockchain solves a far-fetched problem, and people who argue about the uniqueness of new technology do not understand this. The hype is likely to continue, but I hope that sooner or later we will understand all the drawbacks of the blockchain.