Last week, we featured a piece on how cryptocurrencies such as Bitcoin seem to be increasing in popularity, especially as an investible asset class. This piece talks about the underlying technology – Blockchain. Blockchain has been very widely regarded as the most disruptive technology around with potentially myriad applications across several fields ranging from financial services to healthcare to government to anything that needs data to be stored and processed securely. In this piece, the author questions whether we have had anything to show on that front. Indeed, the author shows why even Bitcoin, the most celebrated application of Blockchain, isn’t particularly the most efficient.
“I’m sure I wasn’t the only one who thought: but what is it then, for God’s sake, this whole blockchain thing? And what’s so terribly revolutionary about it? What problem does it solve?
That’s why I wrote this article. I can tell you upfront, it’s a bizarre journey to nowhere. I’ve never seen so much incomprehensible jargon to describe so little. I’ve never seen so much bloated bombast fall so flat on closer inspection. And I’ve never seen so many people searching so hard for a problem to go with their solution….
….bitcoin isn’t an unqualified success. There are very few shops that accept the digital currency – and rightly so. It’s very slow (sometimes a transaction takes nine minutes, sometimes nine days!), a lot of hassle (try it for yourself – cutting open hard plastic packaging with scissors is more user friendly), and very unstable (its price rose to €17,000 euros; dropped to €3,000; rose again to now €10,000).
…But blockchain, on the other hand: it’s the technology behind bitcoin, which makes it cool. Blockchain generalises the bitcoin pitch: let’s not just get rid of banks, but also the land registry, voting machines, insurance companies, Facebook, Uber, Amazon, the Lung Foundation, the porn industry and government and businesses in general. They are superfluous, thanks to the blockchain.
Bloomberg estimates the worldwide blockchain industry at around $700m (over €600m). Large companies like IBM, Microsoft and Accenture have entire divisions dedicated to this revolutionary technology. In the Netherlands there are all sorts of subsidies available for blockchain innovation.
The only thing is that there’s a huge gap between promise and reality. It seems that blockchain sounds best in a PowerPoint slide. Most blockchain projects don’t make it past a press release, an inventory by Bloomberg showed. The Honduran land registry was going to use blockchain. That plan has been shelved. The Nasdaq was also going to do something with blockchain. Not happening. The Dutch Central Bank then? Nope. Out of over 86,000 blockchain projects that had been launched, 92% had been abandoned by the end of 2017, according to consultancy firm Deloitte.
Why are they deciding to stop?…
Firstly: the technology is at loggerheads with European privacy legislation, specifically the right to be forgotten. Once something is in the blockchain, it cannot be removed. For instance, hundreds of links to child abuse material and revenge porn were placed in the bitcoin blockchain by malicious users. It’s impossible to remove those.
Also, in a blockchain you aren’t anonymous, but “pseudonymous”: your identity is linked to a number, and if someone can link your name to that number, you’re screwed. Everything you got up to on that blockchain is visible to everyone.
The presumed hackers of Hillary Clinton’s email were caught, for instance, because their identity could be linked to bitcoin transactions. A number of researchers from Qatar University were able to ascertain the identities of tens of thousands of bitcoin users fairly easily through social networking sites. Other researchers showed how you can de-anonymise many more people through trackers on shopping websites.
The fact that no one is in charge and nothing can be modified also means that mistakes cannot be corrected. A bank can reverse a payment request. This is impossible for bitcoin and other cryptocurrencies. So anything that has been stolen will stay stolen. There is a continuous stream of hackers targeting bitcoin exchanges and users, and fraudsters launching investment vehicles that are in fact pyramid schemes. According to estimates, nearly 15% of all bitcoin has been stolen at some point. And it isn’t even 10 years old yet.”
And blockchains are energy intensive too:
“So much energy that the two biggest blockchains in the world – bitcoin and Ethereum – are now using up the same amount of electricity as the whole of Austria. Carrying out a payment with Visa requires about 0.002 kilowatt-hours; the same payment with bitcoin uses up 906 kilowatt-hours, more than half a million times as much, and enough to power a two-person household for about three months.”
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