
My professional opinion as a blockchain researcher: I don’t see the point (yet) - ericdanielski
https://jmkorhonen.net/2018/01/12/my-professional-opinion-as-a-blockchain-researcher-i-dont-see-the-point/
======
JumpCrisscross
When I first read Satoshi's paper [1], I read it as a solution to the Two
Generals' Problem [2]. The problem concerns itself with multiple parties
coördinating and communicating over an untrusted channel.

The blockchain got distracted by finance. Modern settlement and clearing is
efficient. It's perhaps the most efficient part of the financial system; it is
certainly the easiest to upgrade. The difficult stuff, the messy institutional
knowledge, customs and tendencies, are unaffected by protocol choice. That's
why the same behaviors which plagued the unregulated banking system plague
cryptocurrency markets today. People are still people.

There are many systems which require a trusted group of people to reach a
consensus in public. (Libor is an example [1]. Notaries appear, _prima facie_
, to be in a similar category.) Immutability is of dubious benefit. But a
simple, public consensus mechanism beats checking sundry private APIs and blog
posts (how a lot of this is done today). Unfortunately, this class of use
cases is negated by a "currency-like" token value.

[1] [https://bitcoin.org/bitcoin.pdf](https://bitcoin.org/bitcoin.pdf)

[2]
[https://en.wikipedia.org/wiki/Two_Generals%27_Problem](https://en.wikipedia.org/wiki/Two_Generals%27_Problem)

[3]
[https://www.investopedia.com/terms/l/libor.asp](https://www.investopedia.com/terms/l/libor.asp)

~~~
niyazpk
>> Modern settlement and clearing is efficient.

If this is true, why oh why does it take 3 days (in the US) to transfer funds
between my own accounts in two different banks?

Why does it take 5-15 days (including multiple "fraud" verification emails,
calls etc) to send money from the US to my Indian bank account?

>> ...it is certainly the easiest to upgrade.

It is 2018... why are these systems not upgraded yet?

~~~
toomanybeersies
Because the USA has an antiquated banking system, resistant to change.

My bank in New Zealand has instant clearing to accounts within the same bank,
and hourly clearing to other banks. I can transfer money from my Australian
account to my New Zealand account using TransferWise within 3 hours, or 2
working days if I use the international transfer service offered by my bank.

One problem with America is that you have so many small banks and credit
unions, a small town might have its own bank, that nobody is willing to
standardise and agree on new standards. This is why Americans still use
cheques, and why adoption of contactless payment using debit/credit cards, as
well as chip+PIN (or even swipe+PIN) has been so slow.

Contactless payment is so ubiquitous in Australia and New Zealand that I've
had to insert my card literally once all year.

Australia only has half a dozen main banks, which service >90% of the
population. For whatever economic implications that has (too big to fail
etc.), it has been great for encouraging innovation.

~~~
Theodores
It is also a service culture where they have extra people to help you pack
your bags. Meanwhile, Japan, Scandinavian countries and plenty of other first
world places are going big on automation. You don't even get bags or a
checkout assistant, it is all self-scan and pay by chip and pin (or
contactless).

Against this back drop of US service culture the idea is to make it as easy as
possible for the customer - they don't have to enter a complicated four digit
pin number, they can just sign their signature and if the cashier thinks it
looks like the scrawl on the back of the card then the sale is done.

I currently do not have millions of credit card details from a client database
on my computer but that has happened before now. If I was criminally minded
then I would have been able to sift off a lot of money, however, I have yet to
steal a penny, despite also knowing some flaws in the 'double entry system'
that I could have hacked to cover my tracks. I am sure that there are many
millions of developers out there that have had such data on their laptop at
some time. How many go rogue and steal? Not many. But in crypto-land it seems
that this situation is reversed, everywhere there is a scam. The good actors
are as rare as the bad actors in regular accounting/book-keeping.

So ten years ago when I did have many millions of credit card numbers that
could be used (no 3D secure back then), I was trusted but not expressly by a
single one of those named in that 'Sybase' database (as it was then). The
system then very much worked entirely on trust and generally all those in the
chain were trustworthy. I don't feel that banking has moved on in the USA from
this trust way of working, things are much more locked down in the rest of the
world. This is good for many reasons, I prefer today's customer databases
where all the bits you would want to hack are hashed and salted if at all
present.

This flakiness of banking in the USA - where a bank is not really any more
likely to stick around than a company - means people do flock to the crypto
coins precisely because of the 'store of value', there is chance of getting
more than 2% return and the perceived risk is not much 'worse'.

Hopefully the net result of this fantasy blockchain nonsense is that we do
build out better banking systems that do have a better 'trust model'.

The article does point out the absurdity of pushing around a whole copy of the
database to every user and keeping it synced...

------
bittcto
This is a very common rehash of the "blockchain not bitcoin" perspective, and
this indicates a lack of understanding of the purpose of bitcoin.
Bitcoin/satoshi aren't being coy, though. The Genesis block contains the
headline "Chancellor on the brink of second bailout for banks." Bitcoin was
created as a democratized money that is outside of central control.

The author thinks that centralized control is not a problem because "there is
no lack of trusted enough intermediaries in the financial/accounting sector".

This is something that bitcoiners strongly disagree with, with almost daily
news of financial censorship going on, and irresponsible financial
institutions continuing to be funded by quantitative easing[1] to engage in
carry trade and other gambling (which is somehow considered less risky than a
revolutionary new form of hard digital money).

The thing that I think a lot of people miss is that bitcoin is not a
technology, it is a combination of technological innovations with economic
innovations.

Its the incentives in bitcoin that are critical to the system... this is why
"private blockchains" are silly. You might as well use Oracle with version
tracking on changes.

Public blockchains, namely bitcoin, have the potential of being genuinely
trustworthy in themselves, not based on hoping you don't have counterparty
risk.

In 2009, it was the counterpary risks that really amplified the disaster-- all
of those CDOs were written assuming there was no possibility of default.

The rest of the financial sector operates at the risk of financial censorship,
but financial censorship is not unusual-- everything from banning people from
doing business with each other to the elimination of ownership rights for
corporate bonds in the GM case. It's not that uncommon.

With bitcoin there is no possibility of default, and very high resistance to
financial censorship.

[1] Not to mention that arbitrary issuance of currency basically removes
individuals ability to trust that currency in the first place.

~~~
boreas
Bitcoin has very few of the properties that one would consider desirable for a
currency.

1) Transaction costs. Don't want to beat this horse to death. Some other
cryptos improve on this.

2) It's inherently deflationary. Deflation is bad. This ties into another
strange thing, which is that the boosters of every coin think they are
supporting the long-term adoption of the technology by "HODL"ing but that is
the opposite of what people would do with a real currency. I haven't seen a
crypto that isn't deflationary.

3) The bitcoin protocol decentralizes some things but centralizes along other
dimensions. For mature cryptos its very tough to get the entire community to
agree to a hard fork, which means that mundane fraud can't be effectively
unwound, like banks could probably do with fiat transactions. I have the most
trouble articulating this.

~~~
bittcto
"Bitcoin has very few of the properties that one would consider desirable for
a currency."

The desirable properties of currency are: \- difficult to counterfeit \-
fungibility \- robustness from degradation (eg: salt works except if you get
it wet) \- consistent store of value \- Easily transportable.

Bitcoin has all of the above, and has better qualities in each regard than
both gold and the US dollar.

As for your complaints: 1\. Transaction fees are not a problem. You can move a
million dollars for $0.20. You can move 1 penny for a millionth of a penny
with bitcoin. The "transaction fees" FUD is just a campaign combined with a
spam attack and that spam attack has been defeated. Further it becomes
irrelevant with lightning.

2\. Bitcoin is literally inflationary. It won't stop inflating until 2140. You
think its "deflationary" because its price keeps going up, but that's simply a
consequence of the technology adoption lifecycle.

The idea that deflation is bad is absurd. Monetary inflation is a form of
taxation, or more precisely counterfeiting. It is literally theft. The reason
old people have trouble getting by is that the government has stolen their
lifetime of savings via inflation. The idea that government propaganda has
convinced people that this is somehow good is really quite disgusting.

3) There is no reason to hard fork bitcoin. The only ones that have happened
were early days and an accidental one (which nobody noticed because everyone
upgraded.) You don't need to hard fork bitcoin.

Unwinding "mundane fraud" is not a feature of gold or the US Dollar so the
idea that this is a requirement of a currency is absurd.

Also, you were complaining that it is centralized, but your evidence is that
it's so decentralized that you can't reverse transactions?! You said you were
having trouble articulating it, so maybe you switched points in the middle.

Anyway, censorship resistance is a good thing-- any method that lets you
"unwind mundane fraud" would let a government censor who has what bitcoin.

------
apo
Professional blockchain researcher. Huh?

From the witer's bio:

 _I’m a PhD student at Aalto School of Economics in Helsinki, Finland. In
general, I’m interested in evolution – specifically, how complex entities
evolve over time._

FWIW, those who are shut out of centrally managed payment systems most
definitely understand the point of Bitcoin. For example, see this recent
article on Sci-Hub:

[https://www.theverge.com/2018/2/8/16985666/alexandra-
elbakya...](https://www.theverge.com/2018/2/8/16985666/alexandra-elbakyan-sci-
hub-open-access-science-papers-lawsuit)

~~~
ChrisLomont
Ad hominem?

He finished his PhD thesis last year, and it's not unreasonable for him to
have spent the past 15 months doing research on blockchain technologies, give
the areas he works in.

~~~
apo
I'm not sure how you conclude that the PhD has been earned. The about page
uses the future tense, there has been a lot of time to update it, and there's
this:

 _With luck, my thesis will be complete in late 2017 – only three years later
than I planned! The extra years have been well spent in researching and
writing about environmental issues, particularly energy /environment nexus.
This has resulted to two books in collaboration with Rauli Partanen: Climate
Gamble and Musta hevonen._

When an author puts credentials in the title of an article, then credentials
are on the table as a point of discussion.

~~~
ChrisLomont
>I'm not sure how you conclude that the PhD has been earned.

I didn't say it was. I stated the thesis was finished. These are distinct.

The latter requires a defense of the thesis before a committee, and in pretty
much every decent PhD program, is merely a formality since the advisor should
not let the student defend until he/she is ready. I had my thesis finished
long before I did my defense, and I passed that months before the PhD was
conferred, which happens at graduation.

Here's [1] a speech given before his thesis defense, so I suspect he has
passed his thesis defense. So either he got his actual PhD at the end of the
term or is waiting to get it at the next term end.

>When an author puts credentials in the title of an article, then credentials
are on the table as a point of discussion.

Neither PhD nor Doctor appear in the title or in the article. You brought up
the PhD silliness. A PhD is neither required nor implied in this post.

You're still stuck on ad hominem. If you want to criticize, do so on the
merits of the article, not strawmen you dig up.

[1] [https://jmkorhonen.net/2017/12/15/necessity-is-the-mother-
of...](https://jmkorhonen.net/2017/12/15/necessity-is-the-mother-of-inventors-
my-phd-lecture/)

~~~
desu_
Ad hominem is wrong, but so is argument from authority.

 _My professional opinion as a blockchain researcher_ _I’ve spent the last 15
months researching the implications and possibilities of blockchains and
related “distributed trust technologies” from a business and societal point of
view._

And dirtyaura's comment consolidates the _author is some figure we can trust_
mantra.

In the end, the article states that people should not put their savings into
coins but smart contracts are nice. Something others have said before but it's
more clickbaity to state that it's coming from a professional blockchain
researcher.

~~~
ChrisLomont
Claiming it's an argument from authority is the fallacy fallacy.

An argument from authority goes: "I am an authority _therefore_ the following
is correct." This is nowhere near that.

He correctly stated it was his professional opinion that..... He didn't claim
the argument is correct _because_ he's a professional. And he is a
professional, doing this work in a professional context for 15 months.

So it is absolutely correct to state "my professional opinion is...". He has
likely put far more work into this, and certainly with better background and
training, than probably anyone on this thread questioning his credentials
instead of addressing his message.

~~~
desu_
It's not a fallacy fallacy since I point out one weakness in the article but
do not assume the proposition is wrong for that reason. Actually, if you read
my last paragraph, it's obvious that I even agree with the author's argument
to some extent. I only attack him for making a boring claim more clickbaity
through his credentials.

From my quick skimming, mostly apo questioned the credentials. Yes, you are
using ad hominem against the one you accused (rightly of doing so).

------
paulsutter
> there is no lack of trusted enough intermediaries...

Equifax? Wells Fargo? Happy that your payment card provider sells your
purchase history? Or that we spent trillions to bail out bankers mistakes?

What about trust in nonfinancial matters: Voting machines? Google? Facebook?
The NSA? The 30 obscure random companies tracking any given web page?

Maybe we trust too readily.

~~~
hyperbovine
> Are you happy that your payment card provider is selling your purchase
> history?

Yes, I'd much prefer it to be freely available for all to see.

~~~
jraines
Except it's linked to one or many pseudonymous wallet addresses, so only
linkable to your real name under certain circumstances and/or by TLAs. And
that's before anonymizing protocols (available now as separate coins, coming
soon-ish to ETH, and probably at some point to BTC)

~~~
jayd16
You're worried about being tracked yet you don't think someone who would track
you wouldn't go through the hoops of digging through the chain to do it?

~~~
jraines
I'm not sure where you get either of those from my comment. TLAs (not just
intelligence) can and will do that digging. Marketing/surveillance firms will
do it or pay blockchain analytics firms to do it. Anonymizing protocols will
probably thwart all but intelligence agencies, though.

~~~
Spivak
Great! When will we have one of those anonymizing protocols?

~~~
glitch003
We have them now! From your GP comment

> (available now as separate coins, coming soon-ish to ETH, and probably at
> some point to BTC)

See Zcash, Zclassic, Monero, etc. The tech behind Zcash is called ZKSnarks is
available for use in ethereum smart contracts as well.

------
LeonM
I studied the source of the bitcoin blockchain a couple of years ago when the
whole "blockchain will change the world" movement began. Although I really
liked the elegance of the blockchain, I never understood what the blockchain
would solve in a real-world application.

How I see it: blockchaining is an arms race in computing power. In order to
sufficiently 'secure' your chain you need to spend more value (electricity)
than an attacker is willing (or capable) of spending. This makes blockchains
very expensive, slow and an environmental disaster.

Unless a blockchain has tremendous value (like cryptocurrencies currenly have)
there is no way to sustain them.

~~~
jacquesm
> blockchaining is an arms race in computing power.

 _Distributed_ blockchains.

~~~
LeonM
That is correct, but a non-distributed blockchain (i.e. something you use
locally) sounds like a something that can also be solved by using a database
or even your filesystem.

I'm not saying blockchains are bad technology, non-distributed blockchains can
be a very good solution to certain problems, but it's not the "world changing"
revolution many claim it to be.

~~~
chillee
What? What would be the point of a non-distributed blockchain? Fundamentally,
blockchains are a solution to the distributed consensus problem, where you're
not guaranteed anything on the length of time it takes to communicate between
two nodes. Also known as asynchronous consensus.

If you're local (or within a small network with bounded, you don't really need
asynchronous consensus. Dolev-Strong or any number of other synchronous/semi-
synchronous protocols would work fine.

~~~
spurcell93
I think LeonM's point WAS that it's unnecessary to qualify "blockchain" with
distributed, because as you say, it would be relaively pointless otherwise.

~~~
chillee
I was more remarking upon

> non-distributed blockchains can be a very good solution to certain problems

------
rrggrr
Many investment opportunities are closed off to willing participants by
government regulation, investment minimums, transaction costs and other
factors.

Looking at most (not all) of the non-currency alt coins, there is clearly
demand for cheap access to new investment opportunities. Yes, a lot of people
are going to lose to scams, some have already. At the same time distributed
ledgers do solve a very real "access" problem.

Similarly, contracts and banking have not integrated well with the
technologies most business uses. Yes, Stripe has reduced payments friction
beautifully, and Paypal has brought credit applications and approvals to the
checkout process. But big dollar transactions that use Letters of Credit,
structured loans, milestone payments, etc... these areas have few programmatic
solutions.

Smart contracts are a fast approaching solution to this need, they have no
analog in the conventional commercial world, and yes - they will be a game
changer.

If my customers can issue an irrevocable L/C, denominated in Etherium for
example, that is self executing based on terms mutually agreed in advance,
then my business will chose that route over lengthy and expensive bank L/C's.
It also means we'd probably choose Quantstamp for contract security, and
perhaps SALT Lending to fund the Ether, and possibly expend BNB to covert the
currency into Litecoin for storage until such time as we convert to fiat.

That is the promised ecosystem. It is no more expensive or complex than the
universe that surrounded EDI, or that describes most business process
integrations in common use today.

Its just difficult to look at all this from both a business and programmatic
point-of-view simultaneously.

------
patatino
"As it stands, public blockchain is very much a kludgy solution looking for
non-existent problem, namely lack of trusted intermediaries in finance and
accounting."

Had to stop here.. The reason of blockchain is to remove intermediaries AND
still have trusted transactions.

~~~
dtech
The author asserts that removing intermediaries (with blockchain) is a
solution to a non-existent problem, as there are a lot of trusted
intermediaries.

~~~
thieving_magpie
I'm not knowledgeable in this area but isn't the problem "trust"? Trust is a
risk. Probably a safe one but a risk nonetheless. If you have the ability to
remove trust from the equation, why not pursue it?

~~~
NickM
We have the ability to remove it, yes, but not for free. Decentralized systems
based on proof-of-work are _inherently_ less efficient than centralized,
trust-based systems.

The question is, do the costs and downsides of cryptocurrencies outweigh the
benefits of not having to trust a third-party intermediary? The author is
arguing no, and for the overwhelming majority of real-world cases, I would
tend to agree.

~~~
thieving_magpie
I understand the trade off a little better now. Thanks. It leads me to a
follow up question - is this universally true of all blockchain
implementations or is it due to the structure of cryptocurrency (mining,
etc.)?

~~~
icebraining
Mining is part of how the Blockchain remains decentralized; you can't remove
it.

In the original paper, the way mining worked was by Proof-of-Work (PoW), which
wastes a bunch of energy to make sure it's unprofitable to attack it.

There is research into mining without wasting energy by using alternatives to
PoW, like Proof-of-Stake (PoS). I don't think there's consensus about whether
any of them actually work.

------
duckqlz
Seems like everyone is looking at this from a 1st world perspective where our
trust in money and the financial system has worked in our favor (generally).
In places like Vietnam where their currency has crashed to 0 in memoriable
history a decentralized currency seems like a great idea.

Furthermore there is over 500B USD (more than global foriegn investment) sent
from migrant workers back to the thrid world every year. Each transaction can
cost anywhere from 5 - 15% depending on the country. Than the reciepient
incurs more fees for exchanging to their local currency. This results in an
enormous amount of economic waste and can be completely avoided with a
decentralized and __trusted __block chain currency.

All of this causes incentive for the technology to persist and keep expanding.
In this sense I feel the author and many commentors have missed the point. A
decentralized currency is not for places where trust already exists (yet) but
it already has applications where it does not.

IMO this is what has "futurists" up in arms. Just like how the internet had
the potential to allow the flow of information to pass between boarders freely
from the beginning but was seen as a novelty. This is becuase it was looked at
under a 1st world lens where public libraries and free education were already
norms. It was only when information got into the hands of those who previously
could not get it did we see an explosion of ideas and progress. What if the
same thing happens with money?

~~~
sotdan
Then I assume there must be evidence that the Vietnamese and migrant workers
in the US are rushing to adopt decentralized currencies. Is there?

~~~
duckqlz
There is a lot of evidence of the potential bitcoin has for remittance. This
doesn't mean that it has been adopted by ALL the migrant workers in the US but
if the transaction cost is 0 and the competitor charges 15% its only a matter
of time before it is adopted by everyone. The links below only scratch the
surface. Aside from the references below most of my previous post comes from
on the ground experience in developing nations.

I sincerely doubt there is a formal study showing the exact numbers since
there is no incentive for migrant workers (who may be undocumented) to expose
themselves for capital flight.

My overall point though is that while you, as an American, may have complete
faith in the current financial system there are certainly places in the world
where this is not the case. The financial system is global and the US is no
longer the biggest player.

[1] Krygyzstan [https://www.theguardian.com/world/2014/jul/08/kyrgyzstan-
bit...](https://www.theguardian.com/world/2014/jul/08/kyrgyzstan-bitcoin-
experiment-migrant-savings)

[2] Africa [http://www.independent.co.uk/news/business/news/bitcoin-
is-b...](http://www.independent.co.uk/news/business/news/bitcoin-is-being-
used-by-african-migrant-workers-to-send-money-home-10098169.html)

[3] Tajikistan
[https://eurasianet.org/node/68272](https://eurasianet.org/node/68272)

[4] General [https://riskmagazine.nl/article/2017-09-15-bitcoin-the-
perfe...](https://riskmagazine.nl/article/2017-09-15-bitcoin-the-perfect-
solution-for-remittance)

[5] South east asia [http://inc-asean.com/editor-picks/bitcoin-disrupting-
southea...](http://inc-asean.com/editor-picks/bitcoin-disrupting-southeast-
asias-remittance-industry/)
[https://imgur.com/a/RySeB](https://imgur.com/a/RySeB)

------
diego_moita
> there is no lack of trusted enough intermediaries in the
> financial/accounting sector.

Define "trusted enough". Now imagine you are a Chinese millionaire willing to
take your money to a safe port, a Venezuelan/Somali that doesn't trust
anything government, a Russian/Brazilian/Italian middle class practicing the
so much loved national game of tax evasion...

"Trusted" can mean a lot of different things all around the world.

------
olouv
I find the article a bit too focused on the financial aspect of blockchain
technologies. Yes, Bitcoin is a payment system but the underlying technology
goes way beyond the financial sector.

I would not say that having a safe ledger that we all can trust without
question for our democracies around the world a solution to a "non existant
problem", just look at recent elections.

Scalability/Performance issues should not be taken too much into account
today, as we're still in the infancy of these technologies and can be pretty
sure that they will radically improve over time.

------
eksemplar
I see a point in trustless records of ownership. There is already a market for
it in things like shipping, where transporting container ownership claims (a
few pieces of paper) is more expensive than transporting the containers
themselves.

There is also a huge potential in corruption rich governments, where proof of
ownership can suddenly disappear. Though implementation may be hard. :)

Even in non (or ver little) corrupt countries like my own I see a point. Not
so much because we need it right now, but because we might need it in the
future.

Why wouldn’t you build your anti-corruption government tech while you have the
chance because your political leadership and the bureaucrats aren’t yet going
to have a vested interest in stopping it?

Maybe that’s a little pessimistic, and it’s certainly not how you should sell
it, but it’s not like our current record keeping tech couldn’t need an
overhaul anyway because it’s really, really, awful. Adding Blockchain tech to
make it trustless wouldn’t be cost-inefficient if you’re down under the hood
anyway.

------
zeveb
> To me, it all seems another gold craze, stoked not only by the usual crowd
> of techno-babblers keen on latching on the latest buzzword, but also by
> certified wingnuts from the long-discredited hyper-libertarian Austrian
> school of economics

That's a bit question-begging, there. Austrian economics seems quite reputable
to me, anyway.

> the inconvenient fact that if societal trust erodes sufficiently for paper
> money to lose its value, it’s highly unlikely an arbitrary string of ones
> and zeros in an arbitrary hard disk somewhere would fare much better

In a world of rubles, rands & lira (all highly volatile, although probably not
as much as Bitcoin currently), a world in which governments (not all
democratic!) attempt to control the movement of capital, I think that ones &
zeros might not be a terrible addition.

Upvoted anyway, because his fundamental point is probably correct:
cryptocurrency is in its infancy.

------
player2121
> Unfortunately for this central value proposition of blockchain, there is no
> lack of trusted enough intermediaries in the financial/accounting sector.

I am not sure if _lack_ of trusted intermediaries is the issue here. The
problem is with their current form and shape, not with the lack of trust.

Blockchain is trying to reshape how the trust _works_ not its lack or
abundance.

------
epistasis
I totally, 100% agree with his central point: I don't see the need for
untrusted intermediaries, with the essential caveat of "yet."

One place where blockchain clearly makes sense is Bitcoin. Or Bitcoin did make
sense to me until the developers kneecapped future development and
transactions fees soared and there are too few transactions allowed for it to
become a useful ledger for everyday use of a large number of people.

Other cryptocurrencies solve that weakness.

But the spate of blockchain startups don't make much sense to me. In
particular, in energy, I see it as a bunch of clear snakeoil. The startups
that are most honest about this use less-competent executives' FOMO on
blockchain to get their foot in the door, then say more honest things like
"Ethereum doesn't make much sense for energy trading with your neighbor."

Because with energy, like with most things, there is already a trusted
intermediary, and trying to cut them out of the deal doesn't actually mean you
trust them any less. They still have control, and power, and you still are
giving them your trust.

Blockchain may be useful in other situations, but it really remains to be
seen. It's very interesting tech that _seems_ like it could have applications
all over the economy beyond currencies, but I think we may just be at the peak
of the hype cycle and all these will come crashing down in a big dose of
reality soon.

------
niftich
Let's work backwards: what problem does Bitcoin actually solve? It
successfully incentivizes continued upkeep of its blockchain, making it a
useful, global, trustless, pseudonymous, immutable, long-lived database.

You don't need a tinfoil hat to appreciate the utility of a datastore whose
continued operation and upkeep is ensured by the promise of vesting, and
successfully leverages market forces and emergent market behavior to ensure
its own longevity. And, it provides a market-based incentive for the community
to be on the lookout for sybil attacks.

Later chains have been targeted for more specific applications more
explicitly. Some focus on exchange of value, some focus on store of value,
some focus on the continuity of records. These are useful properties, and
those who dismiss blockchains clearly do so within the context of extreme hype
about their potential applicability to other aspects of life. That's what this
article is -- like hundreds of others: an attempt to bring the hype back down
to earth and promote a more measured conversation.

------
jmkorhonen
Thanks everyone for your comments - I had no idea this had generated such
interest. I've forgotten to update my bio, but these days I'm in fact a PhD.

Studying the impacts of blockchain and other distributed trust technologies
has been my day job since September 2016. I freely admit that these are just
my interpretations and I may be wrong; that's the point of writing articles
like this.

That said, I do stand by my analysis and believe blockchain technologies are
greatly overhyped relative to what actual value they do add to existing
systems. The great majority of users are fairly happy or at least indifferent
with the #1 bugbear of most crypto enthusiasts - trusted third parties - and
it is far from clear that simply getting rid of them (and substituting hazy,
informal, unaccountable governance structures instead) is ever going to be the
killer app some people seem to think.

However, there will also be many use cases where blockchains and e.g. DAGs can
and will be used to create real value very effectively. Just today talked to a
company that's doing interesting things to help car rental companies
streamline their processes - that's one example of what shared ledgers and
smart contracts can do to really decrease transaction costs. However, I do
predict that the majority of sustainable use cases will gravitate to more or
less private blockchains, sooner or later. This company had chosen that route
from the beginning.

One thing I would add today to the text is a caution against thinking that
existing incumbents can be toppled simply by duplicating the functions of
their databases. Databases are ultimately the most valuable asset of many
trusted third parties, but their value proposition includes MUCH more than
just having a reliable database. One thing coders generally are poor at
grokking is that things like user experience do matter, and generally
blockchain systems are far from being designed from user experience in mind.

Another, probably even more thing entirely, is customer service and error
handling when things will inevitably go wrong. Immutable ledgers are by
definition poor at handling such things, yet there is considerable evidence
that people tend to be very wary of adopting a system if they fear that they
can make a mistake that has serious results. Existing third parties have
understood this, and offer a lot of services and design features aimed at
assuring customers that if something goes wrong, they will not suffer.

These are interesting technologies and a lot of people are partying like it's
1999 again. But I do suspect there is going to be a through of disillusionment
in our future as well.

------
lowbloodsugar
The article immediately has to caveat the difference between "public" and
"private" blockchain. This seems to be the #1 question in any blockchain
discussion. What exactly is "blockchain"?

Merkle trees, super useful (e.g. git). Distributed ledger, super useful (e.g.
developers' local copies of kernel source). Proof of work using GTX 1080s
plugged into hydroelectric power-plants, waste of resources.

If "blockchain" means only "public, distributed ledger powered by proof-of-
work" then I don't think "blockchain" has a future. But if "blockchain" means
any of the above without proof-of-work, then blockchain is already the #1
mechanism for software development, has a myriad of uses and is a total no-
brainer.

------
freech
"Private blockchains are a different matter, and they will have applications
in e.g. automating many transactions."

A private blockchain is just an inefficient databse.

"which is nevertheless very effectively backed by the government’s universal
tendency to require said paper money for taxes, not to mention the
inconvenient fact that if societal trust erodes sufficiently for paper money
to lose its value, it’s highly unlikely an arbitrary string of ones and zeros
in an arbitrary hard disk somewhere would fare much better"

I've never seen the argument made that paper money is going to lose it's value
because societal trust erodes, it is losing it's value because people keep
printing more of it. So yeah, I think Bitcoin already does fare better.

------
lisper
The fundamental problem with blockchains is that they are expensive by design.
They have to be. The cost of mining is fundamental to the security model. The
more traction a blockchain gets, the more it is likely to be subject to
attack, and the more expensive mining needs to get in order to thwart such
attacks.

The solution IMHO is to go back to using TTPs (Trusted Third Parties) but
using a protocol that makes them auditable so that if a TTP cheats it will be
immediately evident. Then let the free market set the price of clearing.
Competition should drive the price down to the marginal cost of basic record-
keeping, which is very low.

------
kernelPan1c
> So we will inevitably end up with some variation of Proof of Stake protocol
> – where we will simply have to trust some users more than others

Doesn't this defeat the point? I can't imagine a scenario in which a proof of
stake system does not become centralized. The average person will want to
stake the extra money they have but won't want to maintain a dedicated machine
with adequate storage and zero downtime. They will entrust a third party to
earn money by staking on their behalf. Thus, you have created a centralized
system with a whole bunch of extra complication.

------
phoneboy
So many people think they are experts on blockchain tech nowadays after
reading a few ICO whitepapers. The point of public chains is to automate
tasks, whatever that task may be. Stop thinking of blockchains as this limited
thing we see in the ICOs today and learn to see it as decentralized autonomous
organisations. These organisations are focused on transactions and can be
implemented as any market.

------
dreit1
I'll give a very simple example that shows the power of blockchains. I needed
to receive a very large sum of money from a foreign country.

Half was paid in cryptocurrency, and half was paid in cash via the traditional
banking system.

It took 3+ weeks for the money to make it through the banking system.

It took 15 minutes for the cryptocurrency to arrive. I don't get how anyone
can not see the obvious merit to this system

~~~
hyder_m29
And how long to convert the cryptocurrency into a usable currency? As long as
cryptocurrencies are not widely accepted, it isn't much useful.

Also, there's a good reason for the checks and balances that take time in
traditional banking.

------
cs702
_> To me, it all seems another gold craze, stoked not only by the usual crowd
of techno-babblers keen on latching on the latest buzzword, but also by
certified wingnuts from the long-discredited hyper-libertarian Austrian school
of economics, kept buoyant by half-baked comparisons to "unreliable" "paper
money" (which is nevertheless very effectively backed by the government's
universal tendency to require said paper money for taxes, not to mention the
inconvenient fact that if societal trust erodes sufficiently for paper money
to lose its value, it’s highly unlikely an arbitrary string of ones and zeros
in an arbitrary hard disk somewhere would fare much better), spotty
comparisons of current economic system to few exceptions where hyperinflation
was allowed to run rampant, and perhaps most of all, by simple wishes that the
persons currently propping up the belief in blockchains will not be the last
ones who are blinded by the latest buzzword and get-rich-quick scheme._

There are also people like me:

* I _agree with the OP_ that there are a lot of techno-babblers keen on latching on the latest buzzword.

* I _agree with the OP_ that there are many certified wingnuts who belong to the discredited Austrian school of economics.

* I _agree with the OP_ that comparisons to "unreliable paper money" are half-baked at best.

Yet, I also see the point of Bitcoin.

I view Bitcoin partly as a _supranational_ store-of-value, transaction
platform, and distributed social network: its survival and usage do not depend
on any particular country.

The only other "money-like" asset I know which is commonly viewed as
supranational is gold, which has been used to store value and conduct
transactions for at least 6,000 years.[a] These uses of Gold have lasted 25x
longer than the age of the US, 12x longer than the life of the Roman empire,
and 2x longer than the combined age of China and all its predecessors. Gold
has outlasted all monetary systems devised by humankind so far. It's a
barbarous relic, yes, but one that has survived "everything humankind has
thrown at it" so far.

The Bitcoin network seems to have that same "survives everything humankind can
throw at it" quality.

[a]
[https://www.ft.com/content/5604c5cc-d1b3-11e1-badb-00144feab...](https://www.ft.com/content/5604c5cc-d1b3-11e1-badb-00144feabdc0)

~~~
ordinaryradical
Yes, except that gold will still be around with or without the state of
computing radically changing.

So I wonder if the incentive structure will continue to uphold the validity of
the ledger for such a timescale. Or if we’re going to discover things about
computing, cryptography, and data representation that will leave bitcoin and
others vulnerable to unforeseen attacks or degradations.

A physical good can continue in the absence of a civilization to support
it—virtual goods are tethered to the long-term viability of their protocols
and the computing infrastructure which represents them.

My suspcicion is that the long-term security of any cryptographic protocol is
always approaching zero and that the field is still new enough that we have
not yet developed 1000-year, let alone 100-year, protocols.

~~~
cs702
Yes, that makes sense.

My expectation is that the Bitcoin protocol will be forced to evolve over
time, in fits and starts -- like all open-source projects.

------
SZJX
I think a large part of nowadays' use case of blockchain-based technology is
to skirt regulations and conduct transactions that would have been
illegal/attracted scrutiny if done with the traditional, "trusted" channel.
Those people have to go with a non-legal channel, where trust becomes a very
tricky and important thing. In that context, blockchain becomes a really good
solution.

i.e. it's not that traditional banking is not trustworthy. It's just that many
people want to avoid legal channels. That's when blockchain comes into play.

The increased regulation efforts by multiple governments might change the
landscape, or not. We'll have to see.

------
peterwwillis
Isn't public blockchain good for money laundering and ransomware? I don't know
of any better methods to collect illicit funds that aren't more problematic
than current methods to identify the parties in bitcoin transactions

Also, cryptocurrency has seen a surge of use in Venezuela, where the currency
is thousands of times less valuable than the paper it's printed on. Credit
cards and cryptocurrencies are used wherever people have access to them (which
is a very small subset, admittedly).

Basically, cryptocurrencies are useful wherever normal currencies are
unavailable, unlawful, or in order to subvert their regulatory practices.

~~~
ashelmire
That's a good point. Crypto could definitely serve a purpose in areas where
there is runaway inflation or instability, if they are easier to get ahold of
than another currency.

------
Retr0spectrum
> Private blockchains are a different matter, and they will have applications
> in e.g. automating many transactions.

Where could I read more about this? I assumed most of the benefits of
blockchain came from the distributed aspect.

~~~
JumpCrisscross
> _Where could I read more about this?_

"If no data needs to be stored, no database is required at all, _i.e._ a
blockchain, as a form of database, is of no use. Similarly, if only one writer
exists, a blockchain does not provide additional guarantees and a regular
database is better suited, because it provides better performance in terms of
throughput and latency. If a trusted third party (TTP) is available, there are
two options. First, if the TTP is always online, write operations can be
delegated to it and it can function as verifier for state transitions. Second,
if the TTP is usually offline, it can function as a certificate authority in
the setting of a permissioned blockchain, _i.e._ where all writers of the
system are known. If the writers all mutually trust each other, _i.e._ they
assume that no participant is malicious, a database with shared write access
is likely the best solution. If they do not trust each other, using a
permissioned blockchain makes sense. Depending on whether public verifiability
is required, anyone can be allowed to read the state (public permissioned
blockchain) or the set of readers may also be restricted (private permissioned
blockchain). If the set of writers is not fixed and known to the participants,
as is the case for many cryptocurrencies such as Bitcoin, an [ _sic_ ]
permissionless blockchain is a suitable solution."

[https://eprint.iacr.org/2017/375.pdf](https://eprint.iacr.org/2017/375.pdf)

------
tim333
If you look at what public blockchains have been used for since the bitcoin
2008 paper, it's been mostly for making financial transactions outside of
government control. This has of course been used for somewhat questionable
activities such as drug dealing, extortion, speculation and tax avoidance but
there may be an opportunity to do reputable things like worthwhile investment
and money transfers with less red tape and national barriers than are involved
with government regulation.

------
rasengan
The finite property of Bitcoin and the fact that you can trust said property
and the fact that control of that property is decentralized is reason enough
for blockchain my friend.

Gold will never be as measurably scarce.

~~~
ifdefdebug
But is this really true? Honest question: the recent BTC/BCH split effectively
doubled the supply in one single instant. Can't this happen again and again
whenever the pressure of demand grows too high?

Can't do that with gold.

~~~
rasengan
But that’s the equivalent of then going to silver or using an entirely
different element isn’t it?

~~~
tome
How many such "entirely different elements" are there?

------
johnlbevan2
My understanding was that Satoshi Nakamoto is an alias / the true author(s) of
that paper remains anonymous. For me that's where the scary bit of blockchain
lies. i.e. It's very tempting to go the government conspiracy theory route of
who's benefiting from making this public / is it possible that it's been
crafted to look secure whilst having some fatal flaw which is not immediately
obvious. I don't really believe that; but equally can't discount the
possibility.

------
rbreve
Any type of payment/reward system will use the blockchain, ICO's are right now
the killer ethereum app, a good way to raise funds and do crowdsales.

~~~
perlgeek
... and a good way to scam people.

Do we have a list of successful, not-scam-y ICOs, where the investors/crowd
funders actually got what they wanted in the end? (And I don't mean the
tokens, but rather the thing that was crowdfunded).

~~~
francescopnpn
I invite you to try to raise money for your company with VCs and then try with
an ICO. Then choose which one was better for both your company and the society
as a whole. Just as the NYSE exists along with penny stocks, so will the
blockchain-based assets. With the time, there will be less scams, but never
zero, just like non-blockchain-based assets.

------
CryptoPunk
In my opinion, there's no justification to describe his opinion as a
"professional opinion" and himself as something as official as a "blockchain
researcher". It's just an appeal to authority when there are no clear
standards for what an authority is in this field.

>>Unfortunately for this central value proposition of blockchain, there is no
lack of trusted enough intermediaries in the financial/accounting sector.

Has this individual ever tried integrating a payment system into an online
business? Payments on the internet are rife with inefficiencies and problems.
The lack of electronic cash is a serious impediment to frictionless commerce.

Without cryptocurrency, the road ahead seems to fork between a future with a
hodge podge of non-compatible processors, or one with a single payment
processor holding a virtual monopoly over the market.

>>Very few people outside so-called crypto-anarchist community are opposed to
trusted intermediaries as a matter of principle, and outside this (admittedly
vocal) minority and those who for their own personal reasons want to believe
in this scheme

It's not just "crypto-anarchists" who care about removing trusted
intermediaries. Anyone who doesn't want to be a captive consumer of a trusted
third party that runs a platform they are locked into by virtue of its network
effect, will be interested in immutable protocols replacing platforms run by
trusted intermediaries.

>>also by certified wingnuts from the long-discredited hyper-libertarian
Austrian school of economics,

Ad hominem nonsense like this really discredits the article.

>>the bog standard public blockchain with its Proof of Work scheme (e.g. how
Bitcoin burns electricity) is certainly not going to cut transaction costs
enough, as throughput rates are simply not even within two orders of magnitude
from what is needed. Case in point: a Bitcoin developer conference just
announced it won’t be accepting Bitcoin as a means of payment, because it’s
too slow and the transaction fees are too high.

As a self-avowed blockchain researcher, it's odd that he's not aware of
Bitcoin Cash, and is using Bitcoin Core's self-imposed 1 MB per 10 minute
throughput cap as the technical limits of what Proof of Work could scale to.

The article is a disingenuous hit piece.

------
jatinshah
Is this personal really a blockchain professional.

That is, does the person get paid by someone to be a blockchain researcher? I
am curious who that someone might be.

~~~
dsacco
That really depends on how you define "blockchain researcher" and, in
particular, how close the research must be to hard science (as opposed to
engineering implementation) to satisfy your definition. The researchers I
personally know working on blockchain technology are all scientists in either
cryptography or distributed systems. The author's background is economics,
which provides a plausible reason for _interest_ in blockchain technology, but
not nearly enough of an academic grounding in the subject on its own for
research purposes. I also don't see any actual publications or experience on
his public CV that indicates particular expertise in the subject.

That said, he certainly could have an out of date CV and brought himself up to
speed in the subject on his own, which wouldn't surprise me since he's a PhD
student. More to the point, what he wrote in the article should probably be
considered on its own weight since its content isn't so specialized and
complex that we have to defer to academic expertise for confirmation. He
probably shouldn't have made such an easy target of his title, but the salient
points of his post can be reviewed independent of the title's merit.

------
colecut
"Unfortunately for this central value proposition of blockchain, there is no
lack of trusted enough intermediaries in the financial/accounting sector."

I've read that over 3 billion people don't currently have access to banks. Is
that not true?

~~~
dragonwriter
> I've read that over 3 billion people don't currently have access to banks.
> Is that not true?

I suspect that 3 billion overlaps significantly with the 4.4 billion that lack
internet access.

I'm not convinced that blockchain is a particularly helpful solution for them.

~~~
arbol
M-Pesa has demonstrated that payments via SMS are a viable solution for those
that lack internet access.

GeoPay and others are attempting the same but utilising blockchain.

[http://bitcoinafrica.io/2017/08/02/africas-blockchain-
startu...](http://bitcoinafrica.io/2017/08/02/africas-blockchain-startups-
geopay/)

[https://btcmanager.com/samourais-new-feature-send-bitcoin-
vi...](https://btcmanager.com/samourais-new-feature-send-bitcoin-via-sms-text-
message/)

------
atomical
Isn't blockchain useful for tokenizing VC investments that would normally be
illiquid? I've read that there are a few companies that are doing this with
"security tokens."

------
smuemd
This. Replacing the term "intermediary" with the term "institution" is an
exercise worthwhile. For one will realize that institutions serve various
important social functions that go far beyond middleman style profit and rent
skimming.

Proponents of blockchain revolutions need to come to terms with existing
institutions, working with them rather than against.

~~~
CryptoPunk
>>For one will realize that institutions serve various important social
functions that go far beyond middleman style profit and rent skimming.

Monitoring transactions? Preventing people from transacting?

I think people should be able to do peer-to-peer electronic transactions the
same way they can do peer-to-peer physical transactions with cash.

It would empower individuals and serve as a guard against encroachments of
their liberty.

If cryptocurrency were never invented, people would have had no way to donate
to Wikileaks when the financial blockade was imposed on it by major payment
intermediaries. And that's in the West. Imagine what the situation is like in
countries like China.

Organisations on the fringes like Wikileaks are important guarantors against
centralized tyranny. Without a payment system outside the control of
centralized authorities they can be more easily snuffed out.

In other words, cash is an institution as well, and is important.

------
notjtrig
Has anyone made a blockchain for sharing text, like a decentralized WikiLeaks,
BitBin anybody?

~~~
NoGravitas
You are looking for IPFS, or possibly Dat.

------
arisAlexis
you are not expressing a "professional opinion" if you did research for
yourself without anyone paying you. The pompus title is biased towards what
you wanted your result to be.

------
ThomPete
The point about the blockchain is to create physical properties (scarcity) in
an otherwise abundant digital space.

Think TCP/IP + History (blockchain) that's the value.

------
newyankee
This does not seem like an unbiased take and i may be biased

~~~
lev99
It also does not seem to have any unique insight. I feel like I've read this
set of opinions every time bitcoin values changes rapidly.

------
mrhappyunhappy
Very short sighted researcher. I must question his intelligence if the point
of money with no central control doesn't make sense to him.

------
wslh
Sadly, the author cannot see beyond his zone of comfort which most people in
the world din't share. Also, there are simple political problems with the
status-quo that are good to point at: governments love a cashless society to
be taxed (and controlled through use of private information) while they defend
oligopolies like Visa and Mastercard.

------
francescopnpn
Empirically speaking there's already four verticals where blockchain is
dominating (in terms of market share growth YoY):

1- Illegal goods [The deep web] 2- Fundraising (both good for individuals who
previously could not act as angel investors and rip the xx,xxx% returns
because of wealthy discrepancies and good for companies who do not need to
drink 75 coffees with VCs) [Companies: Ethereum] 3- From fundraising thru
blockchain-based assets came out a new speculative open 24/7 international
market [Companies: Exchanges] 4- As an additional form to store of value (Like
1-digit % of your belongings). A blockchain-based asset it's divisible, easily
transportable, encrypted and finite. Possibly it also serves an use like gold
in the aerospace and electronic industry.

There's also one more vertical that will eventually be dominated by the
blockchain: Micro Transactions. If a transaction costs 0.00001 cent, then you
can easily buy data for 1 cent a piece. Something akin to IOTA (or a working
version of IOTA itself) will inevitably be built with a trillion devices
connected to the internet. Banks wont ever be able to process 0.00001
transactions.

~~~
lalaland1125
If banks can't process 0.00001 transactions, then how in the world would
cryptocurrencies be able to as cryptocurrencies are easily thousands of times
less efficient than centralized servers?

~~~
lrns_
[https://lightning.network/](https://lightning.network/)

