Blockchains provide a public mathematically verifiable ledger or database. This prevents cheating and stealing and generally allows for more holistic integrated systems that are based on computer science rather than trust in institutions.
Along with them you get digital signatures which are a key advance in digital money allowing transactions without disclosing secrets such as credit card numbers.
Combined with smart contracts, you are really moving away from a trusted rent-seeking middleman model for basic functionality and getting all of that in a vastly more reliable way using computers and the internet.
Blockchains and related cryptocurrencies literally make the current financial system obsolete.
We had digital signatures decades ago, and it’s only accurate to say that blockchains prevent certain forms of tampering with the records on the blockchain[1]. Similarly, you’re not getting rid of middlemen but replacing them with the ones selling tokens, doing conversion into real currency, writing smart contracts, running oracles, etc. Maybe those middlemen will charge less or be easier to work with but that hasn’t been the case so far and there’s no guarantee that it will ever be.
1. The blockchain says I sold you a toaster but when you get the box it has a rock. Which one is right? Now repeat for a house where I neglected to mention that I didn’t have a clear title, etc. Oracles attempt to solve this but then you’re back in the position of trusting people and reputations, just slower and more expensively.
1. The problem with this is falsifying ledgers has not been a problem with institutions for centuries. Institutions will cheat you in many different ways. But literally eliminating transactions is not one of them.
In the meanwhile, the blockchain adds tremendous complexity and other problems to solve a problem which hasn’t really been a problem.
2. Blockchains are not needed for digital signatures.
3. Smart contracts are only more useful for on-chain transactions because the moment you move off chain you’re back to trusting the entire institutional infrastructure setup to ensure anything really happens.
Interesting that the NYT let Paul Krugman write this article. For context, he is the same man who famously said that "the Internet's Effect on the World Economy Would Be 'No Greater Than the Fax Machine's".
The way blockchains do it better is that you can build a system of reversible transactions on top of a system with irreversible transactions, but you cannot do it the other way around.
Irreversibility is the stronger primitive, which means you can define the terms of reversibility flexibly on top. Systems where reversible transactions rely on a bank employee’s whim are the worst.
If you don’t see the value in this, perhaps you haven’t tried to be paid by foreign customers. Banks will essentially withhold money without explaining anything and without your ability to know where they went, how long they will be in transit, if they’re flagged, why they were flagged, if there’sa process going on, or not. Then they may charge you a processing fee and deny the transaction even though you can prove that you’re performing a legitimate business transaction.
Not sure what any of these facts have to with crypto and the fact that crypto is primarily a gambling platform that enables some of the largest financial crimes in human history.
I very much think we are in the period of "this is such a fundamental change, its hard to envision its impact."
Everyone is like "but can't a simple database do that" and the answer is no.
The fundamental change a blockchain enables is a transition from double entry to triple entry accounting. The technology is the means to that end.
In current double entry accounting every firm keeps their own copy of internal books. AP and AR create corresponding entries between firms. This creates tons of redundancy and room for error.
Triple entry accounting distributed across a public database allows multiple firms to be looking at the same book. For a change like this to be meaningful, every ERP in the world needs a fundamental redesign, and to agree on interoperability. The world changing events are when corporate accounting transitions and logistics edi transitions. Most of the world is still sending data through pdfs, xls, and edi/text emails. They are still using OCR because everybody is rasterizing data to transfer it to each other. It will make a meaningful change if it can replace health records being locked behind epic and cerner/oracle. It may be useful when data portability becomes a human right. The idea of storing data neither in your own private vault at home, nor in a proprietary institutions vault is still foreign. The idea of a database surviving the collapse of the institution that created it is rare, outside of acquisitions. The best we get is individual takeouts.
Blockchains are a social change. Where competing firms work together to maintain a distributed ledger of truth. It establishes a consensus reality that everyone can agree is a base for all other decision making. It eliminates reconciling two firms versions of reality. Blockchain REQUIRES mass adoption across industry to be useful.
Blockchain enables multiple competing/adversarial but also cooperative parties to modify a single book in a constructive fashion. This previously required a third party, which has now been automated.
There will be naysayers saying "this cant work" because they still arent looking at the world fourth dimensionally, errr triple entry'y.
Krugman is wrong because he is looking at the technology, and not the change to human behaviors and best practices it enables. He sees it as a drop in replacement for a past analog. Whereas, it should be evident, there is no current analog for public, immutable, redundantly stored, appendable by anyone, distributed databases. They didnt exist. Bitcoin got a bunch of competing firms to backup and host identical copies of the same constantly changing database. That is revolution. He sees no value in it. That is crazy to me, and on par with his "the internet is nothing more than fax machines" lack of vision.
Change needs to be shaped around this, at a foundational level. That takes time. And agreement. I believe distributed, collaborative databases, that exist outside individual firms to be inevitable. The answer to "what is blockchain good for" is creating public, decentralized trust and resilient records resistant to rot. Something very human, and not at all mathematical or databasey.
This is a great point. To build an application on the current web, you're usually using a third party's data (e.g. Twitter) and you're relying on them to make sure its correct, available, and perhaps even for authorisation. With blockchain, you will get all sorts of verified, publicly available data and you don't need permission to use it. You know its correct and can build any application you want on top of it. You're right that we need mass adoption to reach this stage of useful global data.
One thing I didnt say was that technology producers like SAP and Oracle are disincentivized from transforming their products into glorified frontends to a shared public database. Such a change would drastically reduce the lock in they benefit from. Firms could be swapping accounting software like one can switch between Chrome and Firefox when surfing the web.
I see the revolution coming from newer entrants or a smaller big producer like Acumatica who can throw it on as a feature for existing clients, and as a value add to new clients (we are just a front end, leave us at any time if you dont like us!)
The world seems to not want to envision product categories where the user experience and database are two different providers.
And this is why people call blockchain a solution seeking a problem.
There is absolutely no evidence that any company or individual is interested in this end.
Firms want to keep their own books. The last thing they want is everyone being able to look into their books.
It’s fascinating that crypto enthusiasts can simultaneously promote crypto as a means to get away from govt control of money and look upon a public ledger containing all the transactions by every entity, which would then obviously be available to the govt as well, as an ideal.
> The last thing they want is everyone being able to look into their books.
If doesn’t mean each firms books are open to everyone or even each other. The data can still be hidden and obscured, and only readable by the firms with the keys.
What it does mean is that two firms transacting with each other have a single ledger entry for a single transaction.
You’ve fallen into my “There will be naysayers saying "this cant work" because they still arent looking at the world fourth dimensionally, errr triple entry'y.” You started with the premise of why it can’t work and worked backwards, instead of going through how someone could keep a private database encrypted within a public one.
>There is absolutely no evidence that any company or individual is interested in this end.
“If I had asked people what they wanted, they would have said faster horses.”
> Firms want to keep their own books.
Because they lack vision. “If it ain’t broke.”
> It’s fascinating that crypto enthusiasts can simultaneously promote crypto as a means to get away from govt control
I don’t think I mentioned the government once. Seems like you’re projecting an identity or stereotype onto me.
The real win will be when triple entry shared accounting replaces AP/AR and accounting system backups. It’ll lead to drastic efficiency increases, speed improvements, and cost savings. Those are things that will interest firms. And they will achieve those things through the accounting systems they implement.
ARPANET was 1969. CYCLADES was 1971. Things take time. It took till 1989 for the web to be proposed on top of it. That took another 4 years to come to fruition. XMLHttpRequest didn’t ship until 1999. That puts the modern web around the year 2000, over 30 years after the internet started.
A fundamental rewrite of accounting practices will take even longer. A conversion from double entry to triple entry accounting will take a generation or two. And who knows, something else could pop up instead and solve the same problems, obsoleting it before launch.
Krugman has gotten so many things wrong that it makes him valuable. He's best used as a contrary indicator. It's the same with that goofball Jim Cramer.
HN upvotes decent critiques of the space from time to time, but this is not one of them.
> Not all crypto enthusiasts were right wingers, but distrust of banks — we all know who runs them — and government-managed money provided a hard core of support.
Humans don't need crypto currency to function in the modern world. The only reason why crypto currency took off was speculation, and this speculation led to the assumption that it was a Ponzi scheme. The truth is that crypto currency offers a secure, digital way to transfer funds and store value. While speculation has caused its value to fluctuate significantly, its underlying technology has been tested and proven to be reliable. As such, crypto currency is a legitimate technology that serves an important purpose in today's digital economy.
Lightning payments on the Bitcoin blockchain will be essential for identifying and paying for machine learning model use. Just as Splunk is used for Big Data searching, Lightning will be used for machine model payments and identity, allowing machines to quickly and securely make payments while simultaneously identifying themselves. This is important for the continued development of AI and machine learning, as it allows machines to make payments for their work and be identified.
> its underlying technology has been tested and proven to be reliable
Has it though? The end user wallet problem is not really solved. Even for techies, distributed wallets are a lot of work to manage safely. And if you just use Coinbase, then why not a regular bank account?
This is (to me at least) the hardest issue left to figure out and until then, it is also the weakest link in the crypto-sphere.
