“The Devil’s greatest trick is convincing the world he doesn’t exist”
Throughout time slight of hand has been used by some of the world’s oldest professions. Magicians use it to delight, Governments for nefarious plots. Now blockchain has given developers the ability to make meaningful changes to how the world works. So many organisations want to use blockchain to solve problems believing it is the solution to potentially any problem. What they don’t know is that the only problem it is really solving is their own unwillingness to tackle the tough backhouse problems that have been ignored by governments and businesses for years. It gives developers a way to lead organisations to believe they are on the cutting edge, but use technology that is far more efficient to complete the project.
I know this sounds hard to believe given that you hear so many hypothetical uses for blockchain, but there are a variety of factors that contribute to this conclusion. the primary reasons I have come to this conclusion are:
- The volatility.
- The energy use required to process transactions.
- The irreversibility of transactions
- The lack of success by development teams to successfully utilise blockchain.
- The success of creating major changes using a tiny fraction of the blockchain as part of a code using other types of technology.
Blockchain is primarily related to cryptocurrencies. There are over 2,000 different cryptocurrency, of which Bitcoin is the most popular, as of November 2020 1. The majority of the holdings are by speculators hoping to profit off of them. If you look at the history of bitcoin valuations before the came into the public conscious in 2017, they held fairly steady in their valuations. Since then, there have been annual swings of up to $14,000USD.
Think about what that really means for business You get an asset worth $18,000 and by the end of the year its worth $4,000. If you traded it in beforehand you could reduce your loss, but with such unstable currency, can your business really sustain 75% losses? Most companies that would mean that fixed costs and labor aren’t being paid which leads to layoffs or bankruptcy. That’s a pretty big risk, but there’s more…
A quick Google search shows that 90% of Australians believe that sustainability is important and more than half believe they aren’t doing enough. So why would we want to use a resource intensive technology as the basis for anything?
There is debate as to whether cryptocurrency is more or less energy efficient than the current banking systems. The debate primarily occurs because there is no definitive count of the energy used by current banking systems worldwide. Despite the debate, research done by the U.S. Congressional Research Panel found that there are instances of crypto mining causing increased electricity prices in some municipalities as well as potentially the culprits of rolling blackouts. The industry is focused on increasing the use of renewable energy and increasing processing efficiencies so over time this may change, but right now it is higher risk than rewards for businesses and their communities.
From a business standpoint it is difficult to reverse transaction on blockchain. Once something is certified as part of the record, it cannot be reversed. This is by intent.
That means if you send money to the wrong person or send $1,000 when you meant to send $100, you are counting on the other persons generosity to get it back. If it is a business paying an employee or routine vendor, they can just withhold future payments to make up the difference, but what if you have to process a refund? You have to create a new transaction to the customer and then they’ll get the money after the miners solve the equation for the transaction. There are reports of it taking anywhere from minutes to 10 days. Think if it takes 10 days you’ll have a happy customer?
Another concern here would be the exchange rates that occur. You will need very defined policies for whether refunds are in AUD or BTC. Unless the government passes laws dictating how refunds involving cryptocurrency works, this is left to the company to decide and can lead to conflicts with customers.
Maybe over time they will fix this, but right now I see it as problematic for the purpose of doing business. Given humans are prone to mistakes, business requires effective ways to process corrections and blockchain does not have an effective mechanism to perform that task.
Lack of Success with Blockchain Development
Many people believe blockchain can be used for almost anything, but 92% of the blockchain projects that have been attempted have been abandoned. This is normal for a new technology, which blockchain is given it is only 12 years old. Compare that to the computer which has 140 year old history and there is room to grow, but a 92% fail rate is not appealing for most organisations that don’t have billions sitting around to gamble with.
Creating Change by Selling Blockchain and using a Tiny Slice of Code
There are some highly successful projects that were marketed as blockchain solving immense problems, but when the problem was actually solved. There was little to no blockchain code actually in the program. I’ll discuss a few of these to show why it seems to me that developers are using blockchain as a way to create meaningful change without actually using the technology.
Zuidhorn, a small Dutch town, decided it wanted to use blockchain to eliminate the complex administration involved in helping the low-income families purchase children’s items. Before the app it was an administrative nightmare. The app was created and has made the whole process less labor intensive and more user friendly, but the lead Developer was supposedly interviewed by Jesse Frederik and admitted that blockchain was not necessary for the project.
Another project that claimed to use blockchain to help with subsidised childcare also took a similar approach. There were only certain trusted parties that were exclusive miners making it where it isn’t a decentralised process, one of the cornerstones of blockchain’s creation. The only aspect of blockchain that was actually incorporated into the project was a 40 year old technology called Merkle tree that basically shows a history of all changes made to the database.
Projects like these won international awards for their use of blockchain, but didn’t actually use blockchain. They used a tiny fraction of the concept that they found useful and used more commonly used technology to implement a solution to fix a problem. Because society has not reached the point that everyone can read and understand code, it is easy for developers to solve a problem without actually using the technology they say they are using.
This leads to the ethical question is selling someone on a project using a buzzword such as “blockchain” then using a completely different strategy to solve a meaningful problem ethical? That’s a question each person has to answer for themselves. Sometimes the means justifies the end, but sometimes it doesn’t.
The point of all this is that blockchain isn’t a solution at the current time. Maybe it will be one day, but there are a lot of problems that need to be fixed including the irreversibility, the sustainability, volatility, and success rate of projects. If it follows the same path of the computer (see chart below), it might eventually become an effective means to conduct business, but until then I recommend sticking to methods that more developers are familiar with.
If you have any questions or would like input on what strategy to use to drive business efficiencies reach out and I’m happy to advise you.