Juha Saarinen: Blockchain, the technology that could but did not deliver

OPINION:

Virtual currency pyramids are collapsing around the world, and we are in a “crypto winter” with huge amounts of real or fictitious money disappearing into black holes.

Trendy decentralized finance companies (DeFi) that lent
Money can not meet calls for funds and has gone out of business or is dying.

This is not really news, and many people have warned that things can go hectic as the technology behind virtual currencies does not actually keep its promises and remains stuck in “could” mode.

It is, of course, blockchain, the “magic” piece of database software that proponents say can do just about anything better.

The reality has turned out to be quite different. It turns out that the libertarian wet dream of cryptocurrency without a central authority that blockchain supports and for which it was specifically created, did not fulfill the promise that trust was not necessary.

Now the warning lights are flashing red, and news flows are clogging up with one crypto company after another giving off employees or their founders who run runners with customers’ funds.

All this should not happen with the transparent and secure blockchain that underlies cryptocurrencies.

Despite the above, the Ministry of Trade, Industry and Labor published a consultation document in May that highlights the blockchain as one of two trends that affect productivity and long-term well-being.

Technically, the immutable blockchain database where the information is stored in blocks that are linked to each other with cryptographic links is interesting.

The idea is that everyone who participates in, for example, a payment network has a copy of the blockchain database, and then a simple majority consensus verifies the transactions on it.

As everyone can see the transactions, it apparently provides transparency, security, and without central authorities, lower fees.

Well, the latter is a “kind” because reaching the decentralized verification consensus requires large computers that, as the networks have grown, together burn enough energy to run a medium-sized country like Norway.

Some had to cover the cost of it, so the transaction fees were high. Now that crypto has crashed, many who “mine” the Etherium cryptocurrency have given up because it is no longer worth the investment in hardware.

Then there is openness: everyone could see and verify information about the blockchain seemed like a good idea, as in that way there was no need for any reliable central authority. Unfortunately, it turned out to be a bad idea to publish information on an open, public blockchain, so private blockchains were created for invitations only.

There are many other issues that put keys in the blockchain wheels.

For example, the Bitcoin blockchain has small records, with less than one megabyte of usable data. It did not do much when the virtual currency was used by a small number of cryptobros.

However, a system used by millions will need much larger records because the small blocks put the brakes on performance. Resizing them will break compatibility with existing blockchains. Slowly as she walks then.

Keeping all data forever on the blockchain was another concept that didn’t really work out.

The Bitcoin blockchain has grown to over 400 gigabytes in size and continues to expand.

It is too large to fit into many entities and limits participation in decentralized transactional networks.

Over the years, I have been told that blockchain minus cryptocurrencies can prevent voter fraud in elections; it can ensure the integrity of the supply chains; it can securely store medical records, driver’s license data and car agreements, especially in failed nation states where you can not trust the government.

The word “could” does most of the heavy lifting in any blockchain report.

You can entertain yourself by reading older articles written by declared blockchain experts, and checking out where the revolutionary companies and applications that can change the future of humanity are located.

If you do, you will find that in many cases they are 404 (deleted) or the link takes you to a site that was abandoned years ago.

Could it be that blockchain technology is quite meaningless?

Former Financial Times editor Izabella Kaminska gave evidence to a British parliamentary committee last week, saying she could not imagine a single successful blockchain distribution.

Technology journalist David Gerard, who has covered crypto and blockchain for years, and who appeared at the same committee hearing, pointed out that while an immutable database can be useful, there is no guarantee that the information that goes into it is correct or true.

In other words, blockchain-secured supply chains will still need human inspectors to ensure that there is Chateau Petrus in the wine shipment, and that no scammers have not filled the bottles with cheap plonk and re-marked them.

Gerard also noted that people care about money and not decentralization which is claimed to be a key attraction for blockchain.

Gerard said that Bitcoin mining was centralized in 2014. The network-driven Infura network recently implemented US sanctions against Venezuela, Russia, Iran, North Korea and other rogue nations. Doing so cut off Ethereum cryptocurrency traders, which was not meant to be possible because, uh, blockchain decentralization.

If you are dealing with money, everything tends to be centralized as it is more efficient, Gerard said.

There are many other examples that span the years of how the blockchain promised it could do something, but in reality did not deliver. If you want to blockchain to deliver enhanced productivity and well-being, good luck.