For years, I have been trying to convince everyone around me that blockchains and cryptocurrencies are our future. I was one of those annoying people who just wouldn't shut up about blockchain, bitcoin and so on. Today, I would like to officially apologise for the same.
Certainly, I still believe that blockchains and cryptocurrencies are our future. But the hype around them has reached an extreme level, and majority of organisations are doing it wrong, this is the quintessence of what people do with blockchains nowadays:
The aim of this text is to save your money or money of your company. Nowadays there are countless temptations to buy things that sound buzzy, look miraculous, and bear the word "blockchain" in their name. However, they are, in fact, trivial and boring software inside.
Some people simply define a blockchain as something that has chains or blocks inside. This might seem to be fair enough; after all, it's only a debate about what defines a blockchain. But it is not innocent.
I myself am from a very small poor country located to the north-west of China. This year, in January, a group of dodgy individuals from one of superpowers of this world had come to my country.
They were selling a software to my government, which, as per their claims, would eradicate corruption from the public procurement process by using blockchain.
They actually assumed that in such a poor distant country, no one would understand how blockchains work. They probably thought that in the entire country there are only maybe one and half people who could do so. But, they were wrong; there were two of us.
Fortunately, both of us were in the country during their visit, and we were invited to assess the software.
Had their claims been true, the software should have magically eradicated corruption because, you know, it's a blockchain after all! Needless to say, their software merely exhibited the behaviour of a trivial payment system. It was basically a plain old automation of public procurement. It had zero chance of disrupting anything or eradicating corruption more than any other boring automation. And, by "boring" I am not referring to a feeling; I mean the price!
Similar software without the word “blockchain” in its title costs way less than what they were asking. We managed to prove to our government that this was an outright fraudulent attempt to dupe us. Hence, my country avoided spending several millions dollars on a software whose analogue could have been purchased with a radically lesser amount. And trust me, for a small poor country like mine, millions of dollars matter a lot!
Such kind of people exist here in the UK as well.
They are not always fraudsters, very often they are confused and in good faith. But, they have already been targeting government agencies, big businesses, and banks, all of whom have fallen into their trap. Now, such groups also target medium businesses and individuals.
Why do the "big shots" fall for them?
There are very big names among such organisations: Bank of England, Government of United Arab Emirates, and Walmart. What makes these big entities such as governments, banks, and corporations buy their claims? Aren't they supposed to be smart? Why do they fall into something that is hollow and inflated merely through hype?
That's because there are three groups of people inside those organisations who actually benefit from such fake projects.
The first group comprises of low-level technical specialists.
These are the ones who often understand what a blockchain can and cannot do. But, when a questionable blockchain project appear on the horizon, they give a positive assessment. They do it since they realise that they would be able to develop their own personal expertise in blockchain-related technologies during their working hours, at an expense of their employers.
It would double up their personal value in the labour market. I can confirm that when you add blockchain to your LinkedIn profile, the inflow of recruiters would double, if not triple.
So, they lie to their management who, in turn, lie to the top management. Thus, middle managers are the second group that benefit from fake blockchain projects.
They see a chance to stand out among others in front of the senior management, to demonstrate in such a way that it is they who ride the global trend for blockchain-shmockchain, and that their department is on the cutting edge of innovation.
And finally, there is the senior management, the third group which make the buzz-driven project live.
At first, it adds up to their fear of missing out: "everyone around is doing blockchains, but we are still not. We must be late to the party, let's do something!"
Second, they get a sense of false complacency, and a sense of staying in their comfort zone. In outside world entire industries are being genuinely shaken by the blockchain innovation. The global trend is decentralisation, but they seem to be on the cutting edge and seem taming the wild beast of blockchain while keeping centralised control over the flow of resources and information.
All three groups get what they want. But the organisation as a whole, spends millions in something that has got nothing to do with disruption and innovation.
If you suspect that what large organisations are doing is not a blockchain innovation but nonsense, it's not a suspicion. There is indeed a worldwide epidemy of bullshit-chains.
What blockchain really do? What to use it for?
The question of what a blockchain can do, and when its usage is justified is not trivial. I will give you the basics, and then I'll give you a tool using which you will be able to protect yourselves from the majority of fake blockchain temptations.
Yes, it wouldn’t save you from tricky cases, but it definitely will save you from the majority of cases which are usually quite basic.
So, blockchain. To summarize a long story, in 2008 an unknown mathematician under the pseudonym Satoshi Nakamoto published a paper where he solved quite an old mathematical problem called Byzantine Generals Problem. This problem was several decades old and, most scientists thought was insolvable until Satoshi had solved it.
Because of this purely scientific breakthrough it became possible to create a global data storage which is provided by millions of computers across the world without any central authority.
This might sound very technical, but it allows people to trade globally without banks and central banks. It would also allow the exchange of goods without paying a fee to marketplaces.
More generally, the solution to this mathematical problem allows interaction between people and organisations who do not trust each other and cannot find a third party whom both are able to trust, be it a common jurisdiction, an escrow agent, a bank or local authority.
You see? There is no magic, no miracle. Just the interaction between those who couldn't interact before, which is actually a huge deal for the developing world.
Blockchain is not any chain of any blocks!
Now before providing a simple tool to protect yourselves, let me give a short explanation for the tech-savvy people. Those who get bored with technical details, please please feel free to skip this part.
Many people think that a blockchain is any chain of any blocks. It is not. Here is an example.
Imagine we have blocks of some data.
Each of those blocks is hashed.
Each block contains a hash of a previous block.
Each block of data is cryptographically signed by some authority.
Each party that uses the system has an entire copy of the entire chain of these blocks.
All the parties are equal, each of them can create a new block if it follows the rules.
What did we just describe?
Some would say it is a blockchain, but it's not.
It is actually . . . git!
A boring programming tool which every programmer uses every day.
In git, every commit is hashed, every commit contains a hash of the previous commit, and you can cryptographically sign every commit.
Git was created years before blockchain was invented by Satoshi Nakamoto. Git has zero disruption potential in 2018. But nonetheless a good part of fake blockchains simply replicate the functionality of git, but get sold for a fortune.
Therefore, the moral of the story: blockchain is not aany chain of any blocks. Blockchain is when there is a way of determining the main chain when two or more are diverted, and when no central authority is needed for that determination.
If you think carefully, Satoshi Nakamoto was definitely standing on the shoulders of giants:
- Elliptic curve cryptography was there before Satoshi.
- Hashing was there.
- Even proof-of-work was there!
Then what has Satoshi added to this world which solved the Byzantine Generals problem?
To answer that I need to get back to non-technical stuff and describe a set of rules of thumb which each one of you can use to detect most of the fake blockchains.
How do I spot a fake blockchain?
There are three basic sings of a fake blockchain. Even one of them can guarantee that you are facing a fake one.
First sign: It contains words like "private blockchain" or "permissioned blockchain"
I remind you, technically, a blockchain is a global, open, immutable data storage which nobody can have a control over. It works only because millions of computers around the globe calculate the math behind a blockchain.
But buying a private blockchain is using a closed, centralised system, whose servers are located in your basement under your full control. This makes it a trivial information system which could be done even if Satoshi Nakamoto never existed and didn't solve the Byzantine Generals Problem. As a cherry on the top, an information system which does not pretend to be a blockchain costs much lesser than one which does.
Second sign: It implies a control from a central authority
Usually it is your company which fully controls the system.
But again I remind you, blockchain is a technology that gets rid of a trusted central authority. With central authority, it is just a plain old (and most probably cheap) database.
Third sign: It lacks cryptocurrencies in any form
This is a critically important sign!
Satoshi stood on the shoulders of giants, all cryptographical parts were there before him.
The missing piece which Satoshi had added, which finally solved the Byzantine Generals Problem belongs to mathematical game theory.
Satoshi has invented a system of economic incentives which makes millions of computers and thousands of people around the globe play by the same rules: those who play by the rules gain an economic reward and those who try playing against the rules lose live, tangible money.
Such economic incentives cannot be implemented without cryptocurrencies.
And a little bonus: when trying to determine whether you are facing a fake blockchain seek professional advice.
Recently someone had asked me, ”We see that blockchains is the future, we want to do a consultancy in this field. Which types of consultancy would you advise?”
I replied, “The best thing to do is to help your clients detect fake blockchains. It is going to save them millions of dollars.”
And if you can save them millions, they are surely going to pay you a lot.
Hence, if your company is at the point of spending money for something with the word "blockchain" in its title, you’d better spend some money for a consultancy first.
But people who sell private blockchains won't give up that easily. they will make lots of excuses.
Here are some of them that they will dare to make.
The first one would be:
“We just use a broader definition of blockchain.”
“We don't exercise an "orthodox view" on blockchain.”
“It's simply a terminology debate about how to name things.”
No, it's not! Because they are adopting buzzwords in order sell their overpriced stuff to those who do not fully understand the subject-matter.
Blockchain is a technology which is now disrupting a number of industries and government agencies. That original invention is actually the reason why blockchain dazzles entire world.
If they "broaden the term" and call something else a blockchain, then it is not an innocent misuse of terminology. It deceives people into thinking that their software shares disruptive traits and the buzz, with open public permissionless blockchains which Satoshi has invented by solving the Byzantine generals’ problem.
You can ask them a magical question which they would never have an answer for: what your software wouldn’t be able to do if Satoshi Nakamoto had never existed?
If you probe deep enough, you'll realise that they have made something which would work without any kinds of blockchain.
Second excuse the make:
"But it works!"
Oh yes! It does!
But since it exhibits the behaviour of regular software, let's compare it to a similar product on the market which doesn't pretend to be a blockchain?
How about we compare price of development? Blockchain developers cost way more.
What if we compare price of maintenance? System operations specialist with blockchain skills cost way more.
What if we compare total cost of ownership? In most cases, wannabe blockchains require way more hardware to operate.
OK, but after all, are those private blockchains totally useless?
I'd say no. Such systems can indeed work. But they do what a regular software would do. Keep that in mind when negotiating the price.
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