Your blockchain project will fail because you don’t understand Bitcoin

This article is addressed to you, the business professional that has heard about Blockchain technology and how it will revolutionise every industry, including yours. You want to start a blockchain project in your company so that your competitors don’t do it first and beat you to the punch. You’ve been told by everyone around you at conferences and trade shows that by utilising a blockchain, you’ll get to take advantage of things like unfalsifiable logistics tracking and smart contract based applications that run on the blockchain without needing to host the application code on your own servers.

Unfortunately, you’ve been misled.

In the business world there’s a perception that talking about cryptocurrency – and even more so about Bitcoin specifically – isn’t “professional” enough. Everyone wants to talk about “blockchain” instead as if the concept can be separated and distilled and removed from the cypherpunk roots where it started. Bitcoin is a weird cryptocurrency that people invest in trying to get rich, but it doesn’t bring real business value. Blockchain is where it’s at!

Of course this is dead wrong and if you believe it, you’ll fail to do anything useful with this technology. The reality is, that a “blockchain” is just a kind of slow, inefficient, distributed database. Everything that makes Bitcoin’s blockchain interesting is the technology around it: Decentralisation, proof of work, economic game theory, and the absolutely brilliant concept of the mining difficult adjustment to set a kind of clock that adds a new kind of ‘fairness’ to the system that has never been seen before. With these, a blockchain is an important part of a technological marvel; without them, it’s just a slow, inefficient database.

But the people advising you don’t get that. Not yet. So instead, they tell you that Bitcoin is “powered by blockchain” and therefore the strengths that Bitcoin has can be yours too just by making your own systems also “powered by blockchain”.

The reality is however that unless you have all of the other aspects of Bitcoin (or at least, know what you’re losing when you decide not to have one or more of them), you will also fail to get the strengths of Bitcoin.

So, what are those aspects in detail?

  • No single point of trust. Bitcoin solves the problem that the participants in the system don’t necessarily trust each other. It is a “trustless” system. If you are going to build a system where you have the authority to change things, then the other participants must trust in you. There’s nothing necessarily wrong about such a system, but building it with a blockchain is just wasteful since you could use a database instead.
  • No web of trust. Equally, Bitcoin doesn’t have a ‘board’ or ‘master nodes’ or ‘privileged peers’. There are some other cryptocurrencies built this way (Ripple comes to mind). In this system, although there’s no single point of trust, there is a set of privileged peers that – while not trusting each other – are required to be trusted as a collective by other participants. Again, a blockchain isn’t really needed here, since you could just build a chain of signed transactions (if you really must have a chain) instead of going through the effort to build transactions in to blocks. Even more easily, you could – again – just use a permissioned shared database with signing rights to ‘validate’ transactions in a simple queue.
  • Open, permanent information. All information on the Bitcoin blockchain is visible to everyone and can not be removed once added. If you will ever need to be able to change the history of your data – for example, for legal compliance with privacy or other regulations – an immutable blockchain isn’t for you. Put the other way around, having data in an immutable blockchain is a good way to prove you are unable to comply with these regulations no matter how much you’d like to, but this may be a difficult avenue to go down for your business. Again, you probably want to consider a shared permissioned database for your use case.
  • The assets are digital. With Bitcoin, the ‘things’ being tracked on the blockchain are the digital assets of the bitcoin transactions themselves. If you try to tie a blockchain to a physical process such as physical goods delivery, you’ll find a blockchain to be a weak solution. The best you can track is a digital representation of those goods and if the way you tie the physical good to the digital representation is able to be compromised (e.g. a printed serial number, which can be easily copied), then the blockchain isn’t going to help at all. You’ll just be faithfully tracking the wrong thing.

The United States National Institute of Standards and Technology (NIST) created this helpful flowchart that may also prove useful:

If you go ahead with your blockchain project, and don’t heed the above, you’ll probably still be able to build something that works. But eventually, your developers will convince you that a blockchain really wasn’t the right approach. You will end up just using a permissioned database after all for much less cost and much more efficiency. You’ll have wasted a lot of time, effort and money on a technology that doesn’t fit your needs. And then your interest in “blockchain” will decrease again. You’ll claim it’s all hype and blockchains are useless for anything real.

But none of this will affect Bitcoin and the blockchain that it rests on. Bitcoin will continue to grow behind the scenes and one day, you will see it again and realise that you somehow screwed up. You probably still won’t understand how you screwed up, but you’ll at least see that your “blockchain” project failed and yet Bitcoin succeeds. At that point – even without understanding it (or needing to), you’ll finally start adjusting your business to the new way of things.

We’ve seen it before with the internet. The walled garden services of the 90s like AOL, CompuServe and so on were the same kind of attempt to take this wild geeky internet thing and turn it in to a business-palatable service offering. Every pointless “blockchain” project is going to end up just the same as those evolutionary dead-ends did, relegated to the garbage heap of history while the real underlying technology that actually works becomes the mainstream to the point that people can’t imagine it being any other way.

As a final note: Does this mean you shouldn’t do “a blockchain project”? No, I never said that. If you can go through this article and honestly compare the questions and points raised to your project and still see a need for a blockchain, then it’s not impossible that yours will be a success. There are a lot of interesting ideas out there and I certainly can’t rule them all out carte blanche. All I can say is that different problems have different kinds of solutions. Blockchains are great at solving one kind of problem, but if that’s not the problem you’re trying to solve, then sticking a blockchain in to things isn’t going to magically make it better.

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