Whenever a tech fad comes to an end, it becomes so obvious why it failed. Yet during the hype, it’s easy to miss the problems lurking just below the surface. I want to explore some of the problems I see with public blockchain and why I think it’s not going to live up to the hype.
Blockchain can’t track real things
Whenever a new technology comes along, there’s always a temptation to use it in ways above and beyond it was originally intended. Blockchain came to popularity because of Bitcoin, and as Bitcoin grew, people became fascinated by its underlying technology.
But what made Bitcoin popular wasn’t the technology. The whole idea behind Bitcoin was to create a global currency that didn’t have a central monetary authority. Blockchain was just a good means to achieve that.
The fact that blockchain works well for cryptocurrency doesn’t mean that it works well for any sort of transactional database. The idea of digitally moving funds from one account to another doesn’t translate to moving goods along a supply chain. Why not? Because with Bitcoin, the blockchain is currency that you’re moving around. You can’t separate a Bitcoin from the blockchain. If you do, the Bitcoin ceases to exist.
When it comes to supply chain, you’re only moving representations of goods, not the goods themselves. This is a key distinction that people miss. You can assert that a certain string of data represents a tangible thing in the real world, but now that linkage is based on your assertion, not on the blockchain itself. Hence, the blockchain doesn’t add much value.
Anyone can create a blockchain
A blockchain is a database, and as anyone who has dealt with those knows, a database is worthless if no one uses it. There are hundreds, probably thousands of different blockchains. If people who work together every day can’t even agree on where to eat lunch, how is everyone in the world going to agree on a single blockchain for any given application? It’s not going to happen.
Ridiculous bandwidth and storage requirements
Right now blockchain is being touted as a security panacea, especially for IoT. There’s just one big problem: IoT devices have small storage and bandwidth capacity, and blockchain requires enormous amounts of storage and bandwidth.
Inconvenient but not more secure
Security always requires giving up some convenience. But the inverse isn’t necessarily true. When I go to pay for my coffee, I can use a piece of plastic, cash, or scan a barcode on my phone. It’s convenient and mostly secure. But if I want to pay with Bitcoin or some other cryptocurrency, I have to drop some bits onto a blockchain and wait minutes or even hours for the hivemind to “confirm” my transaction.
And what benefit do I get in return? Nothing. No, it’s worse than nothing. I lose my ability to dispute the transaction or get a refund because blockchains are designed to be unchangeable (aka immutable).
Controlled by anonymous
Public blockchains are not inherently decentralized. Distributed, yes. Decentralized, no.
When dealing with a credit or debit card, your bank is in charge of keeping track of the transactions. When dealing with cash, keeping up with your spending is entirely up to you. But when it comes to blockchain, thousands of anonymous strangers are in charge of your transactions.
These anonymous strangers are divided into two groups. You’ve got the developers who create and maintain the software required to interact with the blockchain. This gives them the power to change it in any way they see fit, as well as allow or disallow other people to use it (this actually happened recently with the Bitcoin Core/Cash split).
The other group is the people running the nodes which perform validation of blockchain transactions. Ideally this would be a diverse group of honest people spread all over the world. But the reality is that anyone with enough money (e.g. gov’t) can purchase the compute power to comprise the majority of nodes. Whoever controls the majority of nodes controls the blockchain.
This is arguably the biggest strike against public blockchains because it’s not just a theoretical possibility. It’s already happened. 70% of Bitcoin mining is done in China, only 1% in the US.
Ripe for attack
Even if you assume that most people are honest and will operate clean nodes, there’s still the small problem of security. Imagine that former Soviet spies Boris and Natasha develop a worm targeting a particular blockchain implementation like Ethereum. They’re so 1337 that they manage to infect 80% of the nodes, allowing them to inject bogus data into the chain and validate it.
Don’t underestimate the fallout of this. Even if the participants discover the attack quickly, the damage has already been done. Everyone else now has to face the ugly decision of whether to trust a blockchain they know has already been compromised. This isn’t just a theoretical scenario. Something similar already happened with Ethereum. It resulted in the developers forking the Ethereum chain. That’s why we now have two Ethereums (ETH and ETC).
The Boris and Natasha scenario might sound a little bit too spy-movie-ish, but the nature of a public blockchain requires it to be open to the internet. This isn’t a private database locked down behind layers of security. It’s a peer-to-peer app that is more than happy to accept your malformed TCP packet.
Does that mean it’s impossible to implement a secure, public blockchain? No. But it does mean that it’s much, much harder than to just use a private database behind more proven layers of security. Once again, why not just use a traditional database? Blockchain doesn’t offer enough of an advantage to outweigh the risks.
Tags: bitcoin, blockchain, cryptocurrency, ethereum, security