Blockchain and Cryptocurrencies – The Hype And The Real World

First you might be thinking hey this isn’t about virtualization, isn’t this a virtualization blog? Well I like to think this is a technology blog, but just happens that most of what I post is related to virtualization and automation. Either way blockchains and possibly cryptocurrencies will eventually be playing a part in virtualization and automation at some point in the future.

So there is a million blog posts and news articles that explain what Cryptocurrencies and Blockchains are, but what I like about these, especially Blockchain is that its like devops – everyone has a different Idea on what it is and what it means.

I thought I would make this post today because Cryptocurrencies and Blockchains are new industry buzz words and everyone is talking about it. I haven’t recently got on the band wagon, in fact I have been mining and trading cypto for the past 7 years. While disappointing I sold most my bitcoin when it was $200 a coin, then again at $800 but hindsight is great and I still came out very much on top considering this is more of a hobby for me much like folding at home is, so no point thinking about the what ifs.

Today I will most likely come across somewhat negative, but I truly think great things will come from Blockchains but I want there to be a legitimate requirement for it – I will explain more as I go on.

First things first, what is the difference between cryptocurrencies and Blockchains? I hear these 2 used interchangeably often but both have become very different.

What are Cryptocurrencies?

This can be broad because there have been many different currencies and Blockchains all looking to differentiate themselves or improve on each other. Generally however think of Cryptocurrencies as 1 of 2 things depending on the coin, It is either an application running on top of a Blockchain platform/network or fundamentally integrated into the Blockchain platform and used as the medium to transfer the ownership of data or assets between people or businesses.

Clear as mud right?

What is Blockchain?

It all began with Bitcoin. Bitcoin introduced the idea of Blockchain to the world and was designed purely for the Bitcoin currency.
A Blockchain at its core is just a database, a very inefficient database, but one that is decentralized and completely immutable, once a transaction is committed into a block it can never be changed or altered.
So I mentioned block…. What is a block? A block is a link in the chain, transactions and data are combined together into a block and added to the chain. The blockchain is always growing longer.

I will not dive down into the weeds here, but at a high level think of a Blockchain as a cross between Lego and a puzzle piece where a single piece can only fit onto 1 other specific piece. The way they fit is by a very specific hash (all the data in the block including the hash of the block before it) similar to md5 hashes you might find on file downloads for software vendors (like the image below but VMware also use SHA256 hash which is exactly what bitcoin uses), this is so you know the file has not been tampered with. Same concept with the blocks, if someone was to change the data in one block they would have to change the whole chain and there is not enough computing power In the world to make this happen.

Blockchain Hype – Opinion

I am not taking anything away from Blockchain concept I think it will play an important role in the future of some platforms like logistics but there has been a ton of hype around Blockchain technology that to me just doesn’t make sense or is miss guided. I have seen and im sure anyone reading this has seen the following:
• Blockchain eliminates the need for intermediaries!
• Blockchain creates trust!
• This could not have been done without blockchain!

Now lets have a quick look at BitCoin. If we look at the Bitcoin white paper in the introduction it states:

“Commerce on the Internet has come to rely almost exclusively on financial institutions serving as
trusted third parties to process electronic payments. While the system works well enough for
most transactions, it still suffers from the inherent weaknesses of the trust based model.
Completely non-reversible transactions are not really possible, since financial institutions cannot
avoid mediating disputes. The cost of mediation increases transaction costs, limiting the
minimum practical transaction size and cutting off the possibility for small casual transactions,
and there is a broader cost in the loss of ability to make non-reversible payments for non-
reversible services. With the possibility of reversal, the need for trust spreads. “

Now this was written almost 10 years ago. And we have hindsight here. Bitcoin was created to allow non reversible transactions without the trusted middleman and reduce transaction cost that is associated with having the trusted middleman.

As it currently stands there is 2 massive issues that the majority of people would have with this in practice.
1) The first one is that currently to pay for a $10 dollar lunch with Bitcoin will cost me $5 – $10 dollars for the transaction and there is no middle man plus could take hours to clear, I use my trusted visa middle man and its 0$ dollar transaction fee and instant. I don’t see a downside with the middle man here.

2) The second is non reversible payments – Its true that Bitcoin specifically states non-reversible transactions for non-reversible service. But to be used in mainstream this will not fly. While lunch is not a good example as you generally pay after the meal is consumed. Like the majority I like having trusted intermediaries that are able to get my money back on a dodgy payment or service. I have had occasions where I have needed to dispute on paypal or call up a bank to stop payment. Without these middle men there would be a level of risk that needs to be accepted that all payments are final no matter if you receive the service or product you are after.

Now smart contacts can be a solution for some of the above but not all.

Blockchain eliminates the need for intermediaries
Personally intermediaries play an important and useful function. I don’t believe the removal of them will solve anything, just replace current issues with new ones. Anyone who says this, really hasn’t thought about the benefit of having a trusted intermediaries vs the risk without them. There is also no reason why the 2 cannot work together side by side.

The idea lawyers can be removed, or service like PayPal replaced and not needed are false. I for one am not a lawyer I don’t know the in’s and out’s of a contract in a specific industry. Blockchain will not remove or replace this knowledge. Sure simple exchanges with smart contracts could be done LaaS (lawyer as a Service) but in general they will always play a part. Just like PayPal or banks. People in general want someone to be accountable to fix it if something goes wrong, I do not see this changing.

Blockchain creates trust
The Blockchain does not create trust between 2 untrusting parties, I think it encourages trust and transparency at the most. But I don’t think it creates enough trust to guarantee a fair and honest relationship. I have seen some good example in logistics and tracking of goods like diamonds where I can go into the jewelers scan a diamond and see where it was mined and the journey it has taken to be in the store front. Can I trust this? No, no more than I trust the sales person explaining where they came from. There is no guarantee that the data entered is accurate or truthful.

Because I am the techo in a non technical family, I have been asked on many occasions outside of “can you fix my computer?” or “Im having issues with email can you take a look?“, if the data in the Blockchain is true… This is a tricky one to explain but these people are the people you want using the technology for it to be mainstream and adopted on mass right? The answer usually goes like this:
The data in the blockchain is true from the fact is has not been modified since it was written into the chain, But it doesn’t mean the data is actually correct
Like any database, the data can be inaccurate or untruthful.

In saying this I think blockchain technology can create and promote accountability specifically in the IoT world. What I mean by this is with the world getting more and more integrated and people relying more and more on “smart” technologies and devices. It provides a good medium for open transparent communication and integration.
For example I buy a home alarm system, the system claims it integrates with security camera X I install and configure the integration. I come home and find my home broken into I can see the video of the robbers and my alarm didn’t trip or got any notification…. Assuming I configured it correctly Who’s fault is this?

Company that makes the camera said it sent alert to the company that has the alarm system, but the alarm system company is saying they didn’t get anything and ends up being a finger pointing marathon.
If this communication was via the Blockchain anyone can see where the fault lies… you can plainly see who sent what.

This could not have been done without blockchain
This is my favorite, Blockchain technology has made X possible. I think if someone says this they have not truly dived into the problem they are trying to solve. I will put this into context, recently I had a discussion about blog hosting and it would be the same as me saying “Jekyll has finally made it possible to host static websites”. But really I just haven’t looked into what I was trying to do and this new hype around Jekyll and S3 buckets for blog hosting caused me not to look deeper in how else I could achieve the same outcome.

Most idea’s using Blockchain could be done using alternative methods. I have seen some claims about cars being able to auto pay parking or tolls etc this is no different to etags at the end of the day right?

Private VS Public Blockchain
This is something that annoys me. I have seen mention of many different companies looking at utilizing Blockchain to provide services to their customers, both Private and Government enterprises I have worked for are looking into this also, and generally it has nothing to do with the public chains current available, and all to do with developing their own private Blockchains.
I may be looking at this wrong but if you have a private Blockchain how is it different to a private database? The point of a public Blockchain is that it is decentralized not owned or controlled by any one person or company which in turn makes it immutable. A private Blockchain is inherently centralized meaning data could be changed and just becomes an inefficient database.
This to me feels like it provides none of the hyped benefits of what Blockchain technology can deliver at the same time providing non of the efficiency of standard databases. So you end up with the worst of both worlds…. But hey at the end of the day the technology is still young and something new is always around the corner.

Conclusion
While today I took a somewhat negative look at blockchain technologies. I was really playing devil’s advocate and playing down the hype train. I honestly believe it will play an important role in the future. It just feels like it’s a solution to a problem that doesn’t really exist at the moment. I have and will continue to enjoy playing with Blockchains and Cryptocurrencies as a hobby and I look forward to being able to pay and consume more services with Cryptocurrencies (as long as the fees are low).

Cheers

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