Why blockchain should fail

It’s rather amazing what happened the last couple of years when it comes to blockchain. It all started with Bitcoin of course. At the time of writing this, the total market cap of Bitcoin is $1 trillion. When we look at Coinmarketcap today, there’s a total of more than 80 coins that have a market cap of more than $1 billion. and more than 360 coins that have a market cap of more than $100 million. Lots of fiat money is locked into these “projects”. Most of them basically being ponzi schemes, because the technology underneath those “projects” is mostly crap and the only ones making money are the ones that bought during the ICO (initial coin offering) or the ones that initiate “pump-and-dump” events. A new crypto sucker is born every day.

The whole idea behind Bitcoin and other blockchain based cryptos is “decentralization”. There’s no central organization responsible for how things are handled. Except of course when it comes to tokenomics (how many coins are there in circulation, how many can there be max and how many will be printed per period; the inflation) in most cases. When you look at most coins, there is no max number of coins. Which means inflation is potentially infinite. This is different from Bitcoin, which has a max number of 21 million. But what keeps evil people from just changing that? And what can you do about it?

As we all know by now, the “rareness” of coins is based on the difficulty of mining new coins. The way coins fluctuate (unlike the “stablecoins” like $usdc and $usdt) will make it very difficult for them to ever be used as digital money (except of course for buying a Tesla, according to Elon). Basically, people just gather them, hoping they will increase in value. Do you actually own a piece of the company behind the crypto? So, the case of the SEC against Ripple with regard to “is XRP a security?” is something to be watched carefully.

In the meantime bots rule the buying and selling of crypto. It’s such a coincidence that coins go up and down in groups. And lately we can even see that crypto moves along with stock markets. And because of all the derivatives, futures and all kinds of other “smart” products, including the “shorting” as we know it from traditional stock markets there’s really no way that the moving up or down does have anything to do with underlying fundamentals. It’s all FUD or hype.

And also in the meantime lots of cryptos, most notoriously $eth, are used as a platform by other cryptos and tokens and because the price of the “platform” coins goes up, transaction prices go through the roof. Basically making executing of transactions way more expensive than plain old credit card transactions.

The way I look at it is that just like with the gold rush in the last century, the only people really making money on crypto in a predictable and stable way are the “tool supplier” commercial exchanges such as Binance, FTX, Bitmex and quite some others.

But that’s all about crypto. How about the underlying blockchain technology, including the “smart contracts” running on them? When a smart contract fucks things up (because as a user I didn’t really understand it, or the “independent” auditor did a bad job auditing it) you are basically fucked. Nowhere you can turn to. That’s the downside of decentralization. Let’s say I want to borrow some $eth based on my $btc balance. And that I enter “90” in the number of days within which I will pay back. And the smart contract just automatically wires the $btc collateral to the other party after 80 days because I didn’t pay back yet? Nowhere I can turn to.

Of course there are more and more “governance” tokens that are implemented, that are basically used to democratically determine when and how things are implemented and executed. But we all know that democracy doesn’t always work well. If we’d held a referendum right now about getting rid of the Corona lockdown, it would problably pass with great majority. But would it be a good solution? And who guarantees how the things voted on are actually implemented? Lot’s of scams already exited. “Rug pull” has happened quite a lot lately. Gone are the coins, or at least gone down in value to (almost) zero.

And the blockchain itself? It’s just an energy consuming monster that replicates everything to every node. And it will not forget anything. And because they are so inefficient, lots of important data is in fact stored “outside” the blockchain, only the metadata is stored on the blockchain. That does not make sense at all. And how about GDPR / AVG? No one cares.

Apart from that there are issues with tokenization of digital assets, let alone “real-world” assets. The way we put things on the blockchain should also be certified. But how can you certify, without independent external auditors? For digital assets, the whole digital process for getting things on the blockchain should be 100% reliable. What if we log certain access to information on the blockchain, but we cannot guarantee identity? What if we log the the sale of a house or piece of land and we cannot digitally guarantee that the identity of the asset is correct? There are so many things that we still cannot digitally 100% prove. So, the same old “garbage in, garbage out” still applies, even on a blockchain.

Of course this is all about public blockchains. And I just don’t see use cases for consortium- or private blockchains.

Correct me if I’m wrong, but the current ways of thinking by the blockchain gurus is just plain stupid or at least misleading to the dumb folks (you and I) actually using it. I’ve read quite some “white papers” and “roadmaps” on lots of projects, and 99.9% are plain stupid and the other 0.1% forgot some important stuff that still “needs to be taken care of” but in fact they just cannot. We need a new ledger paradigm, including new ways of guaranteeing smart contract behavior AND we need 100% reliable tokenization and oracles. But is that actually possible, without third party (government controlled) institutions? I’m not sure. Maybe open source AI can help? But for now, I just don’t trust it at all. Decentralized or not. They are all just underworld casinos and the house always wins.

The rise of the Ethereum blockchain frameworks

Lately I’ve done quite some research on blockchain. I’ve been involved in a number of inspiration sessions for our customers, trying to come up with good use cases for blockchain in their respective industries. We’re in the process of defining and executing some exciting PoCs (proof of concepts) right now, mainly in the logistics vertical.

The Ethereum blockchain seems to be(come) the dominant platform for all kinds of initiatives. Ethereum is also doing quite well from a token market value point of view at the moment and that’s not hard to understand. It’s the goto platform for anything that has to do with smart contracts. A lot of current ICOs (initial coin offerings) run their technologies on the Ethereum blockchain. Some of them are good and probably have a bright future, some of them are hyped but basically hot air, and some of them are right out shady and probably scams. But hey, a new crypto sucker is born every day as Microsoft’s blockchain principal architect Marley Gray said during a keynote on a blockchain conference.

On the Microsoft Azure platform, it’s quite easy to setup an Ethereum blockchain. With the CoCo framework, Microsoft has built exciting preview stuff that can run on multiple blockchain platforms. Check out the paper here.

For me it’s clear that the blockchain technology itself is not the interesting part. Of course having immutable records and a consensus model to cut out the middle man is *very* important, but the blockchain itself will become mainstream like any other database technology, like SQL or NoSQL. What makes it worthwhile is the concept of smart contracts. And that’s what the Ethereum blockchain is quite good at. It is however quite hard to develop and test smart contracts. I foresee that in the short term, lots of startups will come up with smart things around smart contracts.

I’ve bumped into two of them that are worthwhile mentioning. Also because they are both legitimate and did their ICO’s in North America:

  1. Blockmason. The have developed the Credit Protocol on top of Ethereum, which takes care of a very badly needed smart contract for handling credit (on which this world turns), including the automatic settling of it between parties. They have developed this technology before they did their ICO. And they are SEC compliant, which is a first in crypto land. They have interesting partnerships, like the one with Coral Health who are doing a pilot with their technology on settling payments between doctors, patients and insurance companies. Without the need for a third party. Very interesting technology, for which they have applied for patents. I think lots of initiatives will use their technology to implement similar scenarios. Their token is named BCPT. Checkout Blockmason.io for full details.
  2. Etherparty. They have created the technology to make the development of smart contracts easier. Basically they do for smart contracts what WIX did for websites. Without any programming knowledge you can develop smart contracts that run on any compatible blockchain, but the most used one is obviously Ethereum. I foresee that they will come up with lots of out-of-the-box templates for smart contacts making the implementation of blockchain initiatives a lot quicker. Their token is named FUEL. Checkout Etherparty.com for full details.

So, just like we had frameworks on top of SQL databases and integration software, we’re now seeing the rise of smart frameworks and templates on top of blockchain. We’re definitely coming out of the blockchain stoneage. Exciting times!

Cheers, Gijs