Stories relating to Bitcoin have been dominating news feeds for quite a while now. With Bitcoin valuations touching an astronomical $10,000 a Bitcoin, early adopters have transformed into very public multi-millionaires. This has amped the rhetoric even further about Bitcoin becoming a highly desired investment option giving the technology publicity like few other technologies have had. A side effect from all that attention has been that the spotlight has now shifted on to the underlying technology that powers it – The blockchain.
Blockchain evangelists have claimed the technology is as revolutionary as the internet itself! Companies have begun capitalising on this craze with some simply adding blockchain in their name before seeing their share valuations soar. The new wave of startups leveraging off Blockchain seems to be led more by euphoria over the technology rather than be led by a genuine problem that can be solved using the technology.
Innovation, driven by just technology rather than with the intention of solving a problem often end up like gimmicks usually do when the novelty is over – They struggle to find a genuinely engaged audience.
Taking a look at both sides is important when assessing the pros and cons of blockchain as a technology including the problems it can solve effectively. Blockchain in its fundamental avatar is a distributed database over a peer to peer network. The problem the technology is intended to solve is the enforcement of trust through the distribution of smart contracts over a peer network rather than to a centralised database run by a single authority. This allows trust and anonymity between parties. However, the cons of blockchain doing this as efficiently as a centralised database are far greater.
Which goes back to the actual problem blockchain is intended to solve, ‘Trust‘! It’s hard to justify that trust among third parties is so fundamentally broken for it to be problem large enough to require a technology as bulky as blockchain as a means to solve it, especially for most generic apps.
Non technical users don’t care about a blockchain app versus a non blockchain app. The differentiating metric between two apps that have the same value proposition is superior user experience.
If I played devil’s advocate for the problem it’s trying to solve – Enforcing ‘trust’. Hasn’t ‘trust’ in society itself been solved many years ago by civilisation through the enforcement of laws. As a matter of fact for most businesses ‘Trust’ in itself, is the differentiator that gives a business it’s edge over competitors. A business works to earn the trust of their customers and they are reciprocated by the loyalty of their customers. It’s a win-win situation. As an example of a business using trust as a differentiating metric, NZ’s biggest online marketplace TradeMe has leveraged it’s trusted sellers to such an extent it’s buyers and sellers stubbornly refused to move over to any of it’s competitors even when they offered much cheaper transaction rates as compared to TradeMe. It’s almost elementary in a sense, a user wants to know who they are doing business with and a business works hard to win the consumer confidence. That’s the essence of a sound business model as we know it.
The only place where trust is in short supply is on the dark Web which is why Bitcoin has been a popular medium for dodgy transactions. Blockchain as a technology is much better suited to use cases where it needs to compensate for a lack of trust between parties like it did for the recent elections in Sierra Leone.
To put it in perspective, Blockchain is truly an exciting concept in applications where there is genuine market fit. There are also a few gems that are emerging from the concept that do represent real innovation and variants of this technology will continue more over time. It’s possibly only a matter of time before the hype around the technology dies down and Blockchain finds itself one among plenty of other technologies that make up the internet without the hyperbolic rhetoric claiming it’s as profound as the internet itself.