Three Questions For Blockchain BS Detection

I’ve read that Blockchain is "the new database” that will “shape the future” and “transform society.” You name it and someone is talking about how it ought to be implemented on a blockchain. Unfortunately, there are a lot of pitches that are misaligned with the motivations and technology behind blockchain. Here are three questions I use to sift the serious from the hype:

1. Where’s the chain?

You’ll note that “chain” is right in the name. In Bitcoin’s case, the chain is there to keep track of ownership of coins, in order to prevent double spending. Sure, you can tell from the digital signature that the account owner really signed that digital check, but do they actually have the funds in their account? And to know that you need to know if the check they cashed to fill the account was valid. And so on, in a chain back to the “genesis block” of BitCoin making you absolutely certain that the coins are really yours now.

In contrast, there are many scenarios where you can be satisfied with a digital signature without need for a chain. For instance, if a document is cryptographically signed you just need the copy of the document and access to the signer’s public key. There’s no need to access all signed documents in history. Or, consider a digital contract that includes a bank signing that they have funds in escrow, followed by signatures of the sender and recipient to complete the contract and release the funds in the good old world of regular banking. All anyone needs is a copy of the contract signed by all parties; if there is any “chain” at all it is merely of the partially signed versions of the contract, which are not even particularly useful once you have the final, fully signed version. (See Ripple for an example of using cryptographic signing to support funds transfers with no blockchain).

Even if the “chain” were to include hundreds of transactions, we are probably talking about an object smaller than one of the pictures on your phone. These objects are small enough that everyone could just keep their own copies, in any content-management or file system you choose. They could even just be email attachments. No blockchain needed, thanks.

2. Where’s the distrust?

BitCoin was born out of distrust towards how governments manage currency. Governments often prefer quietly and gradually reducing the value of your bank account through currency devaluation rather than taking the heat for the much more obvious act of just taking it from you as a tax. Virtually every government throughout history has found this tactic irresistible, including the Romans, Henry the 8th, and our modern central banks. BitCoin’s brilliant idea is to control a currency via an algorithm in a distributed system where there is no central authority you need to trust.

If trust actually does exist in your scenario, you probably don’t need such a clever distributed system (and you don’t need to slow everything down while wasting vast amounts of energy computing proofs of work). For instance, billions of us trust our employers to keep track of our wages and vacation time; any proposal to store this information in a blockchain is solving a non-problem. Likewise, if your organization wants to share records with a couple of partner institutions, it is likely that you already are trusting each other enough to use simpler sharing mechanisms.

If there is trust, a major motivation for blockchain is removed. When you hear of blockchain applications in closed environments, or somehow controlling and limiting the servers involved, it is worth asking whether some other distributed logging approach may suffice.

3. Is there a crypto-currency I need to trust?

Some (not all) blockchain approaches require a functioning crypt-currency to work. If an idea is build on top of Bitcoin’s blockchain, then you need to trust Bitcoin, because if the value of Bitcoin were to crash then all the incentives which are supposed to keep the blockchain working fall apart. Likewise if the idea is built on top of, say, Ethereum’s crypto-currency. Educate yourself on the risks of these currencies before you make a decision to rely on them.

Many of the people touting a blockchain solution don’t have the technical expertise to evaluate the claims and counter-claims around the soundness of these systems. Yet they’d like you to stake your business on them. Be careful! Ask the three questions before you leap in.