The realities of blockchain technology are finally setting in
It was only a few years ago that blockchain evangelists were selling the technology as a solution for just about everything. It was blockchain this and blockchain that without any regard to what that technology actually does. Now, more than 10 years after Satoshi Nakamoto first conceived his vision for blockchain, reality is starting to settle in.
The recent Consensus Invest conference, held in New York City, was a testament to just how much the opinion of blockchain has changed in recent months. According to a Bloomberg report, delegates to the conference were observed debating the merits of blockchain throughout. The debate was enough to lead serious minded folks to ask whether blockchain is dead.
Before you panic, most of the debate was about blockchain as a technology for applications other than cryptocurrency and payment systems. No one at the conference was suggesting that cryptocurrencies and their underlying ledgers have no future. The disagreement seems to be related only to whether blockchain has a viable future outside of the cryptosphere.
Blockchain in its base form
Quietly observing blockchain debates reveals that many people in the space are coming to the realization that their favorite technology is not as remarkable as they once thought. In its base form, blockchain is really nothing more than a digital ledgering system. A blockchain records and permanently stores data presented in transaction format. Whether the transactions involve money or tokens representing something entirely different is immaterial.
For all its hype, blockchain is not vastly different from the paper ledger a 20th century accountant would have used to keep the books of a local business. It is not all that different from the checkbook ledger Americans used to use to manage their bank accounts. A ledger is a ledger is a ledger. There is nothing exceptional about blockchain that makes it much different from any other ledger in the world.
Any differences that do exist within the blockchain paradigm are only due to its digital nature. A ledger is a basic tool that has been used for centuries. However, the digital technologies used to secure and maintain a blockchain ledger are comparatively recent inventions.
What you can do with a ledger
The blockchain concept fit very well with Nakamoto's vision for cryptocurrency when Bitcoin was first launched a decade ago. After all, every monetary system needs some sort of ledger capability to function. Bitcoin was no different. For Nakamoto, blockchain served the necessary function of creating a digital ledger that could store transaction data in a public, decentralized environment.
The wonderful thing about blockchain is that it is not limited just to monetary transactions. What can you do with a ledger? A lot, actually. Just think about all the different things you do that involve non-monetary transactions with other people.
Do you chat on Facebook regularly? If so, how would you keep a permanent record of your chat conversations were it necessary? You could do it with a ledger. It would be the same type of thing as keeping an accounting ledger, except that instead of entering monetary amounts you would record the individual sentences that make up your conversations.
If you were running a package delivery service, your business would generate a non-monetary transaction every time a package was passed from one part of the logistics cycle to the next. A package comes in through your clerk in the front office. Then it is passed on to the sorting room. From there it gets sent to a truck and then on to the customer. Every time the package is passed on to the next entity, a transaction occurs. It could all be tracked in a ledger.
One of blockchain's big advantages is immutability. In other words, records entered into the ledger after being verified become permanent. They cannot be altered in any way, nor can they be removed. A blockchain ledger essentially becomes a permanent record of the transactions contained therein.
This immutability is ideal for certain kinds of transactions. It is ideal in the financial sector, if for no other reason than the fact that immutability is a security feature. Still, not every organization that uses blockchain for non-monetary purposes requires immutability. It is nice to have but not necessary.
Take immutability out of the equation and the need for blockchain becomes less obvious. If you do not need or want immutability, a database might work equally well for your purposes. The same is true for decentralization. Blockchain might not be your best bet if decentralization doesn't make what you're trying to do better.
Indeed, many private implementations of blockchain are not decentralized. They are not permissionless. For both proprietary and security purposes, such implementations are tightly controlled by an organization's management structure. Access is limited by way of permissions.
If you are going to use blockchain in this way, what's the point? Again, a database would probably be a better bet. Therein lies the reality of blockchain. Therein lies the dirty little secret that blockchain evangelists are finally coming to grips with: blockchain is not the solution to every problem.
Too much blockchain hype
Understanding that there are limits to blockchain leads to the question of how blockchain companies managed to raise so much money in recent years. And when we say 'so much money', we are talking about billions. A lot of money has been put into developing blockchain applications for purposes other than tracking financial transactions.
That same Bloomberg report mentioned earlier explains what happened. The report says that a bunch of blockchain companies that were able to raise significant funding in years past are either defunct or have moved on to other technologies. They and their investors were victims of too much hype at a time when Bitcoin and its alt coin competitors were controlling the blockchain narrative.
Think back to 2017 when Bitcoin peaked at nearly $20,000. Investors' hearts were aflutter with the prospects of turning a modest blockchain investment into a huge fortune. As such, the money flowed pretty freely. Little did many of those investors know that Bitcoin's meteoric rise was actually just a bubble waiting to burst.
Enamored by the success of projects like Bitcoin and Ethereum, entrepreneurs with all sorts of plans for blockchain began selling their projects to investors. The technology was proven, they claimed, by the success of cryptocurrency. They were wrong, by the way. The problem was that no one took the time to step back and think through the implications of deploying a public, decentralized ledger for purposes other than tracking financial transactions.
Hype got in the way of common sense. It created forward thinkers so focused on what might happen in the future that they couldn't see the present right before them. Now, as we close in on the end of 2019, it has become painfully apparent that the world probably won't be running on blockchain within a few short years - if at all.
Still useful technology
None of this is to say that blockchain is bad technology that needs to be abandoned. Nothing could be further from the truth. Nor is it to imply that blockchain is dead. It is not. The point here is to understand that blockchain hopes are not the same thing as blockchain reality.
We have been through the initial inquisitiveness. We have endured years of hype. Now it is time for reality to take its place at the table. That is beginning to happen in more and more technology circles. The dust is settling, and the experts are now starting to see blockchain for what it really is. This is a good thing.
Blockchain is by all means a useful technology. It is still the best technology for implementing and maintaining cryptocurrency platforms. It is excellent technology for powering electronic payments, facilitating seamless cross-border settlements, and even stimulating local economies without having to rely on cash.
Outside of the financial arena, blockchain is still useful technology for things like logistics and inventory control. It is a great tool for managing anonymous records. Yet it is not the right solution for every application that could otherwise make use of database technology.
Simply put, there are many types of data that just don't do well in a public ledger setting. There are some types of applications that suffer as a result of blockchain's lack of organic scalability. There are scenarios in which the lack of need for immutability and decentralization just makes blockchain impractical.
So, is blockchain dead? Such a debate does not have any value in real terms. Perhaps a better discussion to have would be how blockchain can be utilized to its fullest potential moving forward. Delving into that unknown would keep the realities of blockchain at the forefront without all the hype and misinformation.
It turns out blockchain is not all it was thought to be. It is very good technology with a lot of useful applications. But the reality is that blockchain is limited in both application and potential. Fortunately, reality is finally sinking in. Now we wait to see what the technology sector does with that reality.