Blockchain in 2018: pros and cons

If you look past the incredible hype around blockchain and cryptocurrencies at the start of 2018, you’ll see a relatively immature technology platform. Some have likened the current state of blockchain to the mid-1990s, when early Web businesses were trying to emulate the offline world on the new-fangled WWW. The implication being: blockchain is potentially as revolutionary as the World Wide Web.

But should we even be comparing blockchain technology to the Web? Opinions vary wildly on this. Some people argue that blockchain apps will replace legacy web applications, including huge companies like eBay and Facebook. Others say that the blockchain is little more than a glorified database – and one with significant technical limitations, at that. Let’s look at both those viewpoints…

Firstly, the pro side of blockchains. William Mougayar argued in his 2016 book, The Business Blockchain, that the blockchain “is at the same level as the World Wide Web in terms of importance, and arguably might give us back the Internet, in the way it was supposed to be: more decentralized, more open, more secure, more private, more equitable, and more accessible.” Mougayar went on to suggest that “many blockchain applications also have a shot at replacing legacy Web applications.”

In 3 Web Giants That Could Be Decentralized on a Blockchain, CoinDesk contributor Brady Dale listed several of these blockchain apps with big ambitions. What they all have in common is an attempt to cut out the middleman – for example, directly connect a buyer and seller of a product via a blockchain without having eBay as the middleman. OpenBazaar, a purported eBay killer, has been trying to do this since 2016. The problem is, it has a very limited stock of products for sale right now. But again, it’s early days.

Now for the con side of blockchains. In his recent book Attack of the 50 Foot Blockchain, David Gerard literally says that blockchain is a con. “Everything to do with cryptocurrencies and blockchains is the domain of fast-talking conmen,” he writes at the end of the book. So what’s his problem? Basically, Gerard thinks that blockchain technology has very limited use cases:

In the real world, nobody outside the cryptocurrency subculture uses blockchains proper, because they are ridiculously impractical and the most prominent one [Bitcoin] uses as much electricity as all of Ireland.

In a nutshell, Gerard claims that “decentralisation is very expensive and doesn’t get you much, at the loss of efficiency and control.” He thinks a centralised database is better for most use cases.

There’s no doubt that blockchain technology is currently immature and has weaknesses. In particular, in regards to scalability. Probably the most popular blockchain app so far has been CryptoKitties, a game that experienced a brief craze at the end of last year. Unfortunately though, CryptoKitties clogged up the Ethereum blockchain. By some accounts, CryptoKitties was responsible for 17 per cent of all Ethereum network traffic at one point. That had the effect of slowing down the network and driving up transaction costs. It’s that kind of scaling problem that continues to dog blockchains at this time.

So David Gerard and other skeptics are right to point out the flaws in blockchain technology. But defenders of blockchain say we’re still in the “infrastructure building” phase of the blockchain era, as it was put in an a16z podcast at the end of last year.

Andreessen Horowitz (a16z), a leading Silicon Valley VC firm, is actively investing in startups building out the infrastructure for blockchain. One of those startups is Protocol Labs, the company behind a new decentralized file storage system called Filecoin. Its founder and CEO, Juan Benet, addressed some of the current criticisms of blockchain in the podcast:

The point [of blockchain] was to establish this different kind of computing context, where you have public verifiability and immutability, and once you show that’s possible, then you apply all the standard techniques for scaling this kind of thing – parallelism, hierarchy and so on. And you can build up something that’s really high throughput by either moving the competition off-chain, by having faster blockchains, and all that kind of stuff. So expect that to happen over the next year or two.

Benet noted there are already academic results that show this type of scaling is “not only possible, but provably so.”

In conclusion, clearly there is a lot of hype around blockchains at this time – and much of it is hot air. But the same thing was true about Dot Com, Web 2.0 and cloud computing in the early days of those eras. However, in each of those technological eras huge value was eventually created.

Of course it’s too early to tell if blockchain will ramp up in a similar pattern. But that’s one reason why Blocksplain was created: to track these developments over time.