All I want for Christmas is a new blockchain

I love technology.

It’s the tangible realisation of our monkey-brain ingenuity and for better or worse, we’re pretty good at making this stuff up. Of course, my enthusiasm sometimes overtakes my common sense, like when I told my wife a couple of years ago that we needed to replace our perfectly working LCD TV with a 3D unit because 2D was so passé and nobody would be making ‘flat’ content for much longer. She wisely ignored me and 3D TV just kind of faded away.

Sadly, the hype of the moment never went beyond something you’d use more than occasionally, which happens to a lot of technology.

Most technology, really.

Gartner’s Hype Cycle suggests that products spike up early after release, reaching a “peak of inflated expectations” before sliding back down into the “trough of disillusionment”. Some make it out of the trough…most don’t, and it is not always a ‘best’ and ‘worst’ situation.

In terms of hype, blockchain beats anything else I can recall. Not even the heady days before the Dot Com Crash come close to the singular intensity that is being poured into “Everything as a Block”. Gartner place blockchain as being just over the top of the peak of inflated expectations, and I’m not going to dispute their methodology, but it sure feels like it’s still ramping up the curve, not coming down.

Irrespective, some days I wonder whether Satoshi Nakamoto’s ingenious design was really a global April Fool’s joke, and he/she/they are laughing all the way to the bank with each surge in the price of bitcoin.

More power to Satoshi, what a fantastic way to make money, but I’m sceptical that blockchain will break through in its current form and here’s why.

Burn Baby, Burn

Digiconomist has estimated recently that bitcoin mining consumes more electricity than some countries. And not small countries, we’re talking places like Ireland. Digiconomist declare their assumptions and methodology, so you can challenge them, and many have. Mining a new bitcoin is deliberately – and increasingly – hard so even if you dispute how much energy it consumes, as a cryptocurrency with aspirations for world domination, it is dishearteningly inefficient.

Other cryptocurrencies adopt different mining algorithms, but generally the premise is that creating a new coin is computationally difficult. This even has a term: Proof of Work. Proof of Work supports the economic factor of scarcity leading to value. Basically, if mining was easy, the cryptocurrency would have no value.

The trouble is, ‘computationally hard’ equates to higher specification computers, which consume more power, and we’re literally in an arms race of energy consumption to make money. It’s been suggested that by mid-2020’s it will cost too much in electricity to mine a bitcoin, which seems alarmist but as a cautionary tale certainly gets you thinking.

It’s just tooo slow

Computers are zippy things…until you force them to synchronise every transaction ever undertaken on every computer ever involved. That’s basically blockchain, a “distributed ledger” that embeds the communication overhead of keeping everything in sync into the protocol.

Forget the storage requirements – we’ll get to that in a bit – there are inherent speed limitations right from the start. Bitcoin is suffering from this already, which is limiting the number of per-second trades that can be completed. We have generally designed our way around such synchronisation overhead by implementing a centralised system that stores all the data and maintains overall transaction integrity.

In this model, remote computers interact with the central one, but their memory of events is per-transaction so they can be less capable, less expensive and less energy hungry than the monster machine in the middle. Often, those remote units are purpose-built to do one thing only. From an EFTPOS machine to a petrol bowser, millions of dumb remotes provide speedy customer interactions one-at-a-time, with each interaction having no bearing on the next.

Blockchain is nothing like this.

In fact, it was designed to be the exact opposite of this. Every participant in the blockchain is essentially involved in every transaction, which is a huge drag on transaction speed. Confirming a bitcoin transaction takes hours, and honestly, given how low bitcoin transaction volumes are compared to other global settlement systems, that’s hardly a revolution in performance. (Indeed, Bitcoin Diamond was recently created to address that issue, along with bitcoin privacy and barrier to entry concerns.)

To get a scale of the bitcoin processing gulf, there were just on 340,000 bitcoin transactions in the last day. Ethereum does better, with just on 1 million transactions, and Ripple just about hit 1.4M early in 2017.

Compare this to Visa processing over 380 million transactions on any given day, or the major credit card providers collectively processing over 1.5 billion in a day. To be fair, the credit card providers have had decades to scale to such volumes, but as we’ve yet to see a blockchain at scale, it’s not clear whether a truly distributed ledger will even support the billions of transactions per day that a high-volume global payment will need to.

Other types of blockchains probably won't need to scale to such volume, though a national, unified healthcare system in a populous country such as China or India might give payments a run for its money.

Will you fit in my phone?

The whole bitcoin blockchain is currently around 150GB in size. The entire Ethereum blockchain is double that, at around 300GB. And even a relatively newcomer cryptocurrency, Monero, which was launched in 2014, is already 27GB. These are large data sets, but they are manageable on today’s disks, especially as you can prune them back.

But if we embrace blockchain, these examples, large as they appear, become quaint sideshows in the scheme of things. That’s because you need to load up some minimum data set for every blockchain you participate in. And 'Everything as a Block' proponents are suggesting we’ll blockchain health records, tax records, stock records, bank records, internet of things records, hire care records, gym membership records...well, you get the idea.

Bits don’t weigh much, but distributed storage of that many blockchains will have heft! It’s orders of magnitude beyond our state of the art for disk drives of any kind and highlights one of my major issues with blockchain as it stands: it just doesn’t scale.

Long Live the Middleman

That pruning that I mentioned requires that you either download the entire blockchain and run the prune yourself – which is a non-trivial technical activity – or that you trust a third-party version of the blockchain and use their ‘light’ wallet.

I’ve previously posted that blockchain won’t kill off middlemen, and the need for middlemen wallet providers and exchanges just reinforces my view. And because managing your own blockchain node is non-trivial, the middleman option will be widely adopted. Then, assuming we really are forced to interact with hundreds of different blockchains (or thousands, or even tens of thousands, such is the 'Everything as a Block' madness), large third-party aggregators will inevitably arise to manage our blockchain data. Those aggregators will eventually wield so much market clout that they’ll make the Gang of Five (Apple, Microsoft, Google, Facebook, Amazon) look like an amateur hour start-up that never got out of their garage.

One of the major benefits of blockchain has been this myth that it will replace middlemen, but technology at scale demands middlemen, and if blockchain takes off, it drives the need for intermediaries, aggregators, exchanges and third parties like nothing has before.

Move aside, Old man

One of the more frustrating aspects of blockchain for an old tech timer like me is where a proof-of-concept (PoC) replicates some small aspect of a decades old system and then declares “success”.

Let’s be clear.

Give me a few million dollars and I could knock off an old transaction system with a gleaming new proof-of-concept that works better, and I don’t need blockchain to do it. I’d use something like OutSystems with a SQL Server database instantiated on Azure and that would be cutting edge enough to win a prize.

Of course, my approach is not sexy enough to win funding and generate press releases, but the reality is that a PoC of any kind is not an embedded, productionised, supportable system. It’s merely a proof that change is possible. Ripple is an example of a blockchain service going it against an entrenched system to provide “one frictionless experience to send money globally using the power of blockchain.” Take off the last five words of that sentence and Ripple would merely be another SWIFT-replacement contender. Add blockchain and Ripple has credibility because of the inherent ‘betterness’ attributed to blockchains. By all accounts, Ripple has the tech to deliver a frictionless experience, but let’s come back and check in 44 years and see what’s what with Ripple, because that’s how long SWIFT has been operating for.

And that’s probably my main concern with these blockchain PoCs. They are point solutions for a tiny sliver of a gigantic global transaction chain, implemented with no technical debt and not yet at scale. All software starts that way, and then they accrete features and functions and security flaws and performance chokes and inconsistent interfaces as they age and team upon team of developers crawl all over them, adding bits here and chopping off bits there.

We’ve already seen this a simulacrum of this with blockchains being ‘forked’ so one becomes two to sort out some function point that is perceived to be lacking. Pretty much every fork has generated ire, because by definition it means something needs to be fixed, and despite claims that this type of problem is going away, I don’t trust that it will any time soon.

So, what’s in my stocking, Santa?

Make no mistake, brighter minds than mine are working through all these constraints. Blockchain is not even a decade old, and while there have literally been many forks in the road so far, blockchains platforms are being updated to address the limitations I am seeing.

It is still not clear that anybody can actually solve the problems and still have a “blockchain” in the true sense, but life is nothing if not compromise and maybe Emil Oldenburg, bitcoin.com cofounder and CTO, is correct when he describes problems with bitcoin being caused by “a group of fanatic Bitcoin Talibans” who are resistant to change.

If that’s the case then bitcoin is a poor exemplar of blockchain, even as it’s been a money-making machine for early investors. Writing my thoughts out like this, I realise that Gartner has it right. We are on the downslope into the trough of disillusionment in our perception of blockchain. Whether it comes back out again into the Slope of Enlightenment will depend on the compromises that can be made such that it is accessible, trustworthy and quick for the billions of us who use technology but have no idea how it actually works.

Or care.

Or should care, really.

I’m sceptical that blockchain will live up to the hype, but I hope to be proven wrong. Perhaps it will only ever rise to fame ‘behind the scenes’ like Ripple aspires to, and these cryptocurrencies are our own brief tulip mania. We’ll see, because the realisation of a shared, trusted and immutable repository of data can do a lot of good both socially and commerce-wise, so my fingers are crossed, even while my eyes are wide open.