Why blockchain makes me sad

Thank you to Dan Olson for inspiring this long-overdue article. I do encourage you to watch his 2 hour video on the topic below.

So, why does blockchain make a software engineer like me sad? Shouldn't I be excited about "web3 " since I am very interested in technology, especially new technology?

Well over a decade ago, when Bitcoin first became known to me, like many software engineers I had a look at the technology, figured out the theory of how it worked, did some mining and got bored. At its heart it's a cryptographic approach to ensure you have a transparent immutable ledger of transactions that can only be added to and can be verified by anyone on the network. Immutability is a beautiful concept in computer science, the idea that something can't be modified, only transformed into something new through some function. It lends itself to some very efficient programming and appeals to the Maths nerd in all of us.

My thought back then was that as a decentralised currency it was not going to make sense in the future because the blockchain ledger itself was going to just keep growing as people made more transactions. Any popularity would be its downfall. It's currently 375Gb and bitcoin is far less popular than other more mainstream transaction processing methods. Very soon it would get to the point where only a select few would have the resources required to manage the data involved. We'd probably call them banks and we'd be right back to where we started.

Over the years I watched with bemusement as people (some sincere some insincere) took to using the technology anyway. It had appeal. After the 2008 financial crisis there was a general sentiment that the current system was unjust and favoured those already in power. Bitcoin sought to put the power in the hands of the decentralised individuals who used the technology primarily as speculative investment. If you get in now at the ground floor, you could be one of the ones in power!

However, if you accept my premise that the technology won't be good at what it's supposed to be (a decentralised currency) then all of this looks like people exchanging tulips or beanie babies. A speculative bubble built on the expectation that someone is going to pay more for it later. Yes, all money is fake, but some money is useful. Bitcoin at the moment is nothing more than a speculation engine and there's not enough liquidity in the market for everyone to be able to cash out just yet. Even so, it still happened.

In about 2017, when my Uber driver was telling me that he was going to start his own blockchain business, I thought the bubble would burst, but no, it has remained strong for quite some time, I think in part spurred on by some technocratic notion that blockchain technology independent of bitcoin would be useful somehow.

And boy did we talk about that. I attended a Microsoft conference that same year where they had a whole session on blockchain and a very excited fellow breathlessly talked about how you could secure medical records on the blockchain.

I was confused. You see, everything on the blockchain is public to everyone, so even if you manage to obfuscate your identity, there would be a permanent immutable transparent public record which says that you specifically had a certain disease. Given how sensitive medical information can be, I was incredulous. When I asked about how it could be secured he gave me the grin of someone who knows he's peddling nonsense "oh, well, the actual data would be stored in a separate system, the blockchain would just ensure its validity".

So yes, a cryptographic technique to allow anyone to determine if a record in some database had changed. Not to determine if the change was a good or bad one, or to prevent someone from discovering that data or to know who it was who made the change. But to simply point to a record in a separate trusted system where the security would hopefully reside.

As a cryptographic scheme, Blockchain has a gap in the space of non-repudiation: making sure the person who did the thing is who they say they are. This is fundamentally at odds with the idea of the blockchain being anonymous and decentralised. Yes, you can know that the transaction was made by a particular wallet, but you have no way of knowing whether you can trust that person. You have no way of knowing if they are who they say they are.

Whole businesses have surfaced to bridge this gap and it's things like this which make software engineers like myself think that blockchain is very good at solving the problems it creates on purpose, but few real world ones.

Anyway, there was enough curiosity in the minds of technologists, academics and my customers that people were still earnestly pursuing it. At the height of its interest, customers kept asking me "how can we use blockchain?" Asking "how can I use blockchain" is kind of like asking "how can I use database" or "how can I use spreadsheet"? Yes, there's bound to be reasons for using a database, but the trick is to start with the problem and then look for solutions rather than the other way around.

Blockchain is useful in a situation where you have multiple parties who don't trust each other, there is no central authority, and all parties need to agree on the state of something. So, for example changes to a contract or the state of something. Contracts as documents can already have digital signatures in them which are tamper-evident and support non-repudiation, so I looked to supply chains.

And yes, you could use blockchain on the supply chain. Imagine (for example) a vaccine that has to be kept at a certain temperature while transported. You could record the time and temperature on the blockchain, then the recipient could validate that data by scanning a QR code or whatnot. All parties wouldn't have to trust each other, they would just have to trust the chain which they could independently verify. It's a good use case and there are reportedly real use cases out there in the market right now.

(Image courtesy New York National Guard on Flickr)

But at the heart of this system is still the need for trust. If you are scanning your steak in the supermarket or your vaccine in the hospital, you need to trust that the particular app you're using, the particular chain you are assessing is in fact the correct one and not just some fake app or chain that the supplier put on there to fool you. You would need some kind of central authority to go back to. And yes, those exist, Walmart & IBM purportedly did this to secure supply chains for mangoes and pork. In this case, Walmart are the authority, they require all their suppliers to buy into the system, to enter the data and track the data. I would suggest that since there is a central authority in this case (Walmart) you are not actually using the full concept of the block chain at all, but rather just a centralised digitally signed transaction log.

One other flaw in the approach, if I may be so bold, is it sill doesn't avoid garbage in - garbage out. It allows you to be confident that the data is unaltered and it gives you an immutable ledger over time, but it can't prevent people from making a mistake when entering a temperature or a time.

Proponents of the blockchain will say that this can be solved with sensing technology like IoT and I would agree. I just don't see Blockchain as doing the heavy lifting here. We already have a centralised authority (Walmart) and a sensing technology. Blockchain is ensuring that records aren't altered by someone else, but when the system is already centralised the blockchain bit seems redundant. We already have cryptographic techniques that prevent data tampering in centralised systems. Still, there's just enough of a valid use case that serious people are genuinely looking into it. It's unfortunate that these get over-hyped.

In the meanwhile, a number of other coins had been created DogeCoin was created as a joke in 2013 , but actually did take off until recently (its plummeted since, easy come easy go). The creators of DogeCoin were explicitly anti bitcoin. Ethereum was created in 2015 as a more serious attempt at a "distributed machine", which turned once again into a speculative vehicle. There are over 5000 alt-coins out there. All predominantly free of interference from regulation. The key challenge remained however: people were buying into these ventures due to FOMO (fear of missing out) but there were not enough people buying into the currency for the people already in the market to cash out.

Enter NFTs or non-fungible tokens. The non-fungible part is more easily explained by what "fungible" means. Money is fungible in that any dollar is "the same" as any other dollar in terms of value. A bitcoin is likewise "fungible". You could say the same about gold as a commodity. Something is non-fungible when it doesn't have this property. So, for example, a particular object (such as the first coin I ever collected) is non-fungible in that it's a physical thing which is unlike any other thing in the world. Typically because digital copies can be made easily and with 100% accuracy, digital things have tended to be fungible.

The innovation of non-fungible tokens is to bring the idea of uniqueness and scarcity into the digital world where things had not been scarce before. Non-fungible tokens were introduced to bring a much needed influx of cash into the market because they were considered things you can buy which are "unique". In theory, you could store an image on the blockchain itself, but that's so expensive and slow to do, most NFTs simply store a link to a file somewhere.

At its heart, NFTs seek to bring scarcity and "digital rights management" to an area where it was almost impossible before. They also recognise one central truth to the human experience: things have value if people believe they have value. People have paid some very real money for an immutable record of a link to an image of a monkey online, only to have that "rug pulled" later and all of their money lost as the originator of the idea pulls out.

Because it's new and unregulated, it's a great experiment in seeing what capitalism can do when we open up the taps and remove all restrictions. People in economically vulnerable positions effectively "gamble" all the money they have on the next big thing, only to find that the wealthy originators of the idea pull out at the last minute, extracting all their money as they go. Things like pump & dump , rug pull, spoofing, front-running and churning have all already been illegal in our traditional markets, but now they are being reinvented anew by unscrupulous people who want to take advantage of the general population.

Not to mention, all of this technology - Bitcoin, Blockchain, Dogecoin, Ethereum, NFTs, all rely on a proof of work mechanism that is simultaneously producing more carbon than a small country (22 million tons) whilst also making sure that no one can buy a new graphics card - because graphics cards and the chips used to develop them are well suited to mining on a block chain. But even ignoring that, there's an ugly side to all of this which is that the vast majority of these decentralised finance ventures and NFT schemes are essentially deregulated "get rich quick" schemes that rely on someone more stupid than you are buying something with perceived value off you.

And the sad thing is it works, many people have gotten rich off this technology and many more will again. The whole thing makes me sad because technology is like a mirror held up to our faces to show the ugliness inside.

People looked at the 2008 financial crisis and didn't think to themselves "how awful that a few privileged people could take advantage of so many others" they thought "how do I become that privileged person and do that to someone else?".

There's a lot of scorn on the Internet for NFT art. Because a lot of people rightfully point out that most NFTs are either stolen artwork or they are automatically generated by software with very little intrinsic artistic merit. I disagree.

I think NFTs are a form of art. Not just the images themselves, but the whole project is art. NFTs are an expression of rage, a whole section of society that feels hard done by and doesn't know how to cope, Doesn't know the right answer, so they turn to technocratic solutions with fancy sounding names to make them feel like they have control.

NFTs for me represent the commodification of rage against the unfairness of the world. In 50 years we will be seeing "bored apes" in museums not because the art itself has intrinsic value, but just like in the Dada movement , the art itself is an expression of some real human emotion that seems to have no other outlet, and yet even that rage has been turned into a means to exploit them nonetheless.

Why do software engineers cringe at blockchain? We cringe because blockchain is a technology which uses its complexity to confuse people and to rip them off. I am as embarrassed by blockchain as a medical doctor would feel if one of their colleagues was peddling homeopathy. It's not only wrong, it's harmful. It exposes a raw ugliness in humanity which is accelerated and amplified by technology. There is a very real risk that it does become the new normal, that we will all get sucked into having to buy into it just to exist in society. A form of digital enclosure playing out digitally before our eyes. I hope it doesn't come to that.