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Here’s why Bitcoin-inspired tech isn’t taking over the world anytime soon
New blockchain technology forgets the essence of the blockchain.
If you’ve been reading the news recently, you’d be forgiven for supposing that blockchain technology is on the cusp of taking over the world.
Not only has Australian entrepreneur Craig Wright consecrated the legitimacy of Bitcoin by claiming to be the currency’s inventor, but almost every organization that needs to record information of one stripe or another has recently been announcing imminent flirtations with blockchains, from the U.K. government to DARPA and IBM. In the case of the British government, they’re investigating the possibility of tracking the expenditure of taxpayer money, while DARPA is developing a secure messaging system that would exploit a “decentralized ledger.” Together, these and similar announcements provide a strong indication of just how far blockchain tech has come since the first ever bitcoins were “mined’ at the beginning of 2009, and of the apparent potential this tech has for greatly improving the efficiency and reliability of almost any kind of transactional database.
However, before we all get ahead of ourselves and begin planning for a future utopia where everything is chained together in blocks, one simple point needs to be made: Just because a database has the word blockchain applied to it doesn’t mean it actually is a blockchain. Yes, it might register transaction data within a distributed network. Yet even disregarding the fact that banks and other institutions are mainly seeking to develop private, “permissioned” blockchains, it misses the central feature that makes the original blockchain the secure, reliable “ledger” it is.
Just because a database has the word blockchain applied to it doesn’t mean it actually is a blockchain.
And what feature might that be? Well, unlike the Bitcoin blockchain, the new, putative kind of blockchain, flaunted by the Commonwealth Bank or Nasdaq records the transaction of materials (e.g. money, data, merchandise) that originate and exist outside of its system. This is in stark contrast to the blockchain underwriting the dissemination of bitcoins, which as Paul Vigna and Michael J. Casey write in their 2015 book, The Age of Cryptocurrency, “don’t exist per se.” Instead, the number of bitcoins in your Bitcoin wallet is only ever a function of the blockchain and its recorded transactions, an expression of the system’s current state and your place within it.
As such, bitcoins are inextricable from the blockchain in which they’re initially mined, whereas money, bonds or medical supplies can always be withdrawn from the banking or health systems that register them in shared ledgers. It’s for this reason that, even if it improves operational efficiency, blockchain technology that’s been adapted and integrated into governmental or financial networks will lose many of the advantages that brought the original blockchain to prominence in the first place.
For instance, blockchain developer Gem wants to build a distributed ledger for medical data, a ledger which in theory would permit health records to be openly shared and kept securely encrypted within a permissioned network. Announced as Gem Health, this project may indeed enable medical professionals to share information securely, yet it differs markedly from the Bitcoin blockchain insofar as it will have nothing to say on the veracity of this information, which originates outside of its confines. It won’t be able to validate any new entry in a patient’s medical history in the same way that Bitcoin miners confirm that a particular transaction hasn’t spent an unavailable bitcoin, and consequently it won’t quite furnish the same degree of trust.
This deficit of trust is a significant flaw, not least because the resolution of the problem of trust has been widely heralded as one of the main strengths of the blockchain. If we can’t be sure that what the medical record is telling us about a particular patient is true, or if we can’t be sure that the bank with whom we’re dealing hasn’t magicked their capital out of thin air, then the value of a decentralized ledger begins to seem a tad modest. It might share info, but when the object of its info isn’t embedded in its very architecture in the way Bitcoin is, there’s little certainty that what it deals in is the truth, the whole truth, and nothing but the truth.
Given this divorce from what is arguably the essence of the blockchain, why is it that legions of new blockchain-inspired platforms continue to apply the word blockchain to themselves? Admittedly, this is partly because they do indeed share many of the same technologies as the original blockchain, including the encryption of data and the absence of any central node or terminal.
That bitcoin is simply an expression of its blockchain is its central innovation.
However, it’s also likely that they want to tap into or even co-opt the remarkable interest that Bitcoin and its blockchain have garnered in recent years. One bitcoin was worth $320 at the beginning of 2015 and $426 by the year’s end, while the average number of commercial transactions involving the currency more than doubled over the same period. That it has continued to appreciate in value and utility may be something of a worry to establishment figures in government and finance, seeing as how such institutions as the Bank of England and the Congressional Research Service have previously declared that Bitcoin poses a threat to financial stability. It’s therefore entirely plausible that the U.K. government’s recent announcement, for example, was made as part of a project which itself may be partly aimed at derailing the currency’s progress.
Yet any blockchain-inspired ledger the British government or anyone else produces will inevitably lack the heightened reliability of the Bitcoin blockchain if what it records exists outside of its digital accounts. That Bitcoin is simply an expression of its blockchain is its central innovation, and the fact that many of the recent bandwagoners have missed this centrality suggests that the blockchains they’re in the process of designing will at best merely improve the efficiency of the pre-existing systems onto which they’ll be tacked, rather than revolutionize or overhaul these systems altogether.
Then again, a gain in efficiency may save governments or bankers millions if not billions of dollars—dollars they can ultimately invest in Bitcoin.
Simon Chandler is a music and literary critic and a news-tech-political commentator contributing to the likes of Wired, the Morning News, Left Foot Forward, Alternet, and Truthout. He write music articles for Tiny Mix Tapes and The 405, and literature reviews for Electric Literature, Full Stop, and The Kenyon Review. Follow him on Twitter @_simonchandler_.
Simon Chandler is a freelance technology journalist. He has written for Wired, the Verge, TechCrunch, VentureBeat, and Computer Weekly. He also occasionally writes about music for Bandcamp, and about books for the Kenyon Review and Electric Literature.