Blockchain is not only a buzzword anymore. It’s a mass mania and hysteria that floods all the industries, enterprises, and markets. From public governance to adult movies, it seems that blockchains can be adopted everywhere and solve each and every problem of the old-fashioned centralized world.
Well, the first statement is true. It’s possible to create a decentralized platform for almost everything. However, we can’t prove efficiency. Enthusiasts invested $2.7 billion in blockchains in 2019 because they believe in results. But the current situation isn’t as bright as they think.
Further, we will try to understand why people hype over blockchain so much and why this technology isn’t the universal solution.
“Blockchain, not Bitcoin” vision
Let’s begin with the misconception story. According to Jimmy Song, Bitcoin educator and developer, it all started in 2014. Corporations tried to find a panacea for industry problems so they took the innovative technology and popularized it.
The concept of blockchain primacy over Bitcoin is based on two historical reasons:
- The idea of crypto used for illegal activities. Bitcoin and, later, privacy coins were often associated with the black market, drugs, weapons, and crimes. Thus, businesses tended to separate crypto and blockchain.
- The idea of tech-savvy executives who know something unique. Chiefs and top managers needed a certain concept to promote. Talking about blockchain, they looked professional while employees could barely understand the idea.
Get us right, blockchain can help businesses. But its usage is highly limited and not always efficient. Jimmy Song claims that it’s always possible to create a traditional centralized app that would be better than a blockchain-based solution. Let’s not be so ultimate. Decentralized apps can be useful and profitable. But you should realize one crucial idea.
The nature of trust
Generally, crypto enthusiasts talk about blockchains as next-gen systems that remove the need for middlemen. Respectively, people don’t have to trust other people. Moreover, they claim that it’s impossible to tamper data stored in blockchain. Technically, it’s extremely difficult to manipulate this info. However, there are pitfalls.
Forms of trust
Blockchains don’t create fully trustless systems, they just reshape the vector of trust. Users still have to rely on certain parties, things or concepts. Instead of people, you have to trust the software: smart contracts, blockchain code, nodes, and so on. Plus, you still have to trust people: not sellers or middlemen but blockchain developers.
Actually, when you want to buy something from a decentralized store powered by smart contracts, you refer to belief in old things, e.g.:
- The author of the smart contract. He/she can be your friend so you trust him/her.
- The merchant that sells goods. It can convince you thanks to a good reputation.
- The friends or close ones. They can also purchase something without issues.
- Yourself and your hope. You just want to think that everything will be okay.
The same happens with more elaborate blockchain approaches like elections. You still have to rely on the system’s developers, the government, etc. As well, you accept the game rules when using blockchains. Regardless of the protection level and innovations, hackers can find dozens of ways to steal data/money or compromise the system. This war never changes.
Costs of trust
Here’s a shocking insight: according to Ryan Zagone from Ripple, banks involved in the company’s network aren’t using XRP tokens at all. Right. One of the most successful blockchain firms focused on financial markets can’t promote its own blockchain services. Partially, it’s because of the trust vectors and poor tech security.
Another reason is in the expenses. Adepts of decentralization say that traditional trust costs like bank fees are too high. In blockchains, these costs aren’t lower, they’re just hidden. Proof-of-Work systems come with great mining fees and exorbitant energy expenses that harm the environment. If we don’t see the problem, it doesn’t mean that there’s no problem.
Key problems of current blockchains
Now, let’s take a quick look at the most known issues. The next five points limit the use of blockchain projects greatly. Mainly, they are the obstacles that prevent decentralized systems to become the mentioned magic wands.
Compared to other technologies, blockchain is young. In its modern form, it emerged with Bitcoin in 2009. 10 years is a too short period to become a mature tech. Today, it’s still extremely difficult to create a scalable, secure, and decentralized system. According to Vitalik Buterin and his scalability trilemma, it’s impossible. That’s why we can’t talk about worldwide usage – blockchain is still too odd, too unexplored, and too expensive concept.
2. Human errors
As a consequence of complexity, we see tons of bugs and errors. Remember the important fact: all blockchains and smart contracts are developed by humans. Moreover, data is registered by humans, too. Thus, there are a lot of weaknesses and issues that skyrocket software development rates, limit the adoption, and lead to skepticism. Say, people are afraid to use blockchains for their finance management remembering about DAO.
3. Low speed
Compared to traditional payment processors and databases, blockchain alternatives are slow. They are elderly pedestrians who try to compete with Lambos at the highest speed. Despite the fact that Visa’s 24,000 transactions per second (TPS) is just a myth, this system still outpaces all existing blockchains. With near 1,700 actual and 56,000 cap TPS, Visa is better than Ripple with 1,500 and 50,000, respectively.
4. Security flaws
Finally, let’s repeat this statement: blockchain isn’t perfectly protected. It’s way more difficult to break it using traditional approaches like brute force. But smart minds invented numerous other options. They use Sybil attacks and 51% attacks, enable double spending, use old-but-gold phishing schemes to get access to wallets, and exploit bugs in smart contracts. Traditional systems aren’t ideal. But they are more familiar and less expensive, at least.
Blockchain isn’t a miracle, it’s a technology
Overall, blockchain should be considered as new tech. No more, no less. In this case, it’s similar to the Internet that was invented for a single use case: to exchange data between a few universities. With extreme hype around this invention, thousands of people and entities started investing in it, creating websites, and going online. They inflated the dot-com bubble. And then it exploded.
Blockchain and crypto-focused hype may feature the same consequences. Moreover, we can even see the world fully based on blockchains as the modern community relies on the Internet. Still, as for now, it’s impossible. It’s naive to think about blockchains as universal systems that can solve all business problems. And it’s equally naïve to rely on one opinion only. The study, explore, and form your own vision to understand things.