Totally Misunderstood Blockchain

The fad is dying. A recent CB Insights report that was cited by Bloomberg announced a 60% decline in blockchain startup investments this year, down to $1.6 billion. But at the same time, large enterprises such as Microsoft, Walmart, IBM and Samsung have either deployed their own blockchains or joined partnerships to use the technology.

Ironically, several banks, such as HSBC and JPMorgan Chase, have also developed their own blockchain arms — the same entities blockchain was supposed to replace. What happened? Why are public chains with the true spirit of decentralization fading away while early adversaries have turned into advocates of the technology?

The real use of blockchain

It turns out there are some actual advantages in using blockchain technology, even for enterprises. Among them are commercial concerns. Enterprises strictly control the nodes that join their network, but that does not mean they dictate how the system operates.

Where several competitors need to collaborate, blockchain offers the ideal medium to cooperate in a trustless environment without giving too much power to one party. This may sometimes even be a political concern, such as when there is no central location to host the database that would be acceptable to all parties. Decentralization also prevents one side from overcharging for their middleman services.

Finally, there are security concerns. Blockchain comes with built-in redundancy, encryption, synchronization and tamper resistance. “Blockchain architecture is fundamentally designed differently in that openness, collaboration, and data interactions among many parties actually make the database technology more secure and reliable,” D’Amico said. Thus, blockchain offers one of the best methods to preserve data.

But this benefit also has certain drawbacks. “A grey area for both private and public ledger/blockchain adoption are regulations like GDPR and organizations that choose to persist Personally Identifiable Information and other related data on-chain,” D’Amico explained. “Depending on how the network is run, such as globally distributed network, you don’t control where copies of the data reside, and you don’t have any recourse to ‘the right to be forgotten’ as data is inherently immutable and cannot be removed from history.”

The middlemen are here to stay

Contrary to popular belief, it seems that blockchain is not going to replace central authorities. Rather, the trend suggests that semi-centralized, government-regulated versions will have the highest chance of survival. Startups are learning the hard way that they need to comply with governmental regulations — not because they are submitting to a higher authority, but simply because of public interest.

At the end of the day, blockchain requires you to trust codes and algorithms over human counterparts, and some are not ready to do so. Trusting codes and algorithms may work great for simple cases, but edge cases need oracles and human authorities to dispute.

Still, blockchain’s ability to offer an immutable and tamper-proof ledger can help to prevent the authorities from misusing their power. Just like most other technologies, finding a human–computer balance is the best use of blockchain.

Totally Misunderstood Blockchain
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