Blockchain? It’s All Greek To Me…

The blockchain hype is huge, the ICO craze (“Coindike”) is generating millions if not billions of “funding” for businesses that claim to revolutionize basically anything.

I’ve been following all of that for a while. I got my first (and only) Bitcoin several years ago, I know how the technology works, I’ve implemented the data structure part, I’ve tried (with varying success) to install an Ethereum wallet since almost as soon as Ethereum appeared, and I’ve read and subscribed to newsletters about dozens of projects and new cryptocurrencies, including, siacoin, namecoin, etc. I would say I’m at least above average in terms of knowledge on how the cryptocurrencies, blockchain, smart contracts, EVM, proof-of-wahtever operates. And I’ve voiced my concerns about the technology in general.

Now it’s rant time.

I’ve been reading whitepapers of various projects, I’ve been to various meetups and talks, I’ve been reading the professed future applications of the blockchain, and I have to admit – it’s all Greek to me. I have no clue what these people are talking about. And why would all of that make any sense. I still think I’m not clever enough to understand the upcoming revolution, but there’s also a cynical side of me that says “this is all a scam”.

Why “X on the blockchain” somehow makes it magical and superior to a good old centralized solution? No, spare me the cliches about “immutable ledger”, “lack of central authority” and the likes. These are the phrases that a person learns after reading literally one article about blockchain. Have you actually written anything apart from a complex-sounding whitepaper or a hello-world smart contract? Do you really know how the overlay network works, how the economic incentives behind that network work, how all the cryptography works? Maybe there are many, many people that indeed know that and they know it better than me and are thus able to imagine the business case behind “X on the blockchain”.

I can’t. I can’t see why it would be useful to abandon a centralized database that you can query in dozens of ways, test easily and scale trivially in favour of a clunky write-only, low-throughput, hard-to-debug privacy nightmare that is any public blockchain. And how do you imagine to gain a substantial userbase with an ecosystem where the Windows client for the 2nd most popular blockchain (Ethereum) has been so buggy, I (a software engineer) couldn’t get it work and sync the whole chain. And why would building a website ontop of that clunky, user-unfriendly database has any benefit over a centralized competitor?

Do we all believe that somehow the huge datacenters with guarnateed power backups, regular hardware and network checks, regular backups and overall – guaranteed redundancy – will somehow be beaten by a few thousand machines hosting a software that has the sole purpose of guaranteeing integrity? Bitcoin has 10 thousand nodes. Ethereum has 22 thousand nodes. And while these nodes are probably very well ASIC/GPU-equipped, they aren’t supercomputers. Amazon’s AWS has a million servers. How’s that for comparison. And why would anyone take seriously 22 thousand non-servers. Or even 220 thousand, if we believe in some inevitable growth.

Don’t get me wrong, the technology is really cool. The way tamper-evident data structures (hash chains) were combined with a consensus algorithm, an overlay network and a financial incentive is really awesome. When you add a distributed execution environment, it gets even cooler. But is it suitable for literally everything? I fail to see how.

I’m sure I’m missing something. The fact that many of those whitepapers sound increasingly like Greek to me might hint that I’m just a dumb developer and those enlightened people are really onto something huge. I guess time will tell.

But I happen to be living in a country that saw a transition to capitalism in the years of my childhood. And there were a lot of scams and ponzi schemes that people believed in. Because they didn’t know how capitalism works, how the market works. I’m seeing some similarities – we have no idea how the digital realm really works, and so a lot of scams are bound to appear, until we as a society learn the basics.

Until then – enjoy your ICO, enjoy your tokens, enjoy your big-player competitor with practically the same business model, only on a worse database.

And I hope that after the smoke of hype and fraud clears, we’ll be able to enjoy the true benefits of the blockchain innovation.

P.S. A more balanced article with more practical reasons why the blockchain will not be a revolution.

10 thoughts on “Blockchain? It’s All Greek To Me…”

  1. My words, exactly! Except that I don’t foresee nor expect any (significant) benefit from the block-chain technology apart from what it has already gained – some interesting and useful ideas.

  2. Thanks for a great post with a lot of insights!

    A quick question though. Let’s leave aside all the technicalities for a second and focus on the pragmatic side. Imagine I am a startup founder with good idea implemented into a working system. User count has been growing steadily for a year and time has to come to scale up to protect my business. So I need €10m of funding. Let’s assume that after investigating all the options to raise that I have come to choose between VC and ICO.

    Also probably worth noting that my system has nothing to do with blockchain. I just want to raise money through crypto or fiat.

    The way I see it, with ICO you give a chance your true fans to back you and share the profits. With VC you are making rich people richer and surrender control of your business from day one.

    I think this is the fundamental idea behind crypto: make the crowd richer not rich people. True, it has many issues at present: it is clunky, performance is terrible and it is wasteful in terms of energy. But hopefully we can attribute that to the fact it is fairly new technology that has seen unprecedented growth from the start.

    What would be your advise, ICO or VC?

  3. Well, there are other ways for crowdfunding, like Kickstarter. Might not be applicable to all use cases, I agree. But we have to get to the details – what does an ICO give the token holders (HODLERS 🙂 )? If the startup is cryptocurrency/blockchain related, it can give them early currency cheaply, which is fine. But if it is not a cryptocurrency, what do they get for backing the startup, and can the same thing be achieved through Kickstarter-like platforms?

    There’s another option – an IPO. You go public and let people give you money through the traditional means. Might be complicated legally, so again, depends on the details.

    But it’s not a dichotomy – ICO vs VC, it’s ICO vs traditional crowdfuncting vs VC vs IPO

  4. Thanks for swift reply and valuable insights!

    Just to make it clear, this is obviously a hypothetical situation(don’t have a startup behind my back yet:) and I am just trying to figure out how the “new economy” works through an example.

    Based on my understanding, any company can raise funding through an ICO. Take telegram as an example: messaging app that will introduce its own currency so that people can pay for its services. Does that not mean any company offering paid services can have ICO?

    Many are proclaiming IPO, which based on my understanding comes after a few rounds of VC funding, is dead already( while at the same time many say that the crypto bubble will burst soon. I have seen many crypto based companies with just a few lines of code in github and coin market cap of over 500m so I would rather agree that the bubble will burst soon.

    So let me put the question in a slightly different way: do you think ICO will surpass in popularity IPO/crowdfunding/Angels and basically any other way of centralized funding?

    Also, I am curious about crypto trading – do you do that yourself and would you recommend it?

  5. I don’t know if ICOs will surpass other means of funding. You need fiat money to pay your bills and salaries, so you’d have to be able to cash them out anyway. Maybe a more decentralized version of kickstarter is something to thing about, but not sure if it would work.

    As for trading – I don’t. I do have an early bitcoin, and a somewhat early ether and IOTA, but these are just “geek purchases”. I don’t trade, I just keep them. Would I recommend it – no idea 🙂 it’s a high risk activity, depends on whether you like the possibility to lose money

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