Juha Saarinen: Blockchain, the tech that could but didn't deliver

We're in a 'crypto winter'. Photo / 123RF

OPINION:

Virtual currency pyramids are tumbling down around the world, and we're in a "crypto winter" with vast amounts of real or made-up money disappearing into black holes.

Trendy decentralised finance (DeFi) companies that lent money can't meet calls on funds and have gone out of business or are dying.

This is not really news and many people have warned that things could go topsy-turvy as the tech behind virtual currencies doesn't actually deliver on its promises and remains stuck in "could" mode.

That's blockchain of course, the "magical" piece of database software that proponents say can make just about everything better.

The reality has turned out to be quite different. It turns out that the libertarian wet dream of cryptocurrency without a central authority that blockchain underpins and for which it was specifically created didn't deliver on the no-trust needed promise.

Now the warning lights are flashing red, and news feeds clog up with one crypto company after the other shedding staff or their founders doing runners with customers' funds.

All of which was supposed to not happen with the transparent and secure blockchain underpinning cryptocurrencies.

Despite the above, the Ministry of Business, Innovation and Employment in May published a consultation document which touts blockchain as one of two trends influencing productivity and well-being in the long term.

Technically speaking, the immutable blockchain database in which the information is stored in blocks that are chained to each other with cryptographic linkages is interesting.

The idea is that everyone who participates in say a payments network has a copy of the blockchain database, and then a simple majority consensus verifies the transactions on it.

As everyone can see the transactions, that supposedly brings about transparency, security, and with no central authorities, lower fees.

Well, the last thing is a "kind of" because reaching the decentralised verification consensus requires large computers that as the networks have grown, collectively burn enough energy to power a medium sized country like Norway.

Someone had to cover the cost of that so transaction fees were high. Now that crypto has crashed, many who "mined" the Etherium cryptocurrency have given up because it's no longer worth the investment in hardware.

Then there's transparency: everyone could see and verify information on the blockchain seemed like a great idea as that way no trusted central authority was needed. Unfortunately, publishing information on an open, public blockchain turned out to be a bad idea so… private, invitation-only blockchains were created.

There are many other issues that put spanners in the blockchain wheels.

For example, the Bitcoin blockchain has small records, with less than one megabyte of usable data. It didn't matter so much when the virtual currency was used by a small number of crypto bros.

A system used by millions though would need much larger records because the small blocks put the brakes on performance. If you change the size of them, it'll break compatibility with existing blockchains. Slow as she goes then.

Keeping all the data forever on the blockchain was another concept that didn't really pan out.

The Bitcoin blockchain has grown to over 400 gigabytes in size and continues to expand.

That's too big to fit in many devices and limits participation in decentralised transaction networks.

Over the years, I've been told that blockchain minus the cryptocurrencies could prevent voter fraud in elections; it could ensure the integrity of supply chains; it could securely store medical records, driver's licence data and car deals, especially in failed nation states where you can't trust the government.

The word "could" does most of the heavy lifting in any blockchain report.

You can amuse yourself by reading older articles written by proclaimed blockchain experts, and check out where the revolutionary companies and applications that could change the future of humanity are at.

If you do, you'll find that in plenty of cases they're 404 (deleted) or the link takes you to a site abandoned years ago.

Could it be then that blockchain tech is rather pointless?

Former Financial Times editor Izabella Kaminska gave evidence to a British parliamentary select committee last week, saying she couldn't think of a single successful deployment of blockchain.

Technology journalist David Gerard who has covered crypto and blockchain for years, and who appeared at the same committee hearing pointed out that while an immutable database can be useful, there are no guarantees that the information going into it is correct or true.

In other words, blockchain secured supply chains would still need human inspectors to ensure that there's Chateau Petrus in the wine shipment and not fraudsters haven't filled the bottles with cheap plonk and relabelled them.

Gerard also noted that people care about money and not decentralisation which is claimed to be a key attraction of blockchain.

Gerard said Bitcoin mining centralised in 2014. Recently cloud-hosted network Infura implemented US sanctions against Venezuela, Russia, Iran, North Korea and other rogue nations. Doing that cut off Ethereum cryptocurrency traders which wasn't supposed to be possible because, uh, blockchain decentralisation.

If you're dealing with money, everything tends to centralise as it's more efficient, Gerard said.

There are many other examples spanning over the years of how blockchain promised it could do something, but in reality didn't deliver. If you're looking to blockchain to deliver improved productivity and wellbeing, good luck.