I have heard this comment many times:
“Blockchain” is a solution looking for a problem.
That is incorrect – here’s the problem statement, originally articulated in 2008:
The problem statement, to paraphrase, is
“How do people pay each other electronically without being at the behest of Financial Institutions?”
The proposed solution is:
Bitcoin uses blockchain technology, right? Yes it does. Of course you remember the 2015 rhetoric “I’m not sure about Bitcoin, but I’m interested in Blockchain, the underlying technology” – enthused by people who had read something on some website (or perhaps on a Dilbert) then stood on a stage and waved their hands?
That was 2015. This year, R3, arguably one of the world’s premier companies pitching “blockchain”/”distributed ledger”/”fabric of finance” (no one actually knows the difference) said on April 5 that they are not using blockchains to solve Financial Industry Problems:
That’s great! That’s a step forward! Banks have problems where blockchains aren’t really the solution. R3 & DA are attempting to solve those existing financial industry problems and, according to Morgan Stanley in a 2 June 2016 report, various intermediaries are seeking to use the technology to defend the clearing monopoly (oh, how far we are away from “blockchain to disrupt finance”):
The way I understand this is ASX, who according to Global Investor Magazine, has paid close to $15m for a 5% equity stake in Digital Asset (valuing Digital Asset as an enterprise worth USD $300m prima facie), is exploring ways to use “blockchain deployment” to stop other people from doing clearing-related activities.
So what next? Here are some things to think about:
- Public blockchains (ie Bitcoin) promise to solve the problem of having your assets held by Financial Institutions.
- You may not think this is a problem
- Yes, this is a problem: you wouldn’t voluntarily give your money to gambling addicts in order to participate in normal life, if you didn’t have to.
- Why are we paying money to people/companies to keep ledgers of who owns what? This seems silly.
- You may not think this is a problem
- Public blockchains in their current form (ie Bitcoin) may not work
- Bitcoin has kind of worked, more or less, give or take, with a few hacks, etc, for 7 years. Right now it kinda works. It may yet fail. No one knows.
- Sure, Bitcoin transaction fees are going up. But they are linked to the cost of data (reasonable) not the number of zeroes on the cheque (lol)
- The other day I paid the BTC equivalent of USD $5 to move the BTC equivalent of USD $15 million from one owner to another, and it settled (as far as anyone concerned agreed) within an hour. There was no bank or custodian in sight. Call me if you can do better.
- The biggest scam* in finance is editing rows in databases and charging a percentage of value moved – banks and custodians are laughing all the way to the, er, bank.
- *One of the biggest scams
- Yes, financial drag on payments is a drag on GDP/economy/economic growth by any measure
- Sure, proof of work is probably not the most efficient way of keeping baddies out – there may be better ways.
- This is nerdy but important (in bitcoin) point.
- The people thinking about this are working hard, they’re not sitting around waiting to retire.
- Coloured coins (graffitiing on Bitcoin’s blockchain) may not be “incentive-compatible” ie they may make blockchains top-heavy and screw with the mining incentives, and they might not be the best way to solve the problem of paying people to tell you what you own.
- Why are we paying people to tell us what we own in the first place?
- Bitcoin may fail; other commodity-like currencies/things may fail. It’s just an experiment, guys (yes that’s my hedge 🙂 ).
But for goodness sake, it’s not a “solution looking for a problem”.
You may not like the problem. You may not agree that “the problem” is a problem. That’s fine, but “Blockchain is a solution looking for a problem” isn’t true.
Happy to take comments.