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In a column of the past, I wrote an imaginary (sort of) story in which I imagined that the next recession was triggered by the knowledge that blockchain technology had no practical purpose and was used primarily by criminals.
Last year, he seemed to like everything but criminal. Many people jumped on the blockchain bandwagon when the value of the Bitcoin cryptocurrency skyrocketed. Investors have bought as much as possible. Academics and entrepreneurs have tried to learn more about the blockchain and its potential applications. And lawyers tried to learn as much as possible on the subject as demonstrated here.
But I did not really understand it. Instead of jumping on the cart, I became a skeptic. And I'm not alone. In fact, some are more confused than ever. And we're wondering if blockchain will be at the height of the hype. I want to discuss some problems I encountered while trying to figure out what the blockchain is.
What is blockchain?
The first problem with blockchain is that most people do not understand what it is or what it does. One reason for this is that there seem to be numerous definitions with different levels of complexity.
For example, Wikipedia defines blockchain simply as "an increasing list of records, called blocks, which are linked using cryptography."
Investopedia defines it as a "digital, decentralized and public register of all cryptocurrency transactions."
Another ATL columnist, Tom Kulik, defines blockchain as "a distributed ledger technology that leverages a decentralized computer system to create secure, verifiable and permanent transaction records."
Dealbreaker's Mike McConald offers this definition : "Blockchain is a distributed or decentralized digital network that enables the exchange of value or the ability to securely share data, including goods and financial contracts, in a secure environment." [19659002] Another reason why the blockchain is confusing it is because the above definitions contain a terminology that requires further refinement. Such as "generalized register", "decentralized", "cryptography", "cryptocurrency", "secure", "record" and "transaction" lawyers. Unfortunately, most of these definitions are very technical.
people try to understand the blockchain as most law students try to understand the rule of perpetuity: repeat the definition over and over again hoping that the information ends up by osmosis in your brain and magically turn into understanding. But in the end most give up and I hope it will not be tested on the bar exam. Or, in the case of the blockchain, hope that a client (or a government agency) does not ask a lawyer to explain himself.
So what is apparently useful for the blockchain?
If you do not understand the definition of blockchain, then this is not a dealbreaker. I mean, I do not need to know how my motherboard and graphics card works on my desktop computer to appreciate its ability to transcribe my thoughts on a computer screen using a word processor.
In essence, the purpose of the blockchain is to certify transactions between people. So what are its practical applications?
There have been many theoretical examples of how blockchain can be used. How to follow the origin of food, authenticate luxury goods and verify transactions and financial securities in real estate research. And many lawyers have heard of how the blockchain can be used to create so-called "smart contracts". But none of these has yet been implemented in any way.
But the most common use for blockchain is currently facilitating the purchase and sale of cryptocurrencies, the most famous being Bitcoin. Bitcoin is the cryptocurrency that started with a value of less than $ 1 and rose to $ 18,000 at its peak in 2017. This is because someone was able to convince others to pay $ 18,000 for Bitcoin on the belief that someone else will pay $ 1 billion dollars in the future.
This Bitcoin mine has led to the creation of over 1600 cryptocurrencies copycat and over 500 cryptocurrency exchanges.
Will the blockchain break the status quo?
Many people call blockchain the "next big thing" or a potential destroyer of how we conduct transactions. They are approximate details, but they say that blockchain makes transactions faster, safer and more efficient. Let's concentrate on cryptocurrencies, since this is the only real application of blockchain technology.
Supporters of cryptocurrencies claim that blockchain technology can be used to create alternatives to traditional banks. They point out that banks typically take one to seven working days to transfer money while blockchain technology can verify transactions in minutes and with lower transaction fees.
In the past, Bitcoin transactions took less than an hour to complete. But with the increase in Bitcoin's popularity, waiting times and transaction costs also increased. According to this article, the popularity of Bitcoin has led to a backlog of transactions to be verified, which means people have waited for several days before seeing their money. The problem is that the people who perform the verification, called miners, could choose which transactions to check. So the miners needed an incentive to verify a person's transaction compared to that of another person. And that incentive came from an increase in transaction fees. So people paid higher transaction fees to miners in exchange for getting their transactions verified before so they could get (or send) cryptocurrencies.
So it seems that during peak hours, waiting times are longer and transaction fees are higher decreases the appeal of cryptocurrencies. Not only that, some banks (such as Chase and Paypal) also offer instant transfers for a nominal fee. Some companies have stopped accepting Bitcoin as payment due to this.
While it remains to be seen if blockchain can improve the efficiency of some industries, in the case of cryptocurrencies, it does not seem to be at the height of advertising. [19659002] Supporters of the Blockchain tend to make strange arguments.
As a skeptic about blockchain technology, I want their supporters to be able to answer my questions if they have a chance to change their mind. But when I discussed or even tried to start a dialogue with their fans (usually anonymous commentators who wrote about blockchain articles), I found that many of them could not answer technical questions about how the blockchain works. Many did not know what the blockchain was. Instead, they would complain about what was wrong with society. The content of their speeches usually depended on their political convictions.
A conservative would say something like this:
The big government wants to control the banks. They do not care about normal people like you and me. The only thing Big Brother cares about is to uproot the banks and force them to report everything we do with our money so we can tax them in poverty. If we invest in Bitcoin now, it will throw a wrench into the system. And we can make enough money to buy a Lambo.
A liberal would say something like this:
Rich corporate executives want to control banks. They do not care about normal people like you and me. The only thing that these overpaid mice worry about is finding the reasons for taking our money by uploading all kinds of taxes and interests that will get huge bonuses while putting us in poverty. If we invest in Bitcoin now, it will throw a wrench into the system. And we can earn enough to buy a Lambo.
I must admit that it is fun to hear this unusual demonstration of bipartisan madness. But it is not a good idea to follow the crowd when it does not understand what they are investing.
Blockchain is basically an online ledger where transactions are verified by a decentralized network. Even if the transactions are public, they are somewhat safer. It is an emerging technology with possible possibilities for growth. But most people do not understand what it is because different people are giving different explanations. And in the case of cryptocurrencies, they seem less alternative to traditional banking and more like a high-risk investment. And, of course, there have been many cases of fraud and theft involving cryptocurrencies and blockchain technology.
In a future column, I will write about what the government intends to do (if ever) on the blockchain and some stories of fraud. But before doing it, I, like everyone else, need to know more about this subject.
Shannon Achimalbe was a former solo practitioner for five years before deciding to sell and return to the corporate ladder. Shannon can be contacted by e-mail at [email protected] and via Twitter: @ShanonAchimalbe .
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