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Arnold Kling, economist and scholar added to the libertarian think tank The Cato Institute, wrote his reflections on a recent interview with blockchain proponents and tech VCs Andreessen-Horowitz (A-H).
Like A-H, Kling was around during the nascent phase of the Internet and made money from betting correctly on Internet development.
Unlike A-H, Kling believes that the blockchain is at best a niche technology and claims not to believe that blockchains can solve the problem of trust in society.
Blockchain has been variously defined and the term has been thrown around for years, often inappropriately.
The blockchain that inspired most of the others is Bitcoin. In short, the Bitcoin network is made up of numerous computers running the same software.
Computers running the software communicate with each other using the same program to maintain identical records of financial transactions.
Whenever someone executes a Bitcoin transaction, the data that records the details of that transaction is transferred to a pool of other transaction data waiting to be deposited in the collectively managed ledger of the network.
Each piece of data "falling" in the pool is encrypted with the last to form a "sphere" in layers of encrypted data that could be compared to an onion.
For the right to regulate the pool or "block" data, computers running Bitcoin software compete to guess a long number set by the software. All computers then persistently guess random numbers in an energy-intensive competitive process called mining.
In the end, a computer guesses the number, receives a "block reward" of Bitcoin to do it (currently 12.5 Bitcoin), and that number is then used to scramble all data in the block and cryptographically seal.
The process is relatively slow compared to the SWIFT payment network because each computer on the network must reach "consent" (agree on which data is valid) and keep an accurate ledger of all transactions made worldwide.
SWIFT only has to record data once and not through hundreds of computers scattered around the world.
Data on a Bitcoin block can still be read, but can not be easily rewritten or falsified by a bad actor.
The supporters of the blockchain have tried to apply this technology in many fields. Despite almost a decade of research, very few projects have met their goals to revolutionize and solve trust problems in normal corporate data systems.
Bitcoiners like Jimmy Song have long warned the public that private companies can not use blockchain to automate trust and keep competing. That method of data regulation, says Song, is too expensive for a centralized organization to worry about.
Because of the consensus, Bitcoin can not turn quickly in response to market forces, as companies must. Bitcoin-style blockchains do not adapt to traditional corporate culture, says Song, and the attempt to sell one to a company is often fraudulent.
Kling agrees with Song's cultural criticism of the corporate blockchain:
"Andreessen and Horowitz are bullish on blockchain, and Horowitz sees blockchain as a generic technology to provide trust … I'm not agree."
Ethereum supporters have often reflected on the way in which smart blockchain contracts can be used for "disintermediate" lawyers and to automate the resolution of legal disputes.
At a Toronto conference, Dmitry Buterin, Vitalik Buterin's father, launched the idea of an artificial intelligence judge who does a better job of arbitrating the legal cases of a hungry judge at lunch.
The wild promises of all the sore points that blockchains can solve with automation go on forever, but writers like Kling believe that the painfully human process of holding others accountable can not be avoided:
"In the business environment, trust means that you believe that the other side will do what it has promised." In order for this belief to be justified, you need credible evidence that the other party has kept such promises in the past and has the incentive to continue doing so in the future … I think that trust is too subtle and nuanced to be "resolved" by blockchain ".
Like Song, Kling believes that private-controlled blockchain systems (corporate or government) can be used by corrupt actors:
"There are many, many ways to cheat in a transaction, I can sell you properties in which I do not really have a title recognized by the authorities, I can sell you a property that has environmental risks that I have not revealed, I can sell you a property that is not split into areas for the kind of improvement you want to put on it … Registering the transaction via blockchain does not prevent me from doing any of these things ".
As lawyers who rejected the claims that what they do can be automated, Kling notes that a government still has to recognize and apply the conclusions contained in a set of data:
"Of course, if the government recognizes a blockchain as an official title, then the blockchain technology would be involved in the transaction.But without the government sanction, a blockchain title record would be of little or no use in a dispute."
Regardless of the technology that circulates, humans still need the will and the systems to encourage and strengthen pro-social behavior:
"… (W) and we need a complex network of institutions to provide trust We need a government in which officials who do not accept bribes are generally better than those who do, we need companies with a precious reputation We do not want to lose, we need low-cost mechanisms with which people can reward cooperators and punish deserters, so that the trustworthy survives and the untrustworthy is eliminated. "
Kling sees only one business / government application for blockchain:
"As far as I can tell, blockchain can only help prevent a type of cheating: digital counterfeiting. If blockchain has a killer app, it must allow the execution of a transaction where the only impediment to undertake such transaction is currently the threat of digital counterfeiting I can not think of such transactions. "
Related: A company called Titan Seal is now doing marriage certificates on a blockchain for a county government in Nevada.
Jimmy Song has proposed that most companies / organizations prefer to use basic cryptography on a standard database, a technology that claims to be around for years, rather than a blockchain.
Kling is also wary of the industrial importance of the blockchain:
"Andreessen – Horowitz would say that I have not tried enough to find blockchain applications, because they think it's a universal technology, like the Internet, but I consider it a limited-purpose technology, along the lines of a digital signature. applications for a digital signature, and I do not think it's a very exciting market. "
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