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Farzam Ehsani he is co-founder and CEO of VALR.com, a digital asset trading platform.
The following is an exclusive contribution for the 2018 year of CoinDesk under consideration.
In 2018, when the prices of cryptocurrencies declined, the company's blockchain-marketing machine continued to hum without ceasing. Companies continued to publish press releases on their blockchain implementations "to the world" that would solve the biggest challenges in the world.
Here's the thing. If you were living in the time of Alexander Graham Bell and you had heard of a new invention that promises to radically transform communication, you would be forgiven for thinking that the phone could be the solution to your communication problems in marriage. While the phone has really changed the face of global communication, it has done nothing to address the problems of marital communication.
This is the state of the blockchain promise today: it's a powerful tool, but probably not for what you think.
We have been told that blockchain technology will eliminate the need for trust in the world. We will not have to rely on corrupt governments, greedy societies or rigged electoral systems. Everything from offices to supply chains to identity voting systems will be revolutionized, ensuring that we will never again have to trust another person, unreliable institution or government.
This is an unrealizable dream that is unfounded and misleading.
A digital revolution
Blockchain technology is powerful, but its domain is the digital world, not the physical one.
More specifically, blockchains reduce the need for trusted intermediaries for digital native assets that are born, live and potentially die exclusively on a blockchain. Cryptocurrencies are a good example. Their existence and properties are defined by rumors about a blockchain that serve as a source of truth for these digitally native resources.
No reconciliation is needed with other databases or the physical world. Whatever the blockchain says is the truth for these digital resources.
But for resources in the physical world, this is not the case. We take ownership as an example. There are several problems with the use of blockchain technology for this use case. A characteristic of blockchain technology is the emergence of digital tool to the bearer. This means that if you have a private key, you are the owner of the resource at the corresponding public address on a specific blockchain and you are entitled to spend or transfer the resource to your liking.
This also means that if you lose your private key, you have lost ownership of the resource.
All of this is part of the property of the "resistance to censorship" of blockchains that supposedly will eliminate trust in unreliable people or institutions.
Do not forget the databases
So if a country decides to move all the properties on a blockchain (we leave aside the question about which blockchain would be used, who would run the nodes, what would be the consent algorithm and who would keep and update the software / protocol as required), what would happen if I lost the private key to your home?
Would this mean in some way that you no longer owned it and that you could not sell it anymore?
Surely there should be a process to reclaim your "lost" home. And if this process requires the use of a central authority to restore the legitimate claim to your home, then what would be the point of a presumably immutable database that could be bypassed by a central authority?
Furthermore, if a central authority could restore your request to your home, it would certainly open the possibility that a corrupt official "restore" your home to someone else.
What is the scenario in which the squatters take possession of your land? Keeping the private key will not magically exploit them from the land and enforce property rights that have become a hallmark of well-functioning economies. You will need to take the situation in your hands to persuade or force the squatters to leave your land, or you will have to resort to an executive force that you trust to enforce your rights on earth.
Again, if you need to trust a government to enforce your rights, then surely you should be able to trust them to run a database? On the topic of hard forks, what happens to the physical property that is represented on a blockchain when a hard fork occurs? Now there are two tokens on two separate chains that represent a single property in the real world.
This would potentially lead to conflicts, unless, of course, a central authority decides how to solve such a situation, which makes a decentralized blockchain redundant. And if a hard fork can not occur because the blockchain is managed by a central authority on a distributed ledger, then a regular database would suffice.
It would be cheaper and more efficient to manage. A blockchain would not be required.
Several countries in recent years such as Georgia, Ghana, Honduras, Sweden and others have made announcements on how they intend to use blockchain technology to manage their land registry records. While some of these projects are still in the "research" or "test" phase, others have released public comments that have "stuck".
A clearer focus
We should expect more to head in this direction in 2019. Land registry records are just one example of the false promise that blockchain technology will revolutionize industries based on the physical world.
The fact is that we will never be able to completely eliminate the reconciliation between the physical and the digital world (at least considering current and predictable technologies).
We live in a physical world and when digital tokens that represent physical goods (eg, art pieces, bananas, cars, diamonds, houses, etc.) are issued on a blockchain, it is necessary to verify that these digital tokens are in fact supported by the physical resources that claim to represent. It is, however, impractical and economically inefficient for each person to verify this for himself. The need for verification reintroduces the need for a trusted intermediary. Blockchains or distributed registers will not get rid of this trust.
Today everyone knows what communication problems a phone solves and which does not.
Hopefully it will not be long before the world understands which problems solve a blockchain and which do not.
Have an opinion of 2018? CoinDesk is looking for proposals for our 2018 under consideration. News via e-mail [at] coindesk.com to learn how to be involved.
Real estate and bitcoin through Shutterstock
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