The so-called ‘blockchain hype’ has seen a fair amount of scrutiny and criticism in recent months, as we read about its ‘subtle tyranny’ and its questionable ‘magical powers.’ CoinFox takes a closer look.

Three opinions on the ‘blockchain hype’: Ludwin, Ou and Gartner

Last week, as I was browsing my newsfeed, I was struck by two articles whose titles, at least at first, seemed quite contradictory: Jeff John Roberts’ report for Fortune (29 August 2016) Beware of Blockchain Hype Says Chain CEO and Elaine Ou’s analysis for BloombergView Maybe Blockchain Really Does Have Magical Powers (1 September 2016).

Roberts reported on his meeting with Adam Ludwin, CEO of Chain, a blockchain company that develops distributed ledger protocols for the likes of Capital One, Citigroup, Fidelity, First Data, Fiserv, MUFG, Nasdaq, State Street and Visa.

Talking to Roberts, Ludwin expressed scepticism and dissatisfaction with how the blockchain hype has shifted the focus from what the technology is really about, namely, money, to secondary use cases such as health and voting:

Blockchain is a database for money… I don’t understand why people talk about it in terms of health records and home deeds and voting systems.

Despite its title, Ou’s analysis shares Ludwin’s sceptical view concerning the blockchain hype. Even more so, she shows that the hailed disruption of the world of financial services ascribed to the blockchain, in fact, an application of a “1970s technology… to problems that have existed since the 1980s”:

Distributed databases and cryptographic signatures have both been around since the 1970s. For decades, the two fields of computer science had little cause for interaction, as they existed to solve very different problems. The technologies finally became conjoined when people wanted to create a registry of asset ownership without relying on a governing body to approve that ownership.

In a poignant commentary on R3’s solution as to the application of blockchain to financial services, Ou quotes their white paper published in August, according to which the application of the distributed ledger technology to the banking sector only became possible now, as more and more financial institutions are actually interested in the use of the technology, or as Ou puts it:

In other words, the only thing previously stopping the standardization of reconciliation processes was the unwillingness of financial institutions to collaborate.

Summing up on the possible justifications for the blockchain hype we are observing, Ou remarks sarcastically:

Standardization of rules and data fields is a good idea that could save billions of dollars in back-office reconciliation costs. Maybe one of the biggest effects of all the blockchain hype will be getting a bunch of security-conscious egoists to come to an agreement that benefits them all. That would truly be magical.

Both opinions were released in the public sphere almost simultaneously with Gartner's 2016 Hype Cycle for Emerging Technologies report which pronounced blockchain at the so-called “peak of inflated expectations.”

Source: Gartner (August 2016)

This is the second of the five phases through which emerging technologies pass on their way to mainstream adoption and, according to Gartner, it may last between two to five years. In the same report, Gartner identified three key technology trends: the transparently immersive experiences, the perceptual smart machine age and the platform revolution. Blockchain features in the last category together with Neuromorphic Hardware, Quantum Computing, IoT Platform, Software-Defined Security and Software-Defined Anything.

Leaving financial experts and journalists aside, what does the ‘blockchain hype’ mean for the average (bitcoin) user? Has blockchain become a buzzword so often used that it has lost its meaning? Or has it become an ivory-tower academic concept to exercise one’s pen on? Did the users lose the blockchain before they got a chance to have it? It is precisely at the cross point of theory and practice that bitcoin and other cryptocurrencies have become the most tangible connection between the almost mythical blockchain and the user.

More words of caution: MIT Media Lab and Ripple’s CTO Stefan Thomas

A cautionary remark regarding the blockchain hype came as early as June through MIT Media Lab’s Medium blog page. In a report on their experience in designing a blockchain academic certificates system, the authors commented on the increased interest in developing blockchain-based certification systems and noted that, despite rising expectations, building apps on a blockchain is not as easy as it might appear:

Needless to say, much of the rhetoric has been exaggerated (and the same is true for some of the criticism). One important takeaway for us has been that the blockchain is a lot more complicated than most people make it out to be. Building applications on top of it – which is what we did – is getting easier, but there are still very few people who deeply understand its inner workings (and we don’t consider ourselves part of that group). The blockchain is not a simple solution that will fix everything that is wrong with today’s credentials. But it does offer some possibilities for improving the system we have today–and that’s what we are excited to explore.

This observation is in tune with the statistics provided by William Mougayar during his talk at the Scottish Blockchain Meetup in Edinburgh, also delivered in June. He pointed out that while there are countless Java developers worldwide, so far their blockchain counterparts are only around 5,000. As he pointed out, we are still so early in the development of the distributed ledger technology that we still do not know which are the Amazons and the Facebooks of the blockchain.

In July, the founder of Distributed Lab Pavel Kravchenko published a much-circulated post pronouncing the decline of the blockchain trend, while later in August, Ripple’s CTO Stefan Thomas wrote about the so-called “subtle tyranny of blockchain.”

Using “the growing frustration and even disillusionment of key figures in the crypto-currency community” as a starting point of his discussion, together with the fact that the very nature of the blockchain requires all participants to “think the same” in order for the given network to evolve, Thomas insisted that,

Instead of blindly replacing centralized functions with blockchains, we should be thinking about ways to avoid having those functions be centralized to begin with. We need to build stateless protocols like the Web that can be incrementally improved upon in different corners of the system.

Yet again, we find ourselves in deep tech and philosophical waters when it comes to speaking about blockchain, all of this being rather incomprehensible to the average person. The crypto world, however, is less and less cryptic. An increasing number of people are interested and eager to find out more about new technologies. As Brian Forde wrote recently,

… most people are initially willing to invest about 30–45 minutes to learn about cryptocurrencies. That can then ignite enough curiosity to invest another 2–3 hours — and then they’re off to the races.

As I am writing this, I wonder whether mass education is the path to mass adoption. Or shall we leave the matter to the experts and wait for the distilled version: a sweetened and supposedly magical potion whose ingredients are listed on the label – a list we are able to read but which we only pretend to comprehend.

Diana Bogdan