Jimmy Song’s post about Smart Contracts is spot on. It highlights the problems with so much of what people say about blockchains and smart contracts and how they don’t really work. That isn’t to say they can’t — it’s just that people are focused on the wrong things.

What Jimmy’s post highlighted for me is that blockchains aren’t going to rip and replace all the existing financial/legal/real estate infrastructure. I’ve said this for a while now, that the existing incentives between parties are too aligned. You would have to move a whole bunch of systems at once over to a blockchain world, and it won’t happen. Instead, your first blockchain applications that really catch on are going to be things that couldn’t be done at all before blockchain — things more digital (like Botchain, which is all about autonomous AIs interacting).

We hear these examples all the time. My favorite is how we are going to replace insurance companies by having a smart contract between me and you that, if my car gets hit, I upload a picture and the smart contract releases money. The big problem there is, if I buy a policy for $10,000 and put a smart contract in place, you have to hold the ETH in that smart contract in case it happens. Otherwise, you can’t guarantee the ETH will be there when I need it. But wait, if I do that for 10 people, I have to lock-up $100,000 in ETH. That is exactly the opposite of how insurance works. Insurance says if I sign 10 contracts for $10,000 each, and I can prove that only 2 of them are likely to be called in, then I only have to hold assets a little beyond what is required to pay those 2. The truth is that smart contracts are a terribly inefficient way to do car insurance.

In fact, I’m so tired of all the bullshit around blockchain that, when we were putting together the this AI and Blockchain Conference (June 28th in NYC), we intentionally created a panel called “What Doesn’t Work: Misleading Use Cases of AI and Blockchain.” I wanted a panel to shine some light on all the lousy thinking out there. I hope it is a fun and slightly contentious panel.

Don’t get me wrong — I love blockchain (and AI). Both are revolutionary technologies that are going to do big things. But people haven’t been very thoughtful with their frameworks for how to apply them. They are using old heuristics more appropriate for last generation technologies, and aren’t thinking about the new possibilities these can unleash.

It reminds me of the 2005–2007 time frame, when “user generated content” was THE THING. Everything was going the way of Wikipedia. Even though the economics behind it made no sense, and the contribution patterns were power laws. Anytime you have a new technology like this — follow the money. Follow the friction. Follow the incentives. That will tell you where it is going.

There are a lot of dumb ideas out there about blockchain. Make yourself smarter by coming to our conference.