Blockchains: Innovation or Sham?
With so much happening with blockchains, there is an ongoing discussion on the impact they have. In order to form my own opinion, I have studied three and I will give my take of them and the ecosystem. If you are not familiar with blockchain technology, make sure to read my previous article where I introduce the foundations and explain what makes it different from other technologies.
This is probably the most famous blockchain, and it is sometimes confused with blockchain technology overall.
Its main purpose is to process payments, and that's why it's called a cryptocurrency. The original intention was to provide secure and cheap online transactions, without the hurdles of trusting third parties to mediate. However, it has since evolved in different directions. Although the technology is the same, people have been using it for other purposes. Some of them are:
Replacing physical currencies: Most ambitious proponents of Bitcoin argue that it's the future and it will eventually replace physical currencies.
Speculation: One of the main trends is to buy Bitcoin with the expectation of making a profit. Or manipulating public opinion in order to benefit from price fluctuations.
Anonymous transactions: Since there is no real ownership in Bitcoin other than holding a private key, transactions can be anonymous. And this makes it a real benefit for some.
Smart contracts: The fact that the system is secure and immutable has prompted some actors to use it as witness that an agreement was made.
Others: Using transaction metadata, other applications have been built on top of the Bitcoin network for multiple purposes.
Most of those are not unique to Bitcoin and can be seen in other cryptocurrencies as well.
My opinion of the current state of Bitcoin is not great. The key problem I see is precisely what makes it special: it has no regulations. Some people are of the opinion that that's good. But I believe having bad regulations is generally better than no regulations. I'm not saying that today's laws are perfect, but hundreds of years ago things like slavery were common-place. And I'm sure that having no regulations brings the worst in humanity. I don't think that people is inherently bad, on the contrary, I believe most people wants to do good. But without rules, a few bad actors can have a huge impact and influence the entire ecosystem.
The reality is that today most successful use cases for Bitcoin are speculation and illegal activity. Unfortunately, the use cases that I find more beneficial are less viable every day or don't compensate for all the problems that are created in exchange (volatility, scalability, environmental impact, etc.). And without regulations, I don't see how this will ever change.
An alternative blockchain called Bitcoin Cash was created to fix some of those issues, but I am sceptic for what I just mentioned. In any case, I haven't looked much into it, so I cannot have a definite opinion.
I mentioned that Bitcoin has been used to develop other applications on top of the network. But it has some limitations because it wasn't designed with that purpose in mind. That's where Ethereum comes in. It supports a programming language that is run using their built-in cryptocurrency.
Since it has been built with a broader scope, it covers more use cases than Bitcoin, and multiple blockchains have been built entirely on top of the Ethereum blockchain. However, since I don't know much about its use in the wild I will refrain from talking about this. What I do know is how it works after reading the white paper and digging a couple of concepts. And my initial opinion is not great.
Applications built with Ethereum are executed in every node of the network, which results in a lot of wasted computation. I can understand how this is necessary for security reasons, but I'm not sure that many applications justify this trade-off.
In order to run code on the blockchain it's necessary to spend Ether, their built-in cryptocurrency. The problem is that the price of Ether is not stable. For someone who is not part of the network, operations may be too expensive and unreliable.
All in all, I think the approach is better than Bitcoin, but in the end it suffers from the same core problems. And I struggle to find a use case that could not be solved with other technologies.
The last blockchain I want to talk about is Steem. This one does a couple of things differently and its main purpose is to provide a distributed content and blogging platform.
Everything works around a cryptocurrency called Steem. This currency can be earned by using the platform, for example writing posts, comments or upvoting. And it has two derivations: Steem Power (SP) and Steem Dollars (SBD). Steem Power is used to potentiate your activity. The more SP you have, the more impact your activity will have and more Steem you'll get. Steem Dollars, on the other hand, are used as a way to have stability within the system. One SBD can be exchanged for the equivalent of one USD in Steem at the current evaluation.
The founders of this blockchain also created a platform called Steemit, where it's easy for anyone to create an account and start interacting with the blockchain in a seamless way. In fact, you won't notice that you're using blockchain technology, since it behaves like any other media platform. The one thing that will stand out is that posts and comments have an amount of dollars next to them. This amount is how much Steem has been generated for the author of the content, represented in Steem Dollars.
I have to say that Steem is the first blockchain I like. The main thing that got me interested is providing a viable alternative to fund content creators. In contrast with the advertisement model, which I am heavily against. If you want to learn more about this from a content creator's point of view, read this post by David Kadavy which covers the basics: A writer’s guide to making money on the STEEM blockchain – for beginners.
Having used the platform for a while has been a good experience so far. I am worried about a couple of things like bot activity, but nothing dramatic yet. The fact that Steemit is a layer on top of the blockchain can help fixing some of these issues. It may seem counter intuitive to say that, given the main point of blockchains to be distributed. But if Steemit goes sideways, the underlying blockchain with all the information is still open. And it's possible for anyone to create alternative platforms.
Some alternatives to Steemit already exist, like Busy.org. And a decentralized alternative to YouTube called D.tube has been built on top of the Steem blockchain. But keep in mind that videos are stored on IPFS, not the blockchain, so the same rules won't apply.
Final veredict: awesome or awful?
With all this said, what is my final opinion on blockchains?
First let me point out that technology is a multiplier. If you want to do good, technology will help you. But it will also potentiate bad intentions. That's why I believe the real question here is how are blockchains being used today.
Unfortunately, I don't like the current state they are at. I've found a lot of arguments for and against, and the ones with more impact are the ones against. Seems like most prominent scenarios are speculating and introducing ill-informed hype. And the solutions to existing problems are mostly based on hope and hypothesis, but the current situation does not seem to be changing.
It is also possible that Bitcoin and sketchy blockchains take much of the spotlight, and smaller blockchains are not taken into account. But as I said, the important part about technology is how it's being used, so it isn't inherently wrong to judge based on that.
I agree with most of the principles, but not the execution. I believe it's possible to fix the problems. In particular I think the keys are improving efficiency and introducing self-regulation mechanisms. This is already happening with some blockchains, but it will not happen for the entire ecosystem in the short term.
That's why I think it is important for us to be aware of what kind of blockchain we are supporting. Next time you see a new fancy blockchain being announced, make an effort to learn what's actually going on under the hood.