We conclude that distributed ledgers are a potentially important area of technology, but that we must avoid being swept up by ‘blockchain hype’, and remember to focus on solid user needs first, before we choose the technology that we will use.
At its heart, a blockchain is simply a new kind of database, with a unique set of properties. Rather than being stored in a single location, this database is shared across the Internet, with many people holding a copy of it. The synchronisation between all these different copies – so that there is still a single recognised truth – is one of the unique aspects of blockchain technology.
- Shared read: blockchains are a structured data store that many people can read
- Shared write: as well as read, many people can write data into the database
- Absence of trust: the different writers do not have to trust each other not to manipulate the shared database state (i.e. you cannot change information I have added)
- Disintermediation: there is no need for a trusted intermediary to enforce access control (or none is available)
- Transaction interaction: records in the database depend on and link to each other
- Validation rules: the rules around database transactions are well-defined, such that anyone with a copy of the database can validate that it has been maintained correctly
Our first observation is that the baseline technology underpinning different tools and solutions for blockchains is often difficult to understand. For instance, in many cases it is hard to distinguish between the use of ‘a blockchain’ versus ‘the Bitcoin blockchain’. This indicates that the technology stack for distributed technologies is still very fluid and in the process of being defined.
The fluidity of the technology stack presents further issues in classifying any particular solutions as either tools, technologies or applications. For instance, Bitcoin is an application of blockchain technology, but it is also being used as a platform on which other applications are built.
While there are promising applications as identified above, a great many of the ideas out there are ‘vapourware’, with no viable implementation or model. For instance, development on Honduras’ land registry, which is being turned into a distributed ledger by Factom, has stalled with no working system (Rizzo, 2015). This is particularly important, as this example is used repeatedly to show that blockchains can be useful in traditional government applications, but has not yet shown any results.
There are also many instances of old ideas being brought back to life with an application of new technology sheen. For instance, tracking benefit payments and how they are spent is a policy idea that has been proposed and rejected in the past, but is now reappearing with blockchains. Many such projects failed for good reasons in the past, and the addition of blockchains will not change those reasons, which is more often social or cultural than technological.
But if you go to asset managers and say „I will sell you one database that keeps track of all your stuff, which can then feed into all the other applications you use to trade and monitor that stuff,“ no one will be that excited. (For one thing: Now you have to integrate all those applications with the new database!) But if you instead come in and say: „Blockchain. Blockchain. Blockchain,“ the managers will jump up and down, whoop with glee, throw papers like confetti, tear down the walls of the conference room in frenzied excitement at the mere word. „Blockchain! Why didn’t you say so? We’ll take seven.“
But the bottom line is a new core blockchain banking system would be just as complex as any existing system. Imagine building a new core system on a relational database with millions of lines of code to handle every business rule, but then layering on blockchain for all of the ledger and transactional management. It’s difficult to justify the benefits against the cost and complexity.