Blockchain naysayers and why the Internet will fail
As ‘blockchain’ begins to enter into the mainstream mindset a number of reports and articles have come out attempting to interpret Bitcoin, Ethereum, and all the other corporate-altcoins popping up. Several of these analysts have seemingly forgotten the volatile journey that disruptive technologies often experience. Izabella Kaminska, a Financial Times reporter, has cited a number of these reports in one of her latest articles that continually portray the industry as an overhyped tech-fad. Some of the reports she quotes dismiss the technology and suggest that it is unable to serve the needs of the financial world based purely on their existing capabilities. This is a short-sighted analysis and one that demonstrates how out of touch these writers are with the technology itself and the industry.
Blockchain technology is often compared to the Internet protocol. Although this comparison is overused, it is still nonetheless quite relevant. Irving Wladawsky-Berger wrote a great piece discussing the technological and implementation problems that existed in the IT industry when the Internet was in its infancy:
A set of serious problems. In the early years of the IT industry, the proprietary products of different IT vendors did not work well with each other. Just sending an e-mail or exchanging information across systems based on different vendors’ networks and applications was quite a chore. By the late 1980s, the IT industry was facing a serious problem in integrating the expanding number of proprietary products from different vendors, a problem that threatened the continued growth of the industry.
Technology solutions to this problem had already emerged and were being deployed in the academic and research communities, e.g., Internet networks based on TCP/IP protocols; Internet e-mail applications based on SMTP, MIME, POP, and IMAP; and the World Wide Web based on an open set of standards, — HTML, HTTP, URLs, — and the easy-to-use, graphical web browsers. The use of open standards and open source software made it much easier to send an e-mail or share information across disparate systems and institutions.
The private sector, government and academia came together to jointly collaborate in leveraging the Internet, Web and other promising technologies to address IT’s serious integration problems. These various institutions now collaborated on developing the common Internet architecture, — and Internet-based applications like e-mail and the Web, — that they all were starting to deploy.
Much like the experience of the early days of the Internet, blockchain technologies are also up against hurdles that are limiting its potential for mainstream adoption. The industry started with Bitcoin, an open-source project that initially attracted a colorful array of cypherpunks, anarcho-capitalists, and talented cryptographers/developers. These early adopters supported it through its incubation period (for both ideological and financial reasons) and Bitcoin eventually became too big to be ignored by the mainstream.
Now, as ‘blockchain’ is passing through the hype cycle, some have portrayed it as a panacea for all our world’s problems. As reality sets in, many reports have countered the hype, concluding that there are too many insurmountable problems that will prevent mass adoption.
Clearly, there are problems, but are they insurmountable? Some of the reports cited in Kaminska’s article demonstrate a clear misunderstanding of both the technology and the space. I do not mean an in-depth knowledge of the math and code, but an appreciation that this technology is not a static or rigid entity. It is varied and capable of rapid development, as the Ethereum protocol has clearly demonstrated. For each of the insurmountable problems being raised, one could list a number of projects with talented developers that are actively working on solutions.
Scaling:
- Proof of stake
- Bitcoin’s Lightning network
- Ethereum’s Raiden network
- Permissioned or Consortium blockchains
Privacy:
Security and identity:
Now, one cannot predict whether these projects will crack the code, but, it suggests that there is an active ecosystem that recognizes these problems and is trying to solve them.
Another cited issue is regulatory hurdles. The financial industry is heavily regulated and financial service firms must follow complex national and international rules. If one is to assume that blockchain technology is to fit neatly into the existing regulatory paradigm, then yes that seems rather unlikely.
For now, we need more regulatory clarity for businesses wanting to use blockchain technology and then major regulatory reform will be necessary in order to facilitate mass adoption. With that said, the great thing about a decentralized and peer-to-peer protocol is that, to a certain extent, it lives everywhere and nowhere. For a single central government or corporation to ‘bring it down’ (either maliciously or through poorly designed regulation) would be a difficult task. If there is a demand and the technological capabilities exist for users to participate in the network, then they will do so, as is made evident with the illegal but very functional BitTorrent network.
It is important for the blockchain industry to support insightful and critical commentary. However, one should be careful about making assumptions about this technology. Commentators must recognize its versatility and appreciate that paradigm shifts do not happen overnight and nor can we predict how exactly they will unfold.
Bitcoin started off as an idea shared on a cryptography mailing list 8 years ago by an anonymous group or person. The technology has now developed into a thriving ecosystem that has seen over a billion dollars in investments and a multitude of fascinating and diverse companies, protocols, and projects. Despite this rapid expansion, we still see commentators who do not recognize the resilience and adaptability of this technology and the people behind it.
The Internet protocol also had several technological problems that had to be overcome. Back then, commentators were also quick to point out these issues and some concluded that it was all doomed to fail. Disruptive applications like Amazon, Netflix, and Twitter did not immediately go ‘online’ in the early days of the internet. These breakthrough applications require higher bandwidth, mobile internet and other improvements that were not at first present. Additionally, when many of these applications first launched, they looked very different than they do today.
One can argue that the evolution of blockchain technologies and the multitude of applications being built on top of these protocols may follow a similar path. A volatile and unpredictable one, but one that will likely be disruptive.
