Healing the Blockchain

While blockchain-inspired technologies are slowly progressing, the full-blown Blockchain suffers from functional flaws and is hindered by a religious belief that decentralization be positively superior to centralization.

The Tao of Blockchain

The Tao of Blockchain is imprinted on the Ethereum Classic home page:

«There are many problems that fester due to centralization and opaqueness; corruption, unaccountability, nepotism, inefficiency and stagnation. Ultimately, centralization leads to fragility; only decentralized systems can stand the test of time. […] The only hierarchy is that of transparent meritocracy and mutual reputation. No backroom deals or behind-closed-doors unilateral decision making; just free and open discourse».

Forget cryptocurrencies. What we have here is a political manifesto, inspired by a brilliant invention.

The fact that such invention also has facilitated more-prosaic results, such as preventing frauds in insurance claims or monitoring the purity of cheeses along their value chains, goes as a further proof of its success.

The potential

And indeed, grandiose are the long-term aims, including:

  • Enabling robot-societies like the “decentralized autonomous organizations” run by rules encoded as computer programs that self-execute and self-enforce.
  • Fitting massive property-transaction management for all European Union citizens.
  • Allowing all US citizens to control their online identities and personal data, with no reliance on third parties.
  • Supporting participation in blockchain-based national e-voting.
  • Automatically suppressing fake news in social media.
  • Allowing billions of people to perform micropayments, as opposed to todays occasional usage by some 50 million Bitcoin holders.

Unfortunately, Blockchain in its current manifestations will not achieve any of that.

Opacity in distributed systems

To begin with, opacity is not exclusive of centralization. Hackers have shown since 2014 that they can conquer 50%+1 of voting in a public Blockchain. Bitcoin Miners, who bring trust to the chain and should be many, have consolidated to a handful of supercenters due to the formidable computing equipment required.

And Miners consolidation generates insecurity in addition to opacity, as it diminishes the number of nodes that need to be attacked to violate the platform.

Clearly, the future of «free and open discourse» is not compatible with miners’ consolidation, pools, cartels and hostile stakeholders.

Furthermore, it is clear that overall performance won’t scale up to fulfilling the promise of disrupting and grandiose societal applications.

Work in progress

Blockchain designers have been aware of those limitations for years. Ethereum are developing their Version 2. And Algorand have already released their brand-new concept, based on a design by MIT professor Silvio Micali, a computational complexity and cryptography guru.

Both introduce new consensus protocols, requiring much less computing power and purported as having the potential to solve accumulation, security and performance issues all at once.

Time will tell. (It took more than five years of real-world applications of the Nakamoto creation, to understand the above problems).

The Algorand Foundation, meanwhile, adds a further claim to the manifesto reported above, aiming to no less than

«take a leadership role in research related to fair access [and] social justice for all».

Blockchain-inspired systems

Blockchains conforming to the stated Tao must be public, and most often permissionless.

«Transparent meritocracy and mutual reputation» or «social justice for all» means entities freely logging in, including Miners/Validators. No authority assigning credentials. Just open-source software downloads, and the algorithms ensuring consistency and trust.

This is quite unlike most the applications that, outside of cryptocurrencies and Ethereum quasi-smart contracts, have been developed over the past five years, based on frameworks such as Corda or Hyperledger: the “Blockchain-inspired” solutions.

These systems suffer from less severe forms of opacity, insecurity and unscalability, given their relatively closed nature and more-limited scope.

They emerge from a business, not a “political”, community. And streamlining backoffice banking and trade sharing, simplifying distant peer-to-peer exchanges or tracking luxury items can hardly be considered realizations of the Tao.

Democracy and governance

One intriguing aspect of public blockchains is their direct democracy.

Anyone, although most often the “benevolent dictators” of a blockchain, can launch new proposals, in the form of a new version of the software.

Since in Blockchain «the code is the law», these modifications effectively correspond to new legislation.

One problem lies with that type of new legislation on which only Miners/Validators have right of vote: the regular User has no choice but to go with the new law or abandon the blockchain altogether.

Another problem is information asymmetry. There will be (many?) cases in which I, as a regular User, won’t have the faintest idea whether the proposed new legislation, a piece of software, is going to be good or not.

Remember that a blockchain is Free and Open-Source Software: i.e. a subset of the participants always play the role of leading system designers, determining architecture and functionality, with the rest of the people acting more like worker bees.

How better is all this, really, than todays representative democracies, with centralized institutions?

Who will save the Blockchain?

Private and consortium-led distributed ledgers with transaction consensus often are perspicacious creations, aimed to solve genuine business problems. Despite calling themselves blockchains, however, they are simulacra of the full-blown, bold Blockchain.

The latter has problems. Will Algorand fix them all? Will Ethereum Casper and 2.0?

And: is distributed consensus so obviously superior?

Disclosure

The views and opinions in this analysis are my own and do not represent positions or opinions of The Analyst Syndicate. Read more on the Disclosure Policy.

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