Here’s an excellent plan for improving the financial affairs of all Mankind. All we need to do is to add the word ‘blockchain’ to the name of every company. The shares will instantly rise by a minimum of 30% – which would certainly make everyone richer?
Over the past four years, I’ve seen a lot of myths about blockchain technology. The ones I’ve seen most often have been:
- Blockchain guarantees your data can’t be tampered with;
- Blockchain offers you instant transactions;
- Blockhain can check any kind of data;
- Blockchain encrypts your data;
- Blockchain can replace your server.
Looking at the first of these myths – tamper-free data is guaranteed by digital signatures. The point of blockchain is to verify the data between the different parties. Blockchain technology cannot necessarily validate the authenticity of the data it processes – nor whether any other blockchains held altered data, nor whether any collusion took place between the signatory parties to the blockchain concerned. Those who repeat this fallacy have mostly heard it in the context of the tamper-proof blockchain of Bitcoin, but are now applying it to the entire blockchain technology.
Turning to the second point – the speed of transactions depends primarily on the business processes, rather than on the technology itself. When people moan that inter-bank payments go so very slowly (since there’s no blockchain involved), they fail to consider that the banks aren’t slowing-up the procedure because they can’t do it faster – but because the checking operations against money-laundering or similar practices are practically carried out by hand. And those hands belong to people who take lunch breaks.
The third of the myths above is particularly interesting. Blockchains are only capable of verifying data which is directly related to the blockchain. One example is Bitcoin. All bitcoin miners can verify the entire chain of transactions, along with the precision of the current balance. However, there’s no kind of blockchain whatsoever that can certify that the price of some particular share was X dollars – at a particular exchange on a particular date – any more than it can verify that the soil temperature on the steppes of Kherson Region never fell below -10C degrees all winter.
Myth № 4. Blockchain isn’t a technology for ensuring the confidentiality of data – but actually the very opposite. There’s nothing that prevents including encrypted data in blockchains (or even, in the future, using homomorphic encryption) – but by default, encryption is not involved in blockchains.
Finally, we come to Point 5. Although many firms would be very keen to dump the costs of maintaining their server, and its admin staff, onto other shoulders, blockchain isn’t a way out for them. Even if we could imagine some kind of blockchain that would handle the entire business logic of a particular company (let alone the issues of data privacy), history instead reminds us of the SaaS-model – there’s still a server, only it’s not sitting in your office any more. But you still have to pay for it.