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Do you really need a blockchain? Probably not

  • Blockchain is still a common sight in tech startups and investments as we head further into 2019, but does your business really need a blockchain? In most cases, the answer is probably no.

    Every company wants to be at the head of the wave when an emerging technology takes off, and investors have spent the past several years scrambling for start-ups working on technologies such as Virtual/Augmented Reality and Artificial Intelligence. New technologies that are still being actively explored often have the potential to be used in unexpected ways that can disrupt industries, and whichever firm is pioneering that disruption or is the leading expert in the field when it happens always ends up rolling in money.

    Originally arriving as the technology behind cryptocurrency Bitcoin, blockchain technology has been associated with massive monetary gains from the very start and grabbed the attention of investors before most really understood what it was. Many companies developing blockchain solutions definitely seem to have adopted it in a transparent bid to catch investment, and their products often don't even need blockchain to work.

    The investor hysteria surrounding blockchain seems to have been driven by the usual factors that affect emerging technologies but I think it was also influenced by the incredible Bitcoin price bubble that saw its value jump from practically nothing in 2016 to a peak of over $19k in December 2017. Now that the industry has had several years to explore the use of blockchain technology, the hype is starting to wear off and the capabilities and limitations of the technology are becoming clear even to investors.



    A brief primer on blockchain:

    Blockchain is frequently talked about as if it’s magic that can do almost anything and is beyond the average person’s understanding, but the core concept is deceptively simple. A blockchain is a kind of distributed ledger of transactions, like a spreadsheet but with copies of it stored on thousands or even millions of different computers around the world. Instead of having one central authority (such as a bank) that owns the ledger and approves new transactions, new transactions are sent out to all of those computers in a peer-to-peer network.

    Each of those computers might at any time end up with slightly different lists of new transactions and may have stored them in different orders, but they all need to agree on which order the transactions are done in and which computer’s copy of the ledger is the “correct” one. There are several ways to determine which copy of the blockchain is the official version to be adopted by the network, the most common being systems similar to Bitcoin’s proof-of-work system that involves cryptographic mining.

    The simple explanation of mining is that the computers all compete to solve the same simple cryptographic puzzle. Whichever computer solves it can package up its list of new transactions into a “block” and add it onto the end of the list of verified blocks (the blockchain). It then sends that to the other computers on the network, and the other computers verify it and then accept that version of the chain as the official one. Now every computer on the network has the exact same list of verified transactions in the same order.

    What is blockchain actually good for?

    The original purpose of blockchain as part of Bitcoin was to create a distributed currency-like system in which users could perform transactions without any central authority, and the technology has some useful inherent properties that have driven people to look for alternative uses:

    - Unalterable: The ledger is often a public document that everyone agrees on, verified blocks can’t be altered once they’re on the chain and everyone on the network accepts them. Making permanently unalterable public documents is understandably an appealing concept in today’s age of misinformation, fraud, and fake news. This property has also sparked interest from the areas such as intellectual property, data brokerage, and law enforcement where you’ll want a clear audit history.

    - Decentralised / Peer-to-Peer: At its core, blockchain is a way for multiple people to engage in transactions without a central authority. This eliminates the need for anyone involved to trust another user as the data on the blockchain can be verified even though the peer-to-peer network is decentralised. Digital information on the chain can be verified as belonging to a specific owner by cryptographic key rather than having a central trusted registry.

    - Persistent: Since the blockchain must be stored on multiple computers in order for it to even make sense, you can lose a number of those computers and the data will persist somewhere. You would have to destroy every copy of the blockchain ledger to eliminate the data it holds, and adding new computers to the network is trivial.



    You probably don’t need a blockchain:

    Companies all over the world have been dreaming up new uses for this technology for the past few years, but unless your problem requires all of those factors mentioned above then you probably don’t need a blockchain. If you just need information or documents to be public and unalterable, for example, you can release them to the public or any one of a dozen different unassociated archive projects and distribute cryptographic hashes to guarantee the files haven’t been altered.

    If you need a decentralised database that’s persistent in the case of hardware failure, we already have that in traditional server infrastructure and cloud-based systems. We have rigorous backup systems, seamless failover technology to ensure uninterrupted service in the case of hardware failure, and geolocated servers to ensure there’s always a copy of your database nearby for low-latency applications. We also have plenty of existing peer-to-peer solutions that don't have the added overhead of blockchain.

    Verifying a single owner of a digital product can be achieved using public key cryptography, and we have end-to-end encryption, closed communication platforms, and third party data brokers to facilitate eliminating trust from transactions. Reconciling transactions from multiple sources usually can (and in most cases probably should) be done through a central authority using an efficient and predictable process, not by wasting processing cycles on garbage hashing calculations. The IT industry has spent decades developing these technologies and they work – no magic required.

    You REALLY don’t need a blockchain:

    If you’re still reading this thinking that there are plenty of applications for blockchain other than securing currency, consider for a moment some of the major problems that come with running a blockchain. One such vulnerability in blockchain is the “51% attack” in which a single user (or coordinated group of users) can effectively control the entire system if they own more than 51% of the processing power or authority in the network. This would give that user more control over the network than all other users combined, an issue that's actually happened to several cryptocurrencies already.

    This user could conceivably create fake transactions (such as double-spending currency) and would be guaranteed to get them verified and accepted by the network because over 50% of the network would agree that its version of the chain is the real one. This is the reason that you should be skeptical of anyone talking about a "private blockchain," because a blockchain that's over 50% controlled by one user would effectively be just a complicated and inefficient database. The defence against this is to distribute the ledger extremely widely, getting millions of computers that aren’t owned by the same people on the network.

    Another major drawback of many blockchain solutions over existing solutions is the cost – you’re effectively running a database that has to be replicated and stored on countless computers, and in the case of Bitcoin and similar proof-of-work systems they’re all constantly wasting processing time solving pointless cryptographic puzzles to keep the system going. The Bitcoin network was estimated to use more electricity than the entire Republic of Ireland last year, and developers have been feverishly coming up with alternative processes to reduce that load.



    Are there any good uses of blockchain?

    Financial consulting company McKinsey & Company recently reported a severe lack of evidence of any practical usage of blockchain, and several investigations have concluded that superior technologies already exist for a wide range of applications that are currently being explored for use of blockchain. The main reason to use a blockchain today is if you’re building a publicly verifiable ledger of transactions that by its nature needs to be widely distributed among competing users who are highly motivated to participate in a peer-to-peer network.

    That pretty much describes currency, and the most promising uses of blockchain to date have all been currencies or currency-like systems. IBM has proposed using the technology to actually fight global warming by turning carbon credits into a cryptocurrency, for example, and several gaming platforms are investigating using their own cryptocurrencies as loyalty reward schemes or part of their payment models. Cryptocurrencies are also genuinely helping people in developing communities and those denied by traditional banks to start participating equally in the economy.

    I still believe distributed ledger technology has the potential to aid international cooperation beyond the realm of currency, for example to provide publicly verifiable audit trails for important documents such as voting records and company financial records. Blockchain has the potential to democratise aspects of our digital lives that are currently controlled by private organisations or central authorities. But if someone comes to you with a pitch that involves doing something using Blockchain, ask them this question: Do you really need a blockchain?

    About the author

    Brendan is a Sync NI writer with a special interest in the gaming sector, programming, emerging technology, and physics. To connect with Brendan, feel free to send him an email or follow him on Twitter.

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