Blockchain has been hailed as a revolutionary technology, primed to forever alter everything from supply chain management to energy production to music rights management. It’s true that blockchain does have potential to change many industries. But that doesn’t mean it’s a panacea to world problems or lacks its own drawbacks, and pretending it’s a magic bullet can lead to market distortion that has real consequences for blockchain entrepreneurs.
Exuberant investment in any company out there who writes the word “blockchain” on their website means that legitimate blockchain innovation is getting drowned in a sea of get-rich-quick schemes and questionable investment decisions (who can forget the iced tea company that made its stocks jump 289 percent just by changing its name to “Long Blockchain Corp?”).
TechCrunch recently bemoaned that “the cryptocurrency bubble is strangling innovation,” arguing that the landscape is currently so congested that only apps capable of handling massive transaction costs can gain access to blockchain technology. Blockchain is powerful, but when its power is overstated then its truly useful applications get lost in a flurry of speculation. When the bubble pops, the reputation of the whole blockchain world takes a hit.
Market research firm Forrester recently released a report debunking some of the more pervasive myths surrounding blockchain, seeking to help its clients “Understand What’s Hype And What’s Reality In This Emerging Technology.” The six major myths they cover go far in explaining how the blockchain bubble grew so much in the first place. Those six myths are:
Blockchain is Immutable: Blockchain architecture prevents many kinds of alterations, but it’s not impossible to change what a blockchain signifies. The entire chain can be recomputed or forked, so transactions at a certain point are handled differently from past transactions. Ethereum famously had to fork their blockchain in order to recover stolen funds in 2016.
Blockchain is Decentralized: Again, this statement is based on some truths about how blockchain functions, but on-the-ground facts aren’t quite as black-and-white. Researchers at Cornell University recently found that Bitcoin and Ethereum, two of the world’s most prominent cryptocurrencies, are far less decentralized than thought, both controlled by fewer than 20 mining entities. And no universal wallet exists for cryptocurrency blockchain–users must pick a company to store their funds with, a hardly decentralized arrangement.
Blockchain Doesn’t Require Trust: The concept of blockchain being “trustless” stemmed from the fact that anonymous parties can make transactions without any single authority validating those transactions. But that’s not the same as a truly “trustless” system. Blockchain users trust miners, wallets–in fact, a substantial blockchain infrastructure–to keep the ecosystem running.
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Fraud on Blockchain is Impossible: This one is obviously false. Information is stored on blockchains by users. If users lie, that lie becomes part of the “truth” of their blockchain. Blockchain is a platform for organizing data, not for ensuring that data matches reality. And if anyone is trying to argue that blockchain can stamp out the very human behavior of lying, they’re engaging in some creative confabulation themselves.
Blockchain’s Transparency Is An Advancement: For many companies and applications, this is true. But not all blockchain transactions necessarily should be public knowledge. Confidentiality is a huge concern for many kinds of businesses, and those businesses might not be too excited about a universally accessible data storage medium.
Smart Contracts Are AI: Smart contracts, which automate transactions in the blockchain ecosystem, are only as good as the code used to write them. Automation does not equal intelligent design–the 2010 stock market Flash Crash was triggered in part by automated trading algorithms.
Many investors and companies rushing into blockchain don’t realize–or don’t want to realize–the more complicated realities behind these six myths about blockchain.
Blockchain is not as much a single magical technological platform as it is a conceptual change in how we organize and think about data. That reality is much more complicated, and much more difficult to monetize, than some exuberant crypto-investors might have you believe. But that complicated conceptual space can be the source of long-lasting industry change.
Clearing up myths about blockchain means that more sustainable and clear-headed innovation can move ahead, and blockchain companies can be built on solid technological ground rather than castles in the sky.
How are blockchain myths affecting tech entrepreneurs today?
