What problem does blockchain solve?
Does blockchain have any genuine, value-add use cases?
This was the question I recently asked a few developer friends. And, well, it was a pretty even split.
For everyone saying that blockchain is the future of the internet, there’s a person who says it offers no extra value to existing databases.
The deniers either said that blockchain tech doesn’t solve a need that cannot already be solved with existing tech.
They often added that improvements blockchain might bring are not large enough to offset the challenges and cost of implementing that same blockchain solution.
It rocked my confidence a little. So I decided to spend a few days looking into the potential real-world uses of blockchain for genuine problems.
I found the common stated uses and looked at arguments for and against using blockchain tech.
If you don’t fancy reading this whole piece, here’s the TL;DR.
I think there is a future with blockchain tech. However, I think the maximalists who think “blockchain will solve everything” are a little over enthusiastic - especially with blockchain solutions in their current state.
A lot is needed to make blockchain something that can be used by the mass public. And then, I see the majority of applications as an addition to existing tech for security and authorisation rather than a complete replacement.
But what do I know?
Here’s the arguments. Read them and make your own decision.
Let’s get into it.
The arguments against blockchain technology
My dev friends said a lot of current blockchain solutions can be competently handled with a decent database using existing tech.
And that blockchain didn’t offer enough improvement to the situation or use case.
At first I thought they might be discounting the issues a little too quickly. But, honestly, there’s a lot of evidence to back this up.
Here are some thoughts on the commonly stated use cases.
Will blockchain immutable public ledgers make voting better?
Every time I ask someone about the usage of blockchain, the common argument is usually…
“Ah, but Pete, blockchain is immutable and offers a public ledger of transactions”.
And that’s true.
But outside of the existing public registries, is there a need for an unchangeable ledger of information?
And does blockchain offer a better solution to these existing, centralised services?
Also, often not.
For example, one of the common arguments for is using blockchain for voting purposes.
On the surface, this makes sense.
Yes, having a permanent, immutable record of voting records would put an end to things like vote fraud. However, the problem here is that blockchain is public.
You might say, but it’s pseudonymous - so no one can associate your blockchain identifier with your real world ID. But that’s not true.
In 2018, a group of researchers from Qatar University managed to trace the owners of tens of thousands of Bitcoin owners back to the individual through their social media actions.
It’s not far fetched to imagine that this could be done with voting records on the blockchain as well.
And it sets a dangerous precedent for 2 reasons.
First, how comfortable would you be for your voting preferences to be publicised?
With the divide between left and right becoming deeper and more charged, this could spell problems for individuals.
Also, it makes it easier to track who votes for whom.
That proof could be used with shady actors looking to buy votes.
“Prove you vote for us and we’ll pay you X”.
It doesn’t matter whether this is a vote by the local community figuring out how to allocate resources or votes for leadership of the country. Buying votes is hardly true democracy.
Blockchain is great at securing data and making sure it can’t be changed. However, it also makes a lot of that data public.
Realistically speaking, it’s only really sensitive data that would need the security of blockchain. Which is also the data you want to keep private.
Thankfully there might be a solution to this (which I’ll cover later on).
Blockchain finance might not ever go mainstream
The primary use of blockchain tech right now is for cryptocurrency.
And the permanent, public records there make complete sense.
You can see who sent what and to whom. Ideal for tracking something like a governmental potential’s campaign fund account…
That’s one of the major arguments. Being able to see public records of payments.
The other primary argument is that this also cuts out the third party centralised entities like banks.
With blockchain you’re able to pay another person without having to involve third parties like banks.
Theoretically, this should speed up that process as it reduces the number of actors needed to facilitate a transfer.
It also means you have full control of your funds and are not ever left at the whim of a bank or a government agency who might decide your assets need to be frozen.
You are in full control of your assets.
And that there is also the problem.
The good thing about banks is they have systems, checks, and insurance in place to protect you.
- If you send money to the wrong account
- If your account is hacked and your cash stolen
- If there’s suspicious activity on your account that raises red flags
… the bank or payment processing service will either stop the transaction or help you retrieve the money you lost.
I can’t be the only one who’s made a call to AmEx and asked them to reverse a charge because of non-delivery of service… right?
With blockchain, there is no such security.
- Send money to the wrong address
- Purchase a service or good which is never delivered
- Mess up the address and send your crypto into the ether forevermore
And you’re out of luck.
That cash is gone and almost, if not completely, impossible to retrieve.
This is a huge hurdle that needs to be overcome. So big that it will stop the majority of people from onboarding into crypto and finance blockchain services.
I mean, I still know a lot of people who have trouble with remembering a pin for their payments. Asking them to keep a seed phrase safe is a huge ask.
Because of the difficulty of retrieving lost cash and the pseudonymous nature of blockchain and crypto, it’s created a fertile breeding ground for scams.
All in all, financial services through blockchain are - as yet - a little too risky for many people.
But generally speaking, the margin for error with crypto and financial blockchain is too unforgiving for the general populace.
Blockchain companies have high failure rates
Startups are notoriously hard to make work and ensure profitability.
Blockchain startups are no different.
According to statistics, around 92% of blockchain startups have already failed.
Which is pretty much on par for the 90% of non-blockchain startups that fail over the long term.
This in itself isn’t that surprising.
It’s hard to grow a new business, and especially hard using new tech that's looking for its place in the world.
However, the concerning thing here is how quickly blockchain startups fail.
This is likely because a lot of the new projects that are launched are pretty scammy and offer no real benefit.
As soon as they make some cash - or are found out to be useless - they shut up shop.
I believe that the high and fast failure rate is because Web3 is still pretty unregulated and a bit of a wild west. As time passes, the success tastes - or longevity of companies - should improve.
The speed of blockchain can be a problem
Cutting out the middlemen, especially in financial transactions, can be beneficial.
However, the processing time to action those transfers is severely limited on blockchain.
On average, Visa can process around 1,700 transactions per second according to this piece.
Bitcoin, on the other hand, can process around 7 transactions per second.
That is a huge difference and a major stumbling block for this going mainstream.
When it comes down to it, tech will only achieve mass adoption when it either resolves an existing issue or makes reaching an existing goal, faster, easier, or cheaper.
At the minute, blockchain can’t do any of these with these super slow transaction limits.
Onboarding and multi-chain usage
The final thing, and in my opinion the most important, is the usability of blockchain technology.
There is a very steep learning curve when it comes to blockchain solutions.
So steep in fact, that many normal users simply don’t understand what it is they need to do to achieve a specific result.
This is one of the biggest issues right now with adoption of blockchain technology.
It becomes even more of an issue when you consider the number of blockchains that are in development.
Pete Huang recently made mention of this on his LinkedIn.
In short, a lot of brands are creating their own specific use case blockchains. Which is great from a usability perspective, but terrible from a user experience perspective.
It’s hard enough to get people onto one blockchain and understand how to use it for a single specific use.
To expect users to be able to operate dapps on several different blockchains is going to be too much.
This is why, right now, a lot of the trustworthy crypto exchanges are the best onramps into Web3.
If you don’t rely on these exchanges for your wallets, you have to have multiple wallets for different chains.
MetaMask for Ethereum, Phantom for Solana, and maybe a good cold wallet to help you secure everything.
Exchanges like Binance and Coinbase have built in wallets that allow you to trade different currencies across chains.
The user doesn’t see this as it’s handled in a back end they can’t see.
This is what’s needed.
More easy to use cross-chain functionality.
Until then, there are too many services, onboarding issues, and processes for people to learn to make this easily usable.
So we’ve covered the common arguments against. What about the arguments for?
The arguments for blockchain technology
I should kick this section off by saying the arguments above are big issues that need to be addressed. However, I don’t think they are necessarily the end of blockchain.
If these problems aren’t fixed, then this could be the end.
However, there are too many smart people looking at fixes and use cases for blockchain for this to just die quietly in the night.
Let’s look at a few arguments for blockchain technology.
Could blockchain work to enable e-voting?
Above, we looked specifically at the use case of blockchain for voting.
The big issue here is the public nature of blockchain ledgers. Publicising who has voted and how is obviously less than idea.
However, there does seem to be a way to use blockchain to ensure completely fair and transparent voting whilst also keeping user data private.
All you have to do is look to Estonia.
Estonia has been the pioneer in this field having used an electronic voting system since 2005.
Their approach has changed over the years to include a blockchain element, and more services than just voting.
The system they developed links all of a citizens key data such as health records and ID, and secures access with blockchain.
Here’s how they do it.
From the way I understand this documentation, Estonia uses something called X-road. This is simply an interoperable ecosystem that allows for info exchange between different government information systems.
The data that is transmitted through X-road is encrypted and authenticated.
They then use the KSI blockchain which sits on top of X-road.
The KSI blockchain is a signature service. It’s there to guarantee the integrity and security of registries, identities, transactions and data privacy of its users.
Here’s how it works.
Each document stored on one of the spokes in X-road has a hash extracted from it. This hash represents that specific document.
If the document is ever changed, its hash also changes meaning that any tampering could easily and quickly be identified.
The KSI Blockchain stores these so it’s a public ledger of when changes are made.
Apparently this has helped massively reduce the time needed for checks.
And it’s also reduced the time it takes to register any data breaches from 7 months down to an instant notification of an issue.
I’m going to complete a more in-depth review of KSI Blockchain and X-road explaining in simpler terms how it works soon. If you want to read it, subscribe to get first notifications.
This is, I think, how blockchain should be used and the future we’re looking for.
Using it as an authentication service while still keeping the actual personal details hidden in existing databases.
Why blockchain might be good for financial security
Honestly, I don’t see a world yet where we’ll completely remove the middleman.
Too many people are too dependent on the banks and processing providers to handle their payments. I can’t see the removal of these custodians as a realistic step in the near future.
However, there are some clear benefits to blockchain for finance.
First, the actual transactions are faster that traditional finance. Sure, you can’t yet process as many transactions per second, however, the transactions that do happen are far faster.
This is because there are fewer links in the chain as it were. It’s closer to P2P - almost like handing your friend that $10 bill in your pocket.
There’s no need for several banks to get involved to authenticate and process transactions.
As there are fewer steps, the transaction itself is cheaper as there are no cross border fees associated with the translation.
According to research, this usage save banks up to $27 billion by the end of 2030 in reduced fees on cross-border transactions.
Add to this the obvious improvements in security and there is a case for the future of blockchain in finance.
Honestly, I don’t think anyone is arguing the use case here.
The rise of behemoth cryptocurrency exchanges has proven that blockchain is great for finance.
What we really need to improve is the onboarding, energy consumption, and scalability of blockchain solutions.
These are the three areas where experience is lacking and slowing mass adoption.
In addition, some form of “blockchain payments for idiots” process so that anyone, anywhere, regardless of their familiarity with blockchain can easily send payments without worrying about getting the wrong address.
Why the failure rate of blockchain companies is good for the future
So the failure rate between blockchain brands and other startups is comparable.
The only difference being that the 92% of blockchain companies that fail tend to fail faster than other startup brands.
I’m not worried about this.
Still today Web3 is something of a wild west.
You have a lot of people trying to figure out the tech and failing with sincere, honest attempts.
You also have a lot of people setting up projects that are doomed to failure from the beginning á la Terra Luna.
And then you have a lot of people who set up businesses as obvious scams.
I can’t find stats, but I imagine if you went back and found the data for the number of failed startups when the internet was gaining steam and finding its place in the world thew numbers would be similarly to Web3 right now.
We’re simply in a period rife with growing pains.
Is there a benefit to the lack of speed in blockchain?
There is no benefit to the lack of speed in blockchain transactions. The pathetic 7 transactions per second for Bitcoin is a major stumbling block that will massively affect scalability of any products built on the chain.
This is something that will have to be solved for blockchain to be seriously considered for large scale operations.
Fortunately, there are already a lot of people working on better transaction volumes at lower energy cost.
As yet, there are no real developments worthy of note. But as I’ve mentioned before, it’s early days and there’s nothing that make me think it won’t be achieved.
Is onboarding and usability a benefit for blockchain?
Again, this is another big hold in the argument for blockchain.
It’s simply far too complex for most people to navigate right now.
And if you can’t generate users for it, there’s going to be very little chance of it being adopted.
At the minute, blockchain services and solutions are pretty complex.
There’s even a large number of people who own crypto and NFTs who can’t explain anything beyond the surface level of blockchain.
These people might find it easier to adapt to a new process within Web3, but a lot will still struggle.
The thing is, Web3 adoption is super low in the grand scheme of things.
According to research from Deutsche Bank, the adoption rate of crypto isn’t too far behind that of the internet when that was launched.
I personally think this forecast is a little optimistic as it doesn’t take into consideration Web3 beyond crypto.
My personal opinion is that we’ve seen the early adopters come in and are still working with the “visionaries”, maybe some of the “pragmatists” as well. These people will ignore UX issues as they see a future here.
But if we want Web3 to go mainstream we have to make it so that even the most tech illiterate among us can derive some benefit from the services created.
Otherwise, we’ll never have the vast majority of people saying “I should have tried this earlier”.
The key here I believe is to make sure that blockchain operations can happen at scale and, much like Coinbase and Binance which were mentioned earlier, enable cross chain transactions and agreements without any extra friction being passed on to the user.
There’s a lot needed to make this happen. But, I believe it can be done with the right people.
The bigger issue in Web3
What this really comes down to is whether or not blockchain can either…
- Solve problems that we cannot yet solve
- Improve on existing solutions to make them faster, easier, and/or cheaper
If blockchain cannot do that, then it has no place in the future.
At the time of writing, it is a little difficult to see where these potentials lie. And it's easy to then discredit the entirety of blockchain.
However, there are enough genuine use cases - like the Estonian government’s approach or cryptocurrency as a whole - that make me believe there is a future here.
Perhaps not the future many are envisioning where blockchain is the be-all and end-all of online privacy and transactions.
It might well be that blockchain is a secondary layer that sits on top of existing databases to help authenticate and approve actions at scale.
This is, in my opinion, where the future of blockchain is.
The information provided on DecentReviews does not constitute investment advice, financial advice, trading advice, or any other sort of advice. Do not treat any of the websites content as such. DecentReviews does not recommend that any cryptocurrency or blockchain asset should be bought, sold, or held by you. Conduct your own due diligence and consult your financial advisor before making any investment decisions.