Blockchain as a solution in search of a problem

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Kai Stinchcombe makes the case.

Each purported use case — from payments to legal documents, from escrow to voting systems—amounts to a set of contortions to add a distributed, encrypted, anonymous ledger where none was needed. What if there isn’t actually any use for a distributed ledger at all? What if, ten years after it was invented, the reason nobody has adopted a distributed ledger at scale is because nobody wants it?

I read through the comments on his piece, and they are all negative. But the attacks are ad hominem, and none of them gives an example in which blockchain has established itself as a compelling, first-choice technology in a major application involving legal transactions.

I get it that it is possible to use blockchain in many ways. One example, not found in the article, is titles on property. The U.S. property title system is a disgrace. It could be fixed with blockchain. But it also could be fixed without blockchain. The problem is entirely political: the legal profession and the title insurance industry have an iron grip on politicians, and that iron grip keeps us from modernizing the property title system. A lot of the “foreclosure scandal” that emerged when the subprime bubble popped can be traced to out antiquated property title system. But there is no will to fix that.

But mainstream adoption does not arise from usage being possible. A rule of thumb is that radical new ideas don’t get adopted as solutions to problems unless they make something ten times better. What the article is saying, as I take it, is that in actual business cases, blockchain is at best better on dimensions that do not matter to most users and often worse on dimensions that do matter.

If you are going to make comments trashing the article, please give an example of how blockchain is being used, and within that example, state specifically why blockchain is much more efficient or effective than other possible solutions.

[note: I scheduled this post before Tyler put up his post linking to the same article]

20 thoughts on “Blockchain as a solution in search of a problem”

  2. I am software engineer that has worked in the security field. And I mostly agree with that article. However, has anyone considered regulatory arbitrage?

    For example, ride hailing services were initially just a more convenient, cheaper taxi that flouted taxi regulations. It’s convenience and cost was a consequence of engaging in illegal behavior.

    So consider how regulated the financial world is. What types of legal and regulatory arbitrage could a block chain enable ?

    PS could just be a Ponzi scheme

  3. I think he is generally right, but with some important caveats. I’m guessing most of his critiques apply more to developed nations than developing ones. Presumably blockchain-based solutions could be most powerful in areas where there isn’t sufficient political capital to get anything started at all.

    I could see various blockchain based financial and record keeping services taking root in parts of Africa where there’s no political infrastructure to get those things started in the first place.

    Factom is an example of such a service which is being developed to do exactly this, and is being developed in conjunction with the Gates Foundation, so the smart money might play an important role in developing it towards something useful.

    And to add to the commenter above, it wouldn’t surprise me at all to see crypto-market capitalizations swell due to reg arb. It’s possible that the blockchain could enable practically nothing to work better than existing solutions already, but if it allows various types of services to happen without existing amounts of regulatory overhead then there could continue to be quite a bit of dollar flows into them.

  4. I agree that from a technology perspective, it is hard to find cases where it is useful. It seems to be more of a political tool, moving transactions outside of governmental control.

    I am not sure if I understand the nature of the title system enough to comment, but if someone made you transfer title to an anonymous party at gunpoint, wouldn’t it still need to handled by a legal entity?

  5. I almost bought some bitcoin (at much lower prices, arrggh) to fund an offshore sports betting account. There were some stories about bookmakers stealing credit card numbers so bitcoin solved that problem, and there are some successful bitcoin bookmakers. Of course there is no solution, blockchain or credit card, for a bookmaker that steals your money, so bitcoin is only a small improvement. If there were a genuine blockchain bookmaker, where the bet itself was on the blockchain and you got your coin if you win, the bookie gets the coin if he wins, that would be cool.

  6. Blockchain is an ingenious solution of exactly the problem it was originally developed to solve (Nakamoto, 2008) – how to create a decentralized root of trust out of service providers’ incentives (see also this post by Yarvin). Unfortunately, in recent years blockchain has become a victim of its own success and is the subject of an immense amount of ill-informed (compare the “expert” opinions linked from your previous post on Bitcoin), starry-eyed hype. The hype predictably produced a flood of attempts to apply the technology to every problem within sight, often by people who don’t really understand it. It’s the classic “everything looks like a nail” failure mode.

  7. In legal terms, one could ask, “Is the Fourth Amendment a solution in search of a problem, and a mechanism which makes legitimate law enforcement frustrating, burdensome, and inefficient?” If almost all good people could almost always trust the government, the answer would be ‘yes’. If not, then you’ve got a problem with trustworthiness, and you need some kind of attempt at a ‘solution’ to mitigate that problem.

    Here, the fundamental problems are trust, privacy, and security. What if you think you can’t interact with other people online the way you want to if it means you have to open yourself up to threats. including threats from key institutions?

    For most people, this is not a problem, since, wisely ot naively, they are content to use established systems and trust powerful authorities or intermediary entities to not use their capacities against them in a unjust or unauthorized manner. And not just those institutions, but anyone who can gain access to that data, for the rest of time, since digital records can be treated as immortal.

    The question is, what can people do when they can’t rely on the trustworthiness of established systems? That’s where blockchains come in.

    See Nick Szabo’s The dawn of trustworthy computing.

  9. On the one hand I find the critique plausible. On the other hand, similar critiques have been pointed at PKI, public key infrastructures. See for example: http://iang.org/ssl/pki_considered_harmful.html PKI is where I learned the meme: “a solution in search of a problem”. Blockchain is a very interesting discussion, just to watch the dynamics of tech innovation in action.

  10. A multiple access database without the delete function.

    Once an agent has gotten his yuan out of China, and long since passed the bitcoin on, then the agent wants the record deleted. And that guy on top block, with the million bitcoins, like the whole world is watching for his tiniest move on the blockchain. Once he starts spending bigtime the whole block chain gets repacked a bit, I think, congestion goes way up.

  12. The key use case is where someone wants to do business with someone they don’t necessarily trust. With Blockchain, everyone has their own copy of the distributed ledger. If someone tampers with their copy to assert a fact that is tracked by the distributed ledger, the others in the network can detect that it’s not true, since their copies of the ledger show different content, and can void the untrusted party’s copy. For example, say you want to ensure that a food item is kept refrigerated for throughout its supply chain. Every measurement taken from farm to table is on the blockchain. If someone tries to change a measurement record that is already on the chain, the forgery is detectable. There’s a bit of software that is involved, and smart contracts to protect it.

    • The flip side is that there’s no way to remove bad data from the chain. Bad data may be fraudulent transactions, typos, faked measurements, etc. The blockchain is protected from interference, but also protected from the corrections that are occasionally necessary to bring the data into correspondence with physical and social realities. Trust in its accuracy will likely falter.

  13. The blockchain works in any market where you can’t (or don’t want to) trust a central authority (needed to keep a much cheaper database). An international currency (such as but not necessarily bitcoin) is a perfect application.

    But I agree–using a blockchain simply as a substitute for a database is totally wasteful.

  14. OK, I have one block chain use case, the escrow network.

    The escrow network is a network of escrow nodes. An escrow node is a web account that can execute simple contract protocols from a known grammar. Each escrow node executes some part of a contract on a block chain shared by all escrow nodes.

    However, the protocol language, by definition of a contract, only needs the signing of participating parties to confirm completion of contract, The escrow nodes are crypto accounts and accept users give up coin on trust. The progress of the contract is published as it happens, the the user guaranteed by a timeout. The language protocol and the escrow nodes easily protected and insured.

    When the contract is completed, it is removed from the local blockchain, since all transfers were registered on other ledgers. So we get the equivalent network ‘router’, and the multi-party contract are the routing instructions.

  15. I think some of the disagreement over blockchain is due to conflating other aspects of a protocol with the blockchain aspect. For example, Bitcoin is a blockchain protocol that uses proof-of-work to address the multiple-spending problem (that is, how participants in the protocol are discouraged from trying to “fork” the consensus ledger so that participants disagree in some significant way about which version of the ledger represents the truth). Other methods to resolve this exist, although they are potentially less secure when participants are not constrained; proof-of-stake is one approach to resolve the multiple-spending problem in a more energy-efficient way than proof-of-work.

    If the number of participants is relatively limited, it is much easier to design a protocol that establishes consensus. For example, an interbank settlement protocol might give each bank some share of the total “consensus”, and a block is accepted as part of the ledger once 60% of the total shares sign that block. If any participant tries to sign blocks on different forks of the blockchain before a node on either fork gets to 60%, other participants could use either in-band or out-of-band penalties for that participant. That kind of “social sanction” is not feasible when participants are anonymous, but works well when the participants have clear reputational stakes to maintain.

    So proof-of-work blockchain protocols have fewer requirements to make the protocols secure, but are inherently inefficient. Other blockchain protocols are harder to make convincingly secure, but can be much more efficient, and I think those are the ones that will be widely adopted. Those protocols will necessarily lack (by explicit design choices) most of the features that excite people about Bitcoin and similar cryptocurrencies.

  16. In developed countries, calling the state of financial regulation a police state is no exaggeration. Banks and financial intermediaries are fully deputized by law enforcement. They are required to report anything illegal. They are required to report anything suspicious. They are required to report anything that looks like someone is trying to avoid looking suspicious. They are required not to do business with any entity that doesn’t follow those rules, even if it’s from another jurisdiction. Centralized middlemen create a layer of abstraction which regulators exploit as a cost effective way to gain all the advantages of a police state, without making individuals feel like they’re living under a police state.

    Growing use of end to end encryption by individuals has made law enforcement face the prospect of “going dark”. No longer able to rely on deputized telecommunications giants for intelligible surveillance on demand, the FBI has been forced to beg the public to consider some limitations on encrypted communications at the individual level. It turns out that the public will fight a lot harder to avoid losing access to secure communications than they ever did to gain that access. Making something illegal at the individual level not because it’s bad, but because it makes it harder for law enforcement to detect bad things is rarely going to be politically palatable. Financial regulators are likely to face a similar reckoning in the face of cryptocurrencies.

    So there you have it, cryptocurrencies, like end to end encryption, change the default position of our individual capabilities. Just as individuals can communicate securely with anyone over any distance without trusted middlemen, it’s now possible for individuals to clear their own financial transactions with anyone over any distance without a trusted middleman. After a century of technological advancements making social control less visible, less expensive, and more palatable, we’re finally seeing some advancements that might serve as a counterweight.

  17. Virriman,

    In this peer to peer world of financial transactions, who does one turn to when fraud occurs? How is money returned to the victim if the authorities are blind as to the identity of the criminal and lack access to his accounts?

  18. Dan W.,

    You’d turn to the same people you turn to today in the event of fraud. Fraud is fraud whether you’ve been swindled out of cash or credit card numbers or Bitcoins. If the authorities can’t track down the criminal, someone eats that loss, same as the traditional world of finance. Trusted intermediaries have their uses, but if you don’t have one or don’t want one, now you have the option to quickly transact over long distances without one if you want to assume the risk.

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