When it comes to blockchain technology, people are familiar with contradictory facts but in many cases this technology is poorly understood, and those who speak of it have done no more than read the literature that is available online. So we’d like to offer you a 10-point analysis of what is said on a regular basis about blockchain.
1- All blockchains work in the same way – FALSE
We often talk about the blockchain but, in reality, there are hundreds of blockchain technologies. Some are derived from the code used for Bitcoin or Ethereum, the two main blockchains, but others have been created from scratch. So when we speak about blockchain, we need to specify which one, as not all have the same characteristics, especially in respect of their functionality. So a revolutionary function, such as the option of executing smart contracts, isn’t available with Bitcoin. The first technology to introduce this option was Ethereum, after which many others have developed it.
2- Blockchain gets rid of all middle-men like lawyers, banks and solicitors – FALSE
Blockchain is capable of removing a lot of intermediaries from many sectors of activity but it does not solve the problem of third parties in which trust is placed due to the value they provide by certifying that the information stored is truthful and verified. For example, if a solicitor is able to validate a purchase/sale transaction between two individuals, this human transaction can indeed be replaced by a blockchain transaction, but the information related to the asset (certificate of ownership, diagnostics, additional documents related to the asset etc.) will still need to be certified by a solicitor. Blockchain significantly shortens the value chain in activities with lots of intermediaries. This time, let’s take as our example programmatic advertising where there are many, many intermediaries (SSP, DSP, ad exchange): in this case, blockchain can clearly reduce the numbers of players to three: advertisers, publishers and internet users.
3- Blockchain will uberise Uber – TRUE
The only value that Uber adds is the provision of a mobile app that puts a driver in touch with a customer who wants a ride if they happen to be in the same geographical area. Uber acts as the intermediary that transacts the payment due for the ride, taking a commission in the process. The underlying principles of blockchains are openness, transparency and a community aspect. This derives from the fact that the technologies are developed in open source. In fact, there is nothing to stop a community of developers from implementing a solution based on blockchain that aims to limit the expenses taken by the system such that the value goes as directly as possible from the customer to the driver. As it happens, this is the aim of Arcade City, the company that tried to set up La’Zooz in Israel.
4- Blockchain requires a great deal of energy – TRUE and FALSE
The Bitcoin Blockchain does indeed require a great deal of energy; it’s estimated that it consumes the equivalent of the annual production of two nuclear power stations, or the equivalent of the annual consumption of Ireland. But there are other blockchains which don’t use the same consensus methods – the algorithm for which is at the root of Bitcoin’s energy needs – and which consume almost no energy. Ethereum, for example, the second blockchain after Bitcoin, is actively developing a more energy-efficient modus operandi. Even the developers behind Bitcoin are looking to develop new solutions to reduce that blockchain’s energy consumption. Read our dedicated article: Is Blockchain really an energy chasm?
5- Blockchain has the same disruptive capacity as TCP/IP had in the creation of the Internet – TRUE
The difficulty posed by blockchain’s features (transparency, decentralisation, lack of governance, security based on cryptography) is that of imagining practical applications for it. TCP/IP, the technology underlying the Internet, was invented in the 70s in research laboratories, and aimed at allowing exchanges of data between scientists. No-one at the time could have imagined that in 2018 we would have e-commerce, e-payment, smartphones, the cloud and social media. Blockchain has the same disruptive potential as TCP/IP, however it is not hard to believe that it will take ten or twenty years for us to see all of the major changes that it will entail.
6- Blockchain has no probative value in respect of the certification of documents – TRUE and FALSE
One use case for blockchain involves the certification of documents. Once a document has been stored in blockchain, no-one can change or delete it. This becomes meaningful when certifying, for example, the prior existence of a brand or a piece of music. An artist can thus register proof of existence of their piece in blockchain and appear before a court to prove prior existence in case of dispute. The issue in France is that there is no case law yet on this type of certification. In recent months, the idea of intentionally triggering a case in order to obtain a legal ruling has been doing the rounds of the blockchain community.
7- Blockchain guarantees the validity of whatever is stored within it – FALSE
The act of storing a piece of information or a document blockchain does not ensure its validity. Blockchain can be used to prove that a piece of information or a document was stored at a given time on a given date, even at a given location, but it cannot prevent anyone from storing faulty or falsified information or documents. This is why trusted third parties cannot always be dispensed with, as some situations require a recognised authority to guarantee the registration of information.
8- Smart contracts have contractual value – FALSE
A smart contract is a computer program that runs automatically on the basis of pre-defined criteria and in a decentralised way on a blockchain. The program, and the results it produces, cannot be falsified, but despite its name, a smart contract is not intelligent and has no contractual value. Suppose that some software that you write produces results contrary to the hardcopy contractual commitment that you entered into with a customer. In the last resort, the hardcopy contract will always be admissible in court, even if the software has been developed incorrectly. The same applies to blockchain. If two parties decide to record the provisions of a hardcopy contract in a smart contract in order to automate triggering of the rules, they must be identical to what appears in black and white in the contract.
9- Blockchain can be used in any situation whatsoever – FALSE
The tendency in the last few months, with the emergence of blockchain, and the tests and studies that companies have been carrying out, is to think that this technology can be applied to any use case. However, there are highly specific, logical criteria that determine the suitability or otherwise of using blockchain in a corporate project. The first questions that you might ask yourself before choosing a blockchain for a project are, for example: do you need a database, do you need to write data to it? If the answer to both questions is no, you don’t need a blockchain.
10- Blockchain creates trust between strangers – TRUE and FALSE
By using a blockchain to complete transactions between partners with no mutual trust, you introduce a technical resource, the governance of which is shared between the stakeholders, thus creating trust. The objective is for each party to participate in the validation process and to have the means to check or veto transactions that occur on the partners’ network. If you decide though to sell me a pair of shoes for a fraction of a bitcoin that I send to you, the blockchain will not affect the level of trust that I have in your ability to send me the shoes, or that they are in the precise condition that you have described.
Undeniably, blockchain might look like a magic solution to many corporate problems. But even though it brings new answers to current issues, it won’t necessarily be the right answer every time. So it is important, before launching into a project based on a blockchain, to understand the technology, what it can and can’t do and how it works in practice.