Yet another entrepreneur tries to apply some sort of blockchain technology to another industry and all I can think is: I really hope they don’t swindle anyone’s money. Investors should be wary of the shaman that is the Blockchain.
For the past few years now we’ve seen the Blockchain solution thrown around as a new way of conducting business online. Can we apply it to music? To banking? To e-commerce? By taking power away from centralized sources and giving it back to the people in terms of distributed ledgers, can we save the world.
Blockchain is not going to upend any industry and it’s certainly not giving any power back to any people.
Look, I get it, big companies are bad because their inner workings remain secretive and they are beholden to profits instead of other wellness-based metrics that you care to throw out there. Democratic systems are the ones that we idolize the most today since it’s hard to argue with a majority and when power is dispersed it is harder to corrupt.
But the Blockchain suffers from some intrinsic contradictions that will keep it from becoming a new way of doing business on any sort of large, legitimate scale.
The first contradiction is privacy. Since Blockchain relies on public ledgers of transactions, in theory any individual’s holding could be discerned by going back far enough. When talking in terms of cryptocurrency, this has meant that people don’t use their real identities, but rather codes or “wallets” to hold their coin. This means that there is essentially no way of knowing who anyone is. Advocates of privacy say that this is great because you can finally keep your personal data disconnected from your activity. “Come get me now Uncle Sam!!”
But commerce today is based on trust. When people have been replaced by numbers, and there is no legal recourse to finding them and holding them accountable, business cannot function. No one is going to purchase anything from a company or seller that they can’t see. It might have worked on sites like Dream Market and Silk Road for drugs, but everyone knew that it was illegal and there was always a risk of you losing your money. If you are buying an insurance plan, you better know who you’re dealing with.
And so if you must know who you’re dealing with, when doing things like buying medicine, a car, a home, or anything legitimate, you have to have a real identity, both you (so the company knows you’re real) and the company (so you can trust them to give them your hard earned cash) are known entities. That means that putting this information into a distributed public ledger exposes your transaction information to the public, making Blockchain a huge erosion of privacy.
The second contradiction is the idea that decentralizing the ledger cuts out the middlemen and reduces the chances for business to be manipulated by corruption.
Let’s take an example of something like music royalties. If a blockchain solution could record the use of music around the world, it’s feasible that people could transfer money directly to artists via a blockchain instead of paying a subscription to Spotify. Artists could sell their music to fans who could download and listen without going through reps, labels, or tech platform that are all taking a cut and watering down revenue for the artists themselves.
Sounds good in theory, but the question becomes, who is going to operate the hashing necessary to update the blockchain? Bitcoin works (sort of) because the miners that come up with the nonces (codes to enable the new block of data to be linked to the existing ledger) get rewarded with newly minted Bitcoin. They are compensated. And if Bitcoin miners are any indication, they are not the most trustworthy people.
So any music royalty Blockchain would have to pay groups of people to maintain the ledger. Since the ledger has to be consistent across the board, it would be hard to corrupt since every single people updating it has to put the same info in. But there would have to be a governing body who would employ those people and take a fee on transactions in order to pay them. Plus listeners would not have a centralized platform on which to listen to all of their music, because if they did, and there was a governing body that collected fees, well that would look a hell of a lot like Spotify.
It sure looks pretty
Capitalism is the gravity of money. The more money you have, the more money you accumulate. In a world of social media where inequalities are increasingly visible (though not as bad as when there were Kings and Emperors and all that stuff) we get outraged when we see huge concentrations of wealth and power. Therefore any solution for offsetting this accumulation can certainly be tempting. Blockchain appears to provide an option just because of its decentralized nature.
Its decentralized nature also harks back to the early days of the Internet, which sprouted up independently of governments and regulation to become what it is today. Older entrepreneurs look back at those days fondly and maybe see something similar in the Blockchain.
But the reality is that Blockchain technology is extraordinarily complicated. And with complexity comes opacity. Entrepreneurs promising a new future pull the wool over the eyes of investors who see the word Blockchain more and more frequently in the headlines of articles they don’t read.
The hype then – almost exactly like Bitcoin – is entirely self-serving. There has yet to be a real business solution built upon the Blockchain that can arrive at scale. And I doubt that there ever will be.
I’ve been wrong before
Horribly wrong, in fact. All this being said, I am not an expert on Blockchain and there are possibly groups and individuals out there working to prove me wrong. If you or someone you know is making it work (for real and not just because you sort of think they sound like what they are talking about), I’m all ears.
Until then, defy the hype.