I don’t care about blockchain!

Blockchains generally come in two types: permissionless and permissioned.

Permissionless blockchains run cryptocurrencies and are quite impressive technically. They are distributed ledgers that anyone can write into and you can still trust it because of the complex incentives game. The problem is that they are not very practical besides cryptocurrencies because:

1. Low throughput
2. Enormous costs
3. Open to the public to read

Then there are blockchains that require permissions to write and/or read from it. Because they solve a simpler problem then permissionless blockchains they can be faster and cheaper. But so would be a centralized system. The business appeal of blockchain is that there is no “central authority”. I call that mostly a fiction. First of all there obviously must be the ‘permission’ mechanism — there is no way to do it without any “central authority” (in practice this would probably a contract enforced by the law). Then all the participants need to trust a technology vendor. Even if the software is open source — then implementation is not trivial. Third there are lots of edge cases — what if some users of the ledger want to upgrade it to an incompatible version while others don’t, or what if some participants make a cartel and do a 50% attack? In the case of cryptocurrencies this produces forks and lots of drama, and eventually it is resolved by new coin creation and market forces. I don’t think businesses are open for this kind of resolutions, I think that all of this will require contracts and in practice this will not be much different from the case where there is a central trusted authority which signs contracts with everyone.

And you don’t need a blockchain to have smart contracts — you can run them on a trusted central server.

Blockchains are much more complex than centralized solutions and the more complex solution the bigger attack surface it has. They might be useful in cases where people don’t trust the legal system — like in the case of currencies where many people don’t trust the government to manage money creation properly. But in the case of ordinary businesses where you rely on the law anyway — a centralized system would nearly always be a better solution.

Bill Gates said that “Bitcoin is a technological tour de force.” — and it truly is. It is quite surprising that you can trust a system that everybody can write to with your money. It feels magic —and it is easy to imagine too much about its powers.