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Why I Think That Blockchain May Not Be the Future

First of all, I have to admit that the title of this essay may sound cliché, but I couldn't think of a better one at the moment. Blockchain, or cryptocurrency, was originally a niche area that only attracted a small group of enthusiasts. However, since 2016, this niche area has boomed, attracting capital and becoming the biggest trend in 2017. Countless people have started promoting it as the next internet and the future of mankind. With the rise of cryptocurrency prices and the creation of sudden wealth mythologies, such promotion has become even more emotionally charged. However, as the title suggests, I firmly believe that blockchain may not be the future, and I will summarize my reasons below.

First, let's start with the most basic application of blockchain, which is cryptocurrency. Cryptocurrency is a remarkable attempt as it allows us to have a payment method that is not dependent on any bank or corporation and operates through the internet. However, its limitations are indisputable. Such a system that can only complete a few transactions per second globally is doomed to be unusable, even if it is alleviated through means like a micropayment channel or lightning network. Furthermore, due to the restrictions of the p2p network itself, it is almost impossible to have a significant expansion. Existing measures can improve the anonymity and decentralization of cryptocurrency, but the network structure makes it impossible to increase transaction frequency further.

For financial applications, trust is the most important factor. Bitcoin chooses to allow everyone to store a copy of transaction data. To ensure the validity of transaction data, Bitcoin wastes energy to achieve trust in a decentralized environment, which is an inevitable compromise. Therefore, many blockchain currency projects claim to have a higher transaction frequency, but usually at the cost of centralization. This goes against the original goal of cryptocurrency: If a person does not care about centralization, then the better option is obviously a bank. The trust system built by banks has been operating steadily for hundreds of years and is operationally excellent. In comparison, those centralized blockchain projects have no advantage whatsoever.

Many people promote the second application of blockchain as a way of settlement between different institutions, but this is somewhat absurd. To settle transactions between different institutions, an ordinary software platform jointly operated by them would be sufficient. As for those shiny consensus mechanisms, such as the well-known BFT, their role is actually quite limited. For instance, suppose disputes over property arise during settlement between companies, in that case, judical system is the ultimate arbiter, and legal and financial personnel are still needed. Therefore, the savings on labor costs that can be achieved by using blockchain can also be achieved by using ordinary financial software. Furthermore, blockchain requires additional software development costs.

Some people have envisioned a more long-term prospect: with blockchain, if there are good protocols and mechanisms, everything will be code, and we will not need lawyers and accountants. The entire social form will be reformed. However, in our universe, this is undoubtedly unfeasible. Even if it does exist, there is no way to guarantee the security of the code, and crackers can do whatever they want, just like the dignitaries or the wealthy of our time. However, I believe that cyberpunk and dystopian-style novels/movies/animations inspired by this will be interesting.

As for other applications such as tracing, health information management, they do not require blockchain at all. Software like Git has provided these functions a long time ago, so why bother with extra hassle? These applications give the impression of "if you have a hammer, everything looks like a nail."

Moreover, the concept of "internet of value" is not a new concept itself. We use online payment every day, doing online shopping, and we can also reward the creators we like on Patreon. On the internet, value has long been interconnected. This is also the fundamental difference between the bubble of blockchain and the previous internet bubble. Blockchain has not brought new functions like online shopping. Instead, it only added extra decentralized and ability to be anonymous. However, aside from those hackers and cyberpunks who value privacy extremely, the general public values user experience more. In this regard, blockchain applications will never catch up with centralized trust applications like Paypal, and they do not offer any new functions either. Moreover, banks and enterprises like Amazon and Paypal have already accumulated enough trust, and trust is very difficult to overthrow and rebuild. Centralization is indeed a trend in internet history: cloud drives replace BT downloads, and blog platforms replace personal homepages. Although I am not in favor of centralization, this is the fact. The decentralization of property and trust is far more limited and difficult than the decentralization of information.

In conclusion, I have sufficient reasons to believe that blockchain, born out of anarchism, will return to its original position, not being our future. This blockchain frenzy will eventually dissipate as did the hype surrounding the Internet of Things and virtual reality. Of course, the future is unpredictable, and the lesson of "there is no reason for any individual to have a computer in their home" is right there.

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Email: dzshy [at] outlook [dot] com