Bloomberg Columnist Questions Blockchain’s Hype Based on Current Utility and Unproven Nature
If you have been around for quite some time in the crypto industry, you may have participated in the crypto craze of 2017. That year was, by far, the time in which tokens were the most hyped. However, since the bubble exploded last year and all hype turned into despair when investors lost a hefty amount of money, people are not that optimistic anymore.
Noah Smith, a Bloomberg columnist, is one of them. He has recently published an article in which the claims that all the hype was wrong and that Bitcoin and the crypto world may still change the world, but not in any people originally thought.
He starts the article by affirming that, despite all the signs, people threw four times more money in the industry last year than they did in 2017. Was this investment worthy? He has his doubts.
Several companies like Coinbase, Robinhood Crypto, Dfinity, Circle and others received a lot of money last year. Some of these investments, he affirmed, will eventually pay off. According to him, even if Bitcoin never actually recovers from his lows, other cryptos may easily take its place and exchanges will continue to prosper while there are people interested in trading.
He affirmed that even if all the prophecies of cryptos becoming widespread do not actually turn into something tangible, cryptocurrencies may still retain some of their value because there will be always people with high tolerance to risk trading them.
In the second worst case scenario, he affirmed, cryptos could become like a “digital casino” for people who are bored with the stocks market and want something more exciting.
The worst case scenario, as he sees, is that cryptos will eventually become a relic of the past, a promise that was never fulfilled and that people will simply abandon them. Even in this case, the technology might still be used.
Several blockchain-based projects are being created right now using the decentralized ledger technology and some of them are very interesting. The technology is currently being used in shipping, some experimental voting systems and in document verification and contracts. However, most projects are still very early in their development.
What If Cryptos And The Blockchain Fail?
He does cite some skeptics which are not too fond of the possibilities, though. Kai Stinchcombe, for instance, from True Link Financial, wrote in 2017 that nobody would care about the blockchain in ten years. According to him, it is cheaper to simply use intermediaries for all the things that the blockchain can do.
People like him, Joseph Abadi and Markus Brunnermeier, two specialists which wrote about decentralized systems last year, argue that it is impossible for something to be decentralized, correct and cost-effective at the same time. Some aspect would eventually suffer.
Institutions are reliably correct because the existence of their businesses depends on this. If a bank steals the money from people, it will not be around for long, in their vision. They criticized Bitcoin for spending too much energy (and, therefore, money) in order to establish trust, so these alternatives are not cost-effective at all.
They also criticize them for dividing too much and for not having any kind of control. If a bank steals from you, you can just go to court and you at least have a chance, if someone steals using the blockchain, there is no way to get the money back.
The columnist also cites Bruce Schneier, a cybersecurity expert. According to him, the blockchain technology requires people to replace trust in the institutions with trust in the technology. If institutions can fail, though, technology can fail even more easily.
If you want an example, he affirmed, just see how many exchanges are hacked yearly. Wallets are hacked all the time, too, and if you ever lose your private keys, your money is gone. A smart contract bugs and your money is gone as well. There are several ways to get burned from using the blockchain.
The Conclusion: The Revolution Will Not Happen, But Blockchains Can Have a Future
The main conclusion of the author is that the blockchain revolution will not happen as everyone seemed to think back in 2017. According to him, blockchain ecosystems are less decentralized and independent than they think. Just think about all these development teams, they often work as the arbitrators of the systems.
Also, technology does not protect anyone from scammers and bad actors. Bitfinex was recently ripped off by Crypto Capital, which held its funds. Now, all the users of the company will end up paying the price for this.
His conclusion was that even if the blockchain is a very important technological advancement with the potential to change some things, it will not change the whole world alone and it has not proved itself yet. It is still an expensive solution immersed in chaotic competition and fraud, as well as technical difficulties and human error.
Sure, this is a very stark vision of the future of the blockchain, but it is always good to have some more negative visions in order not to get too carried away with the idea of using the blockchain technology as the ultimate panacea.