Squaring the Blockchain circle (Nov 2018)
The hype-fog surrounding the blockchain and its offspring cryptocurrencies is peaking, and this book slices through it. Is the blockchain revolutionary in scope? Absolutely. Will it all play out in line with the investment dollars? Not at all. Squaring the Blockchain Circle critiques the blockchain ecosystem.
ICOs have resulted in some twenty billion dollars flowing into projects even as bubble indicators flash red. Bitcoin has the Midas touch. But there’s manifest blindness elsewhere, and I decimate most half-baked, misconceived blockchain applications attracting funding. The book highlights that very few tokens will deliver lasting value as the next Google or Amazon, and there will be a crash before things normalise. As the co-founder and CEO of uTrade and Hashcove, I have been a part of the euphoria surrounding this technology, as well as a student of its superb prowess.
Divided into three parts, Part I of the book narrates the origin of the blockchain culminating in the ICO boom. The second discusses four specific aspects — decentralisation, trust and truth, security and scalability. Part III exposes the fallacy of viewing every database as a nail for the blockchain hammer, debates the value embedded in tokens, their mis-pricing and susceptibility to fraud and finally highlights the blockchain as futuristic technology.Squaring the Blockchain circle.
The book has follow sections and chapters,
Introduction – The Whys and Wherefores
The Invincible Ledger — How a Ledger Gave Birth to a Currency
Genesis — The Birth of Bitcoin
Breath of the Gods —The Story of Ethereum
Cryptic Cryptos —March of the Altcoins
Blockchain 1o1 – The Essential Lexicon
De.cen.tra.lis.ed — By Netizens, For Netizens, Of Netizens
Trust from Trustless — Consensus Begets Trust and Truth
Cracking Fort Knox — Chinks in a Blockchain’s Armour
The Scalability Trilemma — To Grow, or Not to Grow
Maslow’s Hammer — (Mis)Use Cases
A Coin for your Thoughts — Valuation and Regulation Conundrums
Machines in the Anthropocene — Blockchain as Futuristic Technology
And Satoshi blessed them. And Satoshi said to them, “Be fruitful and multiply and fill the cryptosphere and subdue it, and have domi-nion over the fiat of governments and over the gold of the heavens and over every machine and living thing that moves on the earth.”
First there was the blockchain. Then there was the hype. And now there’s the hype surrounding the hype as almost every book, article and talk commences by ritually declaring that there’s a lot of hype around the blockchain. Since everyone agrees there is one, ergo, there must be one.
Dante Disparte in “Why Blockchain Why Now” (Forbes, April 2018):
We are at the very crest of the blockchain hype cycle where there is a lot of sizzle, little steak and the occasional setback or indictments. All of this denotes progress.
Having paid obeisance at the altar of this hype-fog, my book will slice through it in some detail. Is the blockchain something revolutionary in scope? Absolutely. Will it all play out in line with the way the investment dollars are flowing? Not at all. Through this book, I offer a critique of the blockchain ecosystem, which along with Artificial Intel-ligence (AI) and Internet of Things (IoT), will be one of the key drivers ushering in Web 3.0.
Squaring the blockchain circle requires deconstructing some of our existing social and philosophical constructs, such as how we trust each other and how we arrive at the truth and then record it. There are also our economic and commercial constructs, such as how we set up contracts and agreements and how we resolve our disputes. For centuries, these assumptions have been the edifice of our commerce and have changed little, or not at all, over time. The move from paper-based systems to digital systems and then onto the cloud never challenged these assumptions, just enhanced our capacity to process ever-increasing amounts of data more efficiently. Up until about 2008, when the Global Financial Crisis (GFC) struck us.
The GFC and its aftermath exposed systemic flaws that brought the world economic order to the brink of collapse. Nations went bankrupt, currencies went into a free fall, the world’s biggest insurers failed, investment banks collapsed and the central banks of the world faced a situation rapidly spiralling out of their control. While it is beyond the scope of this book to analyse the GFC and its subsequent fall-out and developments, if it all had to be summed up in one line, that would have to be — the collapse of trust.
When trust collapsed, market liquidity evaporated. Blue-chip securities were suddenly unsaleable. Bid-ask spreads went through the roof, and even then there was no guarantee that the markets would absorb supply. Deals collapsed before even the ink was dry on the papers. Financial business came to a standstill, and the Federal Reserve Bank became the lender of last resort holding the scaffolding and injecting liquidity through extraordinary measures.
It was against this background that in October that year (2008), forged in the smithy of the GFC, a person (or a group) called Satoshi Nakamoto published the Bitcoin white paper describing the concept of a cryptocurrency — bitcoin — riding on an underlying technology — the blockchain — which could provide an alternative way to build trust, record truth, secure transactions and create a decentralized network spanning the globe outside the purview of any authority.
The initial interest it invoked was limited to a geeky group on the internet called the Cypherpunks, and the world hardly reacted. But over the next five years, critical interest crossed the tipping point, and by 2017 a frenzy was underway. A major part of the reason for the frenzy was the launch of another blockchain in 2014-15 called Ethereum which permitted the creation of many different types of cyptocurrencies or digital tokens, in addition to its native token ether. The innovative idea of Initial Coin Offerings or ICOs resulted in some twenty billion dollars worth of funds flowing into blockchain projects in a short time even as bubble indicators began flashing red all over. The success of bitcoin made blockchain into a household word and unleashed the power of human imagination regarding its applications. Bitcoin acquired the Midas touch.
If you pick any ten books on the subject of blockchains at random, you will come across an identical set of buzzwords describing the heart of this new technology: immutable, canonical, secure, decentralized, peer-to-peer, anony-mous, trusted, transparent, distributed ledger or register. Indeed, the six blind men of Indostan would be pleasantly surprised at their unanimity in describing this beast (with apologies to John Godfrey Saxe).
But in the blockchain applications space, for all its frenzy and billions of committed project dollars, there is manifest blindness. Every industrial database seems to be a fit target for replacement by the blockchain, in a one-size-fits-all approach. A cost-benefit analysis is rarely demanded, and expectations ride sky-high. While I shall have no hesitation in decimating some of the half-baked and mis-conceived blockchain applications that are currently attracting funding and attention, I believe in its power. Just not in the same way as is being touted.
Both governments and corporations, where centralization is the mantra and anonymity anathema, have jumped onto the blockchain bandwagon as the next big thing. The stark contradictions in the strengths of the technology and its areas of application are being completely overlooked.
The real success stories of blockchain as an applied technology so far are the crypto-currencies bitcoin and ether, and the world is still coming to terms with their existence and volatile nature. All this even as smart operators have launched thousands of me-too digital tokens through ICOs in a bid to make hay while the bitcoin sun shines.
As technology companies, uTrade and Hashcove have been at the forefront of developing solutions based on Blockchain for worldwide clients including consulting for governments of India. As the founder and CEO of uTrade and Hashcove, I have been a part of the euphoria surrounding this technology, as well as be a student of its superb prowess. While I entertain no doubts of the success, longevity and transformative ability of Blockchain, I see it happening on a different trajectory from the one we are now on.
This book highlights that only a small percentage of the projects in the pipeline today will deliver lasting value to their owners, because of flawed assumptions. We are headed for a crash before things normalize. Another premise is that those applications where Block-chain is a perfect fit will have a disruptive and disproportional impact whose ripples (pun intended) will spread through the rest of the ecosystem, especially the financial ecosystem.
This book is divided into three parts.
The first part is the story of the origin of blockchain and its enormous success culmi-nating in the ICO boom. Recounted in four chapters, the “The Invincible Ledger” expounds the age-old history and applications of ledgers in commerce and accounting and what makes the blockchain ledger so different, and well, invincible. It also describes how a ledger gave birth to a currency — an astonishing “Genesis” if there ever was one, which becomes the title of our second chapter, chronicling all the developments from the birth of the blockchain and bitcoins in their very first avatar by their inventor Satoshi Nakamoto. The second avatar of the blockchain came in the form of Ethereum and its token ether, and the chapter “Breath of the Gods” discusses the changes in the underlying technology that made that such a huge success, and brought into existence a new kind of application — the dApp. Finally, “Cryptic Cryptos”, sub-titled “March of the Altcoins”, takes an overview of how the bitcoin seed blossomed into a thousand different coins — cryptocurrencies with forks and transitions and variations around a theme.
The second part of the book discusses threadbare four specific and crucial aspects of blockchains — decentralization, trust and truth, security and scalability — and zeroes in on what is feasible and probable as opposed to what is hyped and hoped. So “De-cen-tra-lis-ed” brings to the fore the paradox that in order to build a decentralised network, you cannot fully escape centralised governance. “Trust from Trustless, Truth from Truthiness” high-lights the fact that while consensus protocols form the foundation of both, yet immutability cannot guarantee the truth and trust cannot bypass the “oracle”. Since a large part of this trust in blockchains emanates from their much-touted security strengths, “Cracking Fort Knox” debates their vulnerabilities in some detail. But of course, all trust and security is of limited use if the solution cannot be scaled to handle the task at hand, and “The Scalability Trilemma” is devoted to this most crucial of aspects that the blockchain can only deliver on two out of its three key metrics at any given time. Readers not too well-versed with the technical terminology employed should take advantage of the introductory chapter in part II titled “Blockchain 101”.
The last set of chapters in part three begins with “Maslow’s Hammer” where the fallacy of viewing every database application as a nail for the blockchain hammer is exposed, the inevitable downside of any new technological breakthrough. For the average Joe and Jane, all the action lies in just the ICOs, which are the subject of “A Coin for your Thoughts”. It debates the value embedded in crytpo-tokens, their mispricing and susceptibility to fraud, and the emerging regulatory and management challenges and the mainstreaming of blockchain applications. “Machines in the Anthropocene” views blockchain as a futuristic technology, the harbinger of “Web 3.0” and a pillar of some exciting transformations to come.
It is a truism that hindsight is 20/20, and it is only looking back from the vantage point of maybe a decade ahead will the true impact of the blockchain be understood. Yet who can resist the thrill and excitement of a revolution unfolding at light speed before their very eyes. If this book succeeds in engrossing you in the unfolding vision of things to come but with your feet planted firmly on the ground, the blockchain circle would stand squared.
The book tries to maintain an objective and frank view of the “blockchain ecosystem”, while trying to keep the content as non-technical as possible.
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