Blockchain after the Hype – Part 3

A big contributor to the Hype behind Blockchain was the combination of the Celebrity Effect and a sales script that outlines all the alleged benefits of blockchain (and in most cases crypto currencies while at it). Some of those celebrities just sold their face and name like they also do for your favorite brand of clothes or soft drinks. Nothing wrong with that.

Where matters get more complicated are the situations where celebrities with a stake in blockchain promote blockchain and crypto currencies. John McAffee is one of those celebrities who did and does that, using his fame to promote yet another coin or ICO, most of which have failed long before investors and speculators realized what happened. Or to promote his believe in crypto currencies as the savior of democracy as we know it.

Another celebrity of the blockchain universe who actively promotes every part of blockchain and crypto currencies he has a stake in is Bill Tai. Bill Tai is an established businessman, venture capitalist and adviser to crypto and blockchain platforms like Airswap. Bill follows a sales script and he manages to put all points of the script in 1 short video, so let us have a detailed and critical look at what he has to say.

Great things have happened when known markets and known behaviors have been deconstructed in their basic elements for the modern era.We’re in the midst now of kinda deconstructing and reconstructing marketplaces. I’m Bill Tai, I’m a Venture Capitalist, and I’m an advisor to Airswap.

In the operation of exchanges, what people really care about are liquidity, so they get the transaction actually executed when they want, and security so they know that it happened and it didn’t get hacked.

One of the reasons that the blockchain (1) has such resiliency compared to a centralized system (2) is, the centralized system, it can work but it is also a single point of failure (3).

The blockchain because it is a distributed ledger (4) where the recording of all these transactions isn’t just happening in one place, it’s written of thousands and thousands and thousands of places (5)it can’t go down (6)The nodes are spread around the world (7)And if the power fails in a couple of them everything else it still running (8).

So it is hard to hack (9) because to try to replace or erase (10) some change in information you essentially either have to take over every single one (11) of those computers around the world writing it down at the same time (12), or you would have to double the whole network all at once (13), which, it’s really kind of impossible at the scale it is today (14).

So we are right now at that point where assets because of the blockchain can be connected to a gigantic network (15) so every single asset in the hands of every single person can broadcast itself to find its buyer or seller (16).

And we’re in world where there is going to be somebody that doesn’t organize the world’s information or people, like Google did or Facebook did, but organizes the world’s assets (17)It’s an enormous market and I think the timing (18) for this technology (19) is perfect.

Referring to the blockchain as if it is a common platform has become very popular among the advocates, salesmen and their followers. The blockchain, as if there is one blockchain, one method, one system, one protocol, one standard. In reality there is no such thing as ‘the blockchain’. There is a diverse universe of blockchain variations which all have different specifications and characteristics. And within these variations, there are countless platforms and inherited objects.

Using ‘the blockchain’ as label is similar to using ‘the car’ or ‘the computer’. Yes, we all think we understand what it means and as such it isn’t that bad to use a common label which we can related to. In this context however, there are comparisons made between ‘the blockchain’ and ‘the centralized system’, whatever those may be. And that comparison is made in such way, that ‘the blockchain’ is the winner. Better than anything any other platform could offer, of course.

In this context, using ‘the blockchain’ as label for the jungle of technology variations is as misleading as putting the whole collection of fuel wasting muscle cars every produced in the same bucket as Tesla’s portfolio and any other car ever produced. And if that isn’t malpractice enough, compare fuel consumption of ‘the car’ with ‘the airplane’ which of course puts every fighter jet, long distance strategic bomber, one seater turbo prop, hot air balloon, airliner, glider and everything else ever made that flies in the other bucket.

So ‘the blockchain’ is a misleading label and it is used in a misleading context. We could even argue that it is used to mislead on purpose, but we assume that this is not the case. For now, at least. Regardless of the purpose, the label blockchain is misused in misleading context and doesn’t stand the simplest test of logic.

When blockchain advocates speak about ‘the centralized system’ as counterpart of ‘the blockchain’, they actually refer to two different definitions of centralized and put them under the same cover to make things easier. Or to make the sales talk smoother. Let’s have a look at the facts and see if this part of sales talk has some truth in it, or is again nothing but that famous bridge for sale.

The first definition relates to the technology behind a platform, which the advocates often describe as if there is one system in one location, and everything is happening there. That might have been the case a couple of decades ago. Nowadays, there is no longer a platform which depends on a single centralized instance, unless we would consider the at home hosted website of the local post stamp collectors club a centralized system worth comparing to blockchain technology.

From a technology perspective, it doesn’t make sense to refer to a centralized system when attempting to outline the benefits of blockchain technology, just as much as it doesn’t make sense to refer to ‘the blockchain’ as a system when in reality the diverse mix of blockchain technology is meant. So why do blockchain advocates prefer to refer to a centralized system as a platform that could break? Because it matches the good versus bad story, and it is once again nonsense.

The second definition of a centralized system is what it is really all about for most blockchain advocates and believers. A centralized system which is controlled by an organization or a government. The power of control over the system is centralized and blockchain will change all that. Isn’t that fantastic?

It might be fantastic in case it was true. In reality, blockchain enabled platforms are just as much under centralized control as the centralized systems the blockchain advocates and believers are referring to. Satoshi Nakamoto, whomever he or she may be, determined the design and implementation of Bitcoin, and neither the distributed ledger nor the peer-to-peer protocols can change that.

Big players are entering the market and offer blockchain enabled platforms. Guess what? They design and develop the platforms, make the critical decisions about the protocols and fees. Proof of work or proof of stake or a hybrid? Decisions made by the originator of the blockchain enabled platform!

Decentralized much? Not at all! What the advocates and their believers do is present distributed ledger and peer-to-peer as a feature of a decentralized platform. And they do that knowing (or at least we should hope that they understand what blockchain enabled platforms are) very well that blockchain platforms are not really as decentralized as they try to make us believe. Not from a technology perspective and not from a control perspective. Comparing blockchain with centralized and emphasizing the alleged benefits of blockchain is as valuable as comparing apples with apples. They might taste different, they might even look different, but they are still apples.

Single Point of Failure indicates that one breakdown would take down the entire platform, and that is a strong point in almost every single blockchain sales pitch. So why don’t we take a closer look at how these so called centralized systems work in reality? To make it interesting, let us have a look at one of the largest platforms for digital wallets and virtual payments, and compare it eye-to-eye with a blockchain based crypto platform.

Primary location for this centralized system is Frankfurt, located in 2 different hosted data centers. Multi sourced power supplies and network links. Load balanced and failover redundancy. Tough gig to take that out, but let us play along with the Single Point of Failure scenario. Frankfurt is out. Boom, ‘stuff’ happens, right?

Single point of failure? Of course not, nobody in his right mind designs a critical service based on a Single Point of Failure. So there is an inhouse hosted data center in Amsterdam and another one in Brussels which of course utilize multi sourced and fully redundant failover power supplies and network facilities, which is complemented by a third data center in Sophia.

That isn’t really supporting the Single Point of Failure theory, isn’t it? Why don’t we go bananas on the Single Point of Failure theory to sell Blockchain as the place to be? Europe is out! No network, no power, nothing. And that all at once. Very unlikely but let’s follow the sales script.

Tough luck for the Single Point of Failure advocates. Load balanced hosted data centers in Montreal, Miami, California, San Paolo, Singapore and London, and many other places around the globe will make sure that the service will not go down. Not for a millisecond! This digital payment service provider, like so many others in the industry, has at least 5 fully redundant and failover sourced data centers on each continent. Good luck taking that all out at once… So the Single Point of Failure is a sales talk which is not based on reality.

And there is even more than just a busted sales talk to lead the sheep to the blockchain. With the exception of both inhouse hosted datacenters, each hosted data center where this so called ‘Single Point of Failure’ major payment platform is hosted, is also servicing a growing amount of blockchain mining farms. Same infrastructure, same power and network feeds. Same deal, different label.

Distributed Ledger Technology (DLT) is basically the foundation of every accounting system, in which each entry in the ledger is connected to the previous entry for an account. When accountants read about DLT they chuckle and ask what the fuzz is all about. They have been doing this for centuries. ERP systems follow the principle of ledgers and connected data entries and have been doing so for decades.

So what is new about DLT? Not that much to be honest! The technology behind DLT was invented in the 70’s and 80’s of the previous century and has been servicing its purpose for several decades. Even the so called ‘server-less’ or ‘peer-to-peer’ character of DLT is around since the 80’s.

What is new is that blockchain platforms solely use DLT as its only method of registering data and mutations throughout its data repository. Sold as new and innovative, DLT is a veteran of its kind and comes with a whole set of advantages and disadvantages. It is interesting to see that we never hear the evangelists and their disciples about the decades old track record of DLT, and the many disadvantages when using it to maintain large data repositories.

Now the sales talk gets really nasty…

Let us start by taking the show element out of the equation. Instead of ‘thousands and thousands and thousands of places’, let’s just say a few thousand. So we have a few thousand of systems writing down and validating the transactions in the Distributed Ledger. Yay or maybe not so yay once we have a closer look at what really happens?

What does it mean to have a few thousand systems maintain data in a distributed ledger? It means a lot of electricity! Not just for the systems themselves, also for the network infrastructure and let us not forget the electricity consumption to cool the systems which are generating heat. And that is not the only downside of having a few thousand systems holding and validating the same data.

Systems and infrastructure, yes even the cooling units, are build using rare and expensive metals. Most systems and their components include aluminum, antimony, arsenic, barium, beryllium, cadmium, chromium, cobalt, copper, gallium, gold, iron, lead, manganese, mercury, palladium, platinum, selenium, silver, and zinc.

Not only are most of these metals rare, the mining process itself is causing serious damage to the environment. And this is where it becomes really nasty, metals like cobalt are still mined using child labor!

So the question we now have to ask ourselves is this. Are we going to create more and more systems with supportive infrastructure just to create those thousands and thousands and thousands of places where blockchain enabled distributed ledgers will be processed and stored? Will we continue to build mining farms to mine blocks to put on the distributed ledger, in those thousands and thousands and thousands of places?

Blockchain advocates, evangelists and their disciples try to sell this as a unique aspect of blockchain platforms. It can’t go down is something that applies to many platforms, and is also a lie. Everything can go down, what should be evaluated is the likelihood of something going down. The likelihood of a major blockchain platform going down is very low and that applies to just about every other major platform around the world.

Nevertheless, this doesn’t mean that no blockchain platform will ever go down. There have been several cases of blockchain platforms being down and there will be more in the future. Let us face it, blockchain is software and software can break. Blockchain platforms run on conventional infrastructure and that too can break. Yes, as unlikely as it may seem, blockchain platforms can go down. We both know that, Bill!

Saying Blockchain can’t go down is akin to saying the Titanic can’t sink…

True. On the other hand, nodes of each and every major peer-to-peer and distributed platform are spread around the world. We are reaching a point that the avalanche of alleged advantages of blockchain platforms are either not true or apply to basically every major platform using conventional technology around the globe.

So why do the blockchain advocates, evangelists and their disciples follow this script? By stating an advantage as unique characteristic of blockchain, they are basically suggesting that all other platforms do not deliver on that point. With each point in the script it becomes clearer: this is a sales script which isn’t really based on facts. Just like a used car salesman will tell you all about the advantages of that one car you are very interested in, not highlighting that almost all the other cars in the lot have the same or similar specs.

Right, the power outage thingie. When we accept the fact that each and every self-respecting major platform will not run on a single source power supply, in addition to being sourced around the globe, this is akin to trying to sell a car because it has a steering wheel…

The advocates, evangelists and their disciples, maybe we should start calling them the Blockchain AED’s, love to use the power failure scenario to set blockchain apart from everything and anything else for a simple reason. We all know the impact of a power outage when it happens at home, some have experienced it at work. Everything technology related stops working or at least when the batteries are depleted. Project fear, fear the power outage and be assured that blockchain is not impacted by it.

Well thank you very much. Blockchain is just as resilient to power outages as any other major platform…

Credit has to be given where credit is due, so credits and kudos to Bill for not saying that blockchain is unhackable like he does on other interviews and promos for his blockchain ventures. Nope, this time he says it is hard to hack which to some extend is even true.

Hacking the blocks on a blockchain is very difficult. Not impossible but very difficult. You would need to for example propagate malicious node software through the distribution network to pull that one off. Oh wait, that was already done successfully. Several times…

The reality of blockchain platforms is that there is hardly any need to hack the blockchain itself. Blockchain platforms will always have to interact with the outside world and that is where the weak spot is. Interfaces to systems, exchanges, and even the endpoints of crypto coin owners are the real sweet spot for hackers.

Hard to hack, not impossible to hack and in most cases not even necessary to hack. Blockchain can be hacked!

Talk to for example to an SAP user about this and they will either tell you how great this is, or they will tell you horror stories about not being able to correct a flaw. Accountants will once again chuckle. This is the oldest accounting principle around. Things are not changed, replaced or erased in the accounting business. All mutations are entered in a journal. The ledger.

A ledger-based system has advantages and disadvantages, like almost everything else in our existence. There is however a factor which significantly increases the disadvantage of ledger-based mutations in a blockchain platform. There is no reset button!

A malicious takeover of an endpoint which owns the title on an asset can lead to the malicious transfer of that asset. Once the transfer is on the blockchain and confirmed as technically valid by the network, it is close to impossible for the original titleholder to withdraw this transition. The true blockchain platforms are entirely decentralized so there is no governing body to which the original owner can report the malicious transfer.

Not believing this? Check out the enormous amounts of stolen Bitcoins and other crypto currency coins that were never returned. At best the coins can be rendered invalid, which means the criminals can no longer use them. They are however also not returned to the original owner…

There is a lot that can be done to a blockchain platform without having to take over every single one of those computers around the world. It can for example be pulled off by creating a segregation of the network and surround the segregated nodes with malicious nodes, releasing the segregation and repeating it until there is enough confusion about the ‘technical truth’ to pull of the heist.

Or much more realistic, malicious actors have to takeover the endpoint that has the authority to enter transactions to the asset or title. That transaction will be replicated across ‘the blockchain’ by its consensus protocol and distributed ledger technology and can not be reverted.

And more or course, like for example hack the access to a wallet or exchange. Bill doesn’t want to discuss that, of course.

Wait, what? Blockchain platforms are designed to handle the fact that not all systems will be online at the same time. A lot of nodes, especially those in the mining farms will be online 99.99% of the time. Other nodes will be online significantly less frequently. Blockchain platforms are built to handle that, and the consensus protocols and DLT make sure that everything is still handled in the right sequence.

Backlogs on transactions are a part of the reality of blockchain, just like it is part of the reality of any other major platform. The complexity of blockchain’s consensus protocols, encryption and distributed ledger in combination with the diversity of nodes on the network make it close to impossible to process and validate every transaction at the same time. That is not a problem at all because blockchain based platforms are designed to handle it. The problem is that advocates and evangelists like Bill claim that this would happen, and their disciples copy the script without any knowledge of what is behind the technology and why.

There is no such thing as ‘at the same time’. Not in the imaginary world of ‘the blockchain’, nor in the real world of ‘the centralized systems’. Systems come and go into a network. Short disturbances, updates and patching, load balancing. It is all part of the technical reality of online platforms and it is also part of the technical reality to deal with this.

This section of the sales script is misleading for 2 reasons. There is such thing as all nodes doing something at the same time, and there is no way that blockchain platforms are capable of doing so. Secondly and maybe even more importantly, the stakeholders of blockchain platforms like Bill Tai and their disciples use this myth to suggest that blockchain platforms can handle a problem that conventional platforms couldn’t!

What Bill is referring to is the famous 51% attack, which is close to impossible to pull off in one of the very large blockchain platforms. Time for a reality check!

First of all, smaller networks have suffered under 51% attacks. Secondly, segmentation of networks has been established already and can be combined with a 51% of the newly created segment of the network that isn’t aware that it is no longer part of the collective. And thirdly, the 51% is just one of the possible attack vectors of a blockchain platform.

So why is Bill referring to the 51% attack as if it would be the only attack vector? Most crypto and blockchain platforms believe that they have 51% attacks under control. Either by the sheer size of their networks, or by adding counter measures from conventional technology which is designed to deal with this. The trick here is to address a known issue or risk as something which is already solved, thus giving the impression that everything is under control. “Yes we are aware of that issue and are glad that we have solved it” is about the oldest trick in the book of sales tricks.

You mean Bitcoin, right Bill? Or Ethereum or any of the other major crypto currencies. Kind of impossible is at least correct. Not impossible, just hard to pull off for the major networks. Much less of a challenge for the many smaller platforms, or to put it in Bill’s own words, those thousands and thousands and thousands of smaller platforms which are not resilient against hostile takeovers by their sheer size.

The scale it is at today is not as huge as Bill and his peers want us to believe. Fortunately, there are plenty platforms which have reached the level of required resilience by their size, and other platforms which have implemented other means of resilience against hostile takeovers. And there are still platforms which do not offer this despite being pure blockchain powered.

Selling this false sense of security is a major issue with the AED’s of blockchain. It is not and will never be unhackable. After all, it is just software…

The giants of blockchain and crypto currency are truly gigantic networks. Not as gigantic as other networks, but still gigantic. The trick here is that Bill is talking about blockchain as if there is one network, just like he speaks about ‘the blockchain’ as if there is just one blockchain.

Just like there is not ‘the blockchain’, there is also no ‘the network’ on which ‘the blockchain’ would exist. Once again Bill is referring to the giants like Bitcoin as if they represent the entire blockchain universe.

It took a while to understand what Bill means with this and then it took a few more seconds to realize what Bill is trying to establish here. There are zillions of platforms based on conventional technology that do what Bill describes here. Trading platforms are as common as sports club websites. There is no new market and also no new process. These trading platforms are alive and kicking, and not willing to hand over their crown yet.

That is not the point. The point is that Bill and his peers are not involved in these platforms and as a result not making profits on the transactions. So, this is not about creating something new, it is just about replacing the existing. Of course, there are some very interesting features which can be implemented with blockchain platforms but in all honesty, these can already be and are being implemented with the existing platforms and conventional technology.

We have to be honest and recognize that the burst of “new” driven by blockchain technology created a shockwave through the many major platforms around the globe and incentivized innovation and customer focus. Well done, that was long overdue!

Somebody? But blockchain was all decentralized? How can there be somebody, Bill? Actually, Bill is telling the truth here, maybe even without knowing it.

No matter how decentralized your favorite flavor of blockchain is or isn’t, there is always a person, or a group of people, or a company, or an organization behind it that decides the ins and outs of that blockchain platform. And when it comes to organizing and trading assets on a blockchain platform, Bill and his peers would really love to be that person behind the platform. Because each and every transaction on those platforms is processed against a fee, in most cases the internal platform specific coin.

Getting to the bottom of what this whole promotional interview is all about: replace existing platforms and systems in which the blockchain ADE’s are not involved with blockchain platforms they are involved in. As always and nothing different than all the ‘bad systems’ they want to replace with the virtues of blockchain, it’s all about the money.

Nice try but no cigar. To be able to do what Bill and his fellow advocates and evangelists want to achieve, there is a lot of regulation that needs to be changed, and even more improvements are required in what blockchain platforms are offering and how they function, not to mention the enormous squandering of energy and resources by blockchain platforms and their mining processes. We are in a stage of pollution and global warming where we are not even sure if all countries will still exist 50 years from now.

The timing is perfect, Bill? For a fast majority of the crypto currency networks and a large part of the other blockchain platforms the only sensible and smart thing to do is pull the plug right now and not allow them to come back until they came up with a technology base that actually adds something without depleting the already scares resources we have.

This technology, aka ‘the blockchain’ and ‘the network’ are part of a sales pitch that doesn’t stand the first few seconds of critical thinking. This technology is the results of decades of progress and build with components and mechanisms which are itself decades old. This technology triggered an old-fashioned motivator for businesses and speculators: fast profits. This technology also needs to be overhauled and some parts of it need to be tossed in the trash bin.

Before we can do even a small part of what Bill and his fellow AED’s are promoting, blockchain needs to solve a bundle of issues. Speed and volumes of transactions for example. Energy consumption. Endpoint and interface security. The list is long.

Fortunately, a lot of engineers and entrepreneurs are working on that and there will be blockchain spinoffs that can actually do in the future what the sales fables are telling us that are possible today. That will however take 5-10 years, not to mention the slow process of adapting legislation to make this all happen.

Until then Bill and his peers will make nice profits on fees and platforms which are basically doing much the same of what conventional technology does at a much lower price. But with a rechanneling of the fees and that is what this and so many other sales pitches are all about.

Bill Tai is a successful and smart businessman and I have great respect for his achievements, just as much as I have great respect for the achievements of other great businessmen and businesswomen. In the case of blockchain, Bill Tai has diluted the possibility of innovation with the oldest business motivation in the world: greed for profits. Nothing wrong with that, that’s how capitalism works.

What is wrong with this is the amount of misleading statements and information, and Bill Tai isn’t the only person who does that to sell the magical solution for every problem called ‘the blockchain’. Bill is far from the only person, the social media enabled speed of spreading information around the globe has enabled basically everyone to share their story. And much of those stories are nice to watch but not based on facts. And much of those stories are sales talks under the cover of information sharing.

It is a script of misleading statements about the abilities and maturity of blockchain platforms, in most cases claiming unique characteristics of blockchain which can be contributed to convention technology as well, and Bill Tai just happens to follow the script entirely and mention all the selling points in this and many of his other promotional interviews. It could have been anyone else of the AED’s for this detailed analysis, it just happens to be Bill.

Just like most politicians will make fabulous promises during their election campaigns and return to business as usual the moment they got elected, the blockchain and crypto AED’s couldn’t care less about their failures of their promises. As long as the politician is reelected, the goal has been achieved. As long as the profits are made, the AED’s are happy.

It is regrettable that the advocates, evangelists, their disciples, but also the investors and speculators, draw the attention to the profits and in most cases their own of course, which entirely overshadows the real potential of blockchain and the needed steps and developments before blockchain can become a reliable mainstream platform.

Some of that is happening already and more of that is coming. In the next article, the focus will be on the real potential and use cases of blockchain. Sorry Bill, no focus on your profits and platforms.