Blockchain is one of the big buzzwords of this year. As the technology underlying cryptocurrency becomes more famous, companies are rushing to see if it could be useful for them.
Amid all the hype, it’s easy to fear missing out if you don’t use it. Whether you’re a company looking to stay on the technological edge or an investor looking for the next big thing, is it time for you to get into blockchain?
What is Blockchain?
At its most basic, blockchain is a form of software known as a distributed ledger. It’s a way of storing information across a disbursed network. So far, that just sounds like a form of cloud-based database, something that’s been available for years.
The thing that makes blockchain unique is the way the information is stored. Old records can’t be changed or removed. Every time there’s an alteration to the ledger, it adds something new, laying down data like layers in an information cake. Not a very tasty cake, sure, but one that’s potentially useful.
The other distinctive feature is that blockchain is kept where everyone can see it. That’s how fraud is prevented. If someone goes back to try to alter the chain, others will see. On top of that, an older record can’t be altered without changing everything that follows it. So blockchain is a way of keeping records honest and accessible.
The original use of blockchain was in making cryptocurrency, a form of electronic money. This started in 2008 with bitcoin, but plenty of others have followed.
Cryptocurrency has many supposed advantages over regular currencies. Users can trade it without needing to go through banks and payment systems. Blockchain records make clear who owns what. It’s a form of payment that isn’t controlled by banks and governments, appealing to technocrats and anarchists.
Cryptocurrency trundled along for a few years with little impact. Then, in 2017, it saw a huge spike in popularity. Investors, including many ordinary people, bought it in growing amounts. The value of bitcoin and its imitators skyrocketed.
Then the bubble burst. The end of 2017 and start of 2018 saw bitcoin plummet in value, taking other cryptocurrencies with it. Though they are still more valuable than they were two years ago, these currencies are facing a downward trend. And just as their value is falling, other currencies, planned during the peak, are trying to launch, flooding an already troubled market with goods of uncertain value.
All of which casts a shadow over blockchain.
The Advantages of Blockchain
After a disaster like that, why are we still discussing the advantages of blockchain?
Mainly, because blockchain isn’t the same as cryptocurrency. It can be used in other ways, such as creating smart contracts – deals automatically enforced by computer code. These have the potential to make international business flow more smoothly, as issues of legal jurisdiction are swept away, along with delays in the release of information and payments.
Blockchain also offers potential for industries where accurate record keeping is important. Whether it’s tracking the origin of diamonds or the ownership of art, those incorruptible, publicly held records are starting to look like a good option.
Blockchain is designed to facilitate interactions across borders in an increasingly globalized world, and that sounds like a good thing.
The Disadvantages of Blockchain
That said, there are significant downsides to blockchain.
The most obvious is the hype. Right now, the air is clouded with over-confident claims, leaving even so-called experts unable to accurately predict what this technology will achieve. That’s pushed up the price of the technology and value of businesses involved in it, sending them to unsustainable heights. As the 2017-18 cryptocurrency bubble showed, that hype can be ruinous.
But there’s a more fundamental problem, one that cryptocurrency has also highlighted.
Blockchain is, by its nature, data hungry. It works because records are kept in multiple places and because they constantly grow in size. Remember, old data isn’t changed, it just has new data layered over the top. This means that, to use blockchain, you have to accept constant growth in the processing power used, along with constant growth in electricity consumption.
When used on a large scale, this isn’t sustainable for businesses or for the environment. The costs of running blockchain will keep rising over time, an unexpected but steadily rising problem for businesses reliant on it. Meanwhile, cryptocurrency is already using up environmentally significant amounts of electricity, something humanity can’t afford to ignore.
So Should You Be Using Blockchain?
Given all of these factors, should you be investing in blockchain or trying to adopt it for your business?
This technology has significant advantages, but the costs make it unsustainable in the long term. In a modified form, it might prove valuable for certain specific industries with limited transaction numbers and a need for extremely accurate records, like land registries and recording the provenance of art. But for day-to-day interactions, it’s simply unsustainable, relying on the delusion of limitless growth.
Of course, just because something is a bad idea doesn’t mean that people won’t do it. Blockchain has advantages, so there’s probably still money to be made on it. In the short term, investors might make money off blockchain businesses, though their recent performance shows that this is a risky bet.
For businesses looking at the future of their working technology, it’s worth paying attention to blockchain. The advantages are real and if we’re to move past the hype then we’ll need to replicate them. But remember, much of what blockchain does can be done in other ways. It won’t be long before that’s true of all its features.
Look out for technologies that offer the advantages of blockchain without its downsides. The programmers currently creating blockchain will move on to other things, and when they do, we can expect valuable results.
It’s unlikely that blockchain offers the advantages you’re seeking. If you want to gain the technological edge, look out for more financially sustainable solutions instead of getting locked into a money sink. As the blockchain advocates say, a better future is coming. They might even build it someday, but they haven’t yet.