What is a blockchain?
Everybody is curious about crypto these days. It's a buzzy place and blockchain is a buzzy word. Many people get confused about what a blockchain actually is though and, importantly, its limits. A blockchain is not really a fancy, futuristic new technology that will allow us to thrust society into the future.
A blockchain is just a database. It is a way to track a history. Think of a blockchain like an empty notebook that gets filled with the history of transactions of that network. That's it. Seriously. In fact, blockchains are slower and far less efficient than traditional databases.
We have good database technology already too. Any large company can already manage its data and history with far better solutions than a blockchain.
There is one singular thing, however, that a blockchain does that a traditional database cannot. That thing is decentralization.
With a blockchain, it is possible to maintain a decentralized network with no person, group of people, company, or government in control. Rules without rulers. This decentralization is pretty much the only thing that a blockchain allows for that current technology could not.
Why is this important?
Because of all the buzz and the hype. Everyone wants to put everything on 'the blockchain', and it just doesn't make sense.
Here is a simple lesson to go by: if some entity controls a blockchain, then a blockchain is not needed. It's just an attempt at capitalizing on hype.
So when you read about Walmart looking to integrate 'blockchain technology', or the state of California advancing bills to store corporate records on a blockchain, please understand that these people are either deliberately capitalizing on hype, or they simply don't know what they're talking about.
The same is true when you hear of cryptocurrencies that, for example, want to track the supply chain of goods or a million other things. We can already track these things in ways far better than what a blockchain can provide. And don't get me started on the proposals to put voting on the blockchain…
The only thing a blockchain is good for is decentralization. If it does not need to be decentralized, a blockchain provides no benefit in all but a few cases.
Unfortunately, most cryptocurrencies are far more centralized than most realize and are closer to being scams than real technological advancements.
Note: Blockchains do allow for easier cross-border payments than our current system, since our banking system is built on slow, outdated rails, but that is not the kind of use that most crypto people promote. You're more likely to hear buzzy things like 'Facebook on the blockchain!'.
- Sean M. Cover
Sean Cover is the founder of 808 Digital. After years of experience in strategic finance and program management, Sean became fascinated by the history of money and monetary systems. Sean engages in daily reading and research about these topics, which has allowed him to develop a deep understanding of money, economics, and the effects of monetary systems on an economy.
Follow him on Twitter at: www.twitter.com/seancover