Truth and fiction in blockchain’s brave new world

Before Christmas, a fascinating new phenomenon began to manifest itself. Companies previously not greatly valued by the stock market were finding that the simple addition of a word to their corporate identities could multiply their worth many times over. The word was “blockchain”.

Soft drinks companies and obscure software firms alike were being transformed into potential tech juggernauts. Or so their share performances would have us believe.

However, the most interesting thing about all this is not that the stock market is easily dazzled by industry hype. That has been true for a while. It is the way a word can be detached from its original or literal meaning and transformed by the sheer power of imagination into meaning almost anything one desires that is really fascinating.

As a phrase or concept, blockchain is almost meaningless. We are often told that it is the technology that allows cryptocurrency systems such as bitcoin to operate independent of intermediaries or bank networks.

In reality, however, bitcoin is a bunch of pre-existing technologies assembled together to achieve a single objective: the creation of a clearing system which runs independently of the banks, which cannot be corrupted by sinister agents and in which nothing can ever be changed.

In terms of achieving that objective the bundle has worked reasonably well, though not perfectly. Glaring flaws have become increasingly obvious over time. These include the huge energy expense of maintaining the system, capacity limitations and spiralling transaction fees.

Blockchain aficionados insist that many of these downsides can be avoided if only certain parts of the bundle are borrowed and not others. Yet there are no hard and fast rules about how many parts have to be borrowed for something still to constitute a blockchain.

For this reason, most serious blockchain companies dropped the descriptor a long time ago, adapting their identities to reflect the bits of the (pre-existing) technology they were using most. The result is that terms such as “distributed-ledger technology”, “permissioned” ledgers or “shared-database” technology have become synonymous with blockchain, even though the underlying tech can differ greatly.

It is hard to understand why the mere mention of blockchain should be capable of sending stock prices soaring. Something else must be going on.

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Source: Truth and fiction in blockchain’s brave new world | afr.com