The blockchain bubble

The Bitcoin blockchain is interesting from cryptological or computing complexity view, but it is solves a problem of no interest to the typical consumer. Other technologies are preferable for the vast majority of applications. The blockchain has become a big scam.

A new essay explains some of the problems:

While much of the tech industry has grown bearish on the volatility of cryptocurrencies, enthusiasm for its underlying technology remains at an all-time high. Nowadays we see “blockchain” cropping up with impressive frequency in even the most unlikely startup pitches. And while blockchain technology does have genuinely interesting and potentially powerful use cases, it has enormous drawbacks for consumer applications that get little mention in media coverage. ...

As it stands, blockchain is caught between three competing objectives: fast, low-cost, and decentralized. It is not yet possible to make one chain that achieves all three. Fast and decentralized chains will incur a high cost because the storage and bandwidth requirements for historical archiving will be enormous and will bloat even with pruning. Aim for fast and low-cost, and you’ll have to introduce a bank-like authority (“Tangles” are a proposed solution, but not yet fully understood).

At high volume, a good credit card processor can settle a typical $2 transaction for somewhere around $0.10. Some of the largest online game economies manage more than a million user-to-user transactions per day, instantaneously, with no fees. And yet, I can name half a dozen startups trying to inject an expensive and slow blockchain into this very problem.

Blockchain is a customer support nightmare

For most consumers, losing a password to an online service is a mild inconvenience they’ve grown accustomed to, since typically, it’s quickly fixed by requesting an email reset, say, or talking with customer service.

Blockchain wallets and their passwords, by contrast, are tied to a file on a user’s hard disk and are absolutely critical to users trying to access the blockchain. By their very nature they have no recovery mechanism. “You lose your password, you lose everything” is an awful user experience for mainstream consumers and a nightmare for companies attempting to build their service on a blockchain. If you use a hosted service, the risk of theft or sudden loss of assets is very real, with central targets and limited traceability. ...

Nothing about blockchain applications is easy for consumers right now. Everyday users accustomed to making digital and online payments would have to be trained to make blockchain purchases, learning to apply the right mix of paranoia and caveat emptor to prevent theft or buying from shady dealers. Irreversible pseudonymous transactions do not lend themselves well to trust and integrity.

Compounding this is the speed and the transaction fees involved. Most public chains have settlements measured in minutes — unless you’re willing to pay high transaction fees. Compare that to the 2-10 seconds for a saved credit card transaction customers are accustomed to in the age of fast mobile interfaces and instant gratification. ...

These points only scratch the surface of what it’ll truly take to make blockchain ready for a mass market.

The Bitcoin blockchain does have some utility for the illicit transfer of money overseas, but it is hard to think of a legitimate use for it.

IBM, big banks, venture capitalists, and others are investing 100s of millions of dollars on this. It is all going to crash, because there aren't any legitimate applications that anyone has found.