The “business blockchain” vision evolves but is still flawed

The Bitcoin-to-Blockchain-to-Bitcoin cognitive cycle is usually the following:
Step 1 – Wow Bitcoin is a cool and powerful system
Step 2 – Let’s copy the Bitcoin design to manage all the things!
Step 3 – Hum private permissioned blockchains are useless (the same services can always be delivered faster, cheaper and with the same security with a regular software)
Step 4 – OK so let’s leverage open permissionless systems to execute business logic
Step 5 – Hum open permissionless systems are not a good fit for business purposes (only programmable money works, the business world is regulated and relies on authorities by design, again regular software work better)
Step 6 – OK then let’s tokenize everything
Step 7 – Hum that doesn’t work either (there is no demand, the real world is regulated, and good things are already tokenized = securitized)
Step 8 – Bitcoin (and maybe a few other cryptocurrencies) are the only use-cases for “blockchain”. Cryptography as a tool box remains useful in a business context though.

It takes some people a few weeks, months or years to go through the cycle depending on the amount of research and experimentation they do. Some of course stay stuck in denial in one phase, usually those who have a limited understanding of IT, economics or human psychology. How those people deal with reality? To resolve the cognitive dissonance, they expand the meaning of the word “blockchain” (or “distributed ledger”) to make it work. Basically they call any piece of software using some sort of cryptography “blockchain” so that they can say “See, I am doing some blockchain, and it works!”

EY is currently in step 4. This article from P. Brody is well written. You should read it. But it’s still a flawed vision.

Why?

1/ EY focuses on technology when it’s in fact about standards & governance (we are talking about blockchains in a business world here, not P2P). With the technology from BB (Before Bitcoin), business standards and the right governance, I can build faster & cheaper systems, and at least as secure, as any application EY can build on Ethereum. The irony is that to build a business service on Ethereum you will need standards & a governance anyway, so you’d better use a traditional platform in any case. It’s the famous blockchain paradox.

2/ EY vision relies on a premise that there is a public utility out there that is fast, cheap, decentralized, secure, scalable, eternal and risk-free. In reality, that magic utility doesn’t exist. I won’t go into the details here to keep the piece short, do your own research.

3/ The second flawed premise is that this public utility is a generic computer that can execute any business logic. In reality it can only do programmable money, which is already a big space, but not as big as every human activity on planet earth.

4/ The fourth point is the most disappointing one coming from P. Brody who I assumed is a smart man. Blockchains are obviously NOT about performance, efficiency and ROI. Not at all. Blockchains are *by design* slower and more expensive than their centralized counterparts (broadcast, store, verify data x times instead of once). They bring other benefits though. EY is missing the whole point of blockchains here.

It doesn’t mean that businesses can do nothing with Ethereum or similar platforms. My point is that they can do even less than what EY thinks. I don’t criticize their work on privacy or the fact that they are open-sourcing it. But their general vision of the “business blockchain” is flawed. The starting point for this article was EY’s article, but it applies to other firms as well starting with Consensys, IBM, etc.

Also while I’m at it:
* The Coasian analysis in the EY article is weird because one sentence accurately states the theory and the next says the contrary!? It’s also wrong because there are several components of internal & external transaction costs. Research confirms the obvious that blockchains increase coordination costs
* The web portals analysis is wrong (“most of them disappointed”). Internet actually created giant companies and huge consortiums.