Why do I think the success of the Distributed Ledger and dApps is still far away from now?


#1

Disclaimer: I am a blockchain sceptic, and this is my attempt to understand the landscape and become less sceptical.

The analysis of this map should start with the ‘have proof of communication’ node. It took me actually some time to decide whether I should use the word transaction instead of communication. The difference seems to be substantial until you realise that blockchain stores and processes universal bits of information, and those bits may be transactions in a legal sense, but they do not have to.

What Blockchains does extraordinarily well, once published data is visible to everyone, and cannot be modified (as long as blockchain requirements are met). It took me a while to understand what is the benefit of this approach, as almost always, exactly the same results could be achieved by using other means - 3rd party trusted authority or physical proofs (like a buy-sell agreement).

There are at least three cases where I found the blockchain solution to be more efficient in providing a proof of communication:

  1. In Poland (and possibly in other countries, too), when you buy a real estate, a notary supervises the transaction. The notary has some time (about a day) to send the transaction data to the court, which then recognises the new owner and publishes data in the registry. The problem happens when someone sells the same real estate a number of times in the front of different notaries, within one day. While it is a criminal offence to do so, there is always a risk that you bought something that was sold to many different people. Blockchain, through almost immediate confirmation, is just a more efficient way of transacting.
  2. In Poland (and possibly in other countries, too), sometimes, you have to communicate with some authorities, and those authorities often want proofs that communication has happened. For example, that you have sent your tax report. If a Tax Office figures out you did not pay taxes, you are in trouble, and you should have a proof that you have fulfilled your obligations, and that it is the Tax Officer who lost your report. The proof usually comes from the National Post, which confirms that your letter was sent and received (you get a nice, paper confirmation). More clever individuals figured out they can send empty envelope and claim they paid everything they should. Blockchain, through immutability, could certainly be used to prevent that situation from happening. In fact, one of the banks started using blockchain to prove it notified customers about everything they should be notified about.
  3. When you buy a car, there is a short period between where you have actually bought it and before you notify a proper authority. The seller can still say it was stolen, and it would be good to have a good proof of the transaction. Currently, we rely on a written agreement (in a paper form) that serves as the proof. Blockchain could make that more efficient.

So, at this point, a picture should emerge - Blockchain provides very specific functionality, which is communication confirmation, and its value becomes significant when there is a community which is/may be interested in exploiting that lack of communication.

The fundamental question is - what is the efficiency of Blockchain compared to the other types? I think the cost of storing a single bit of information makes it more efficient than the f.e. sending a traditional letter, but it does not have to. It is just my assumption.

The next unanswered question is - in what market segments the speed of transaction and lack of dependence on the 3rd party make a significant difference (and provides significant value)? If we transact, the trusted 3rd party usually provides trust, f.e. if you want to trade your company stock on NYSE, NYSE will check if you use proper accounting and governance practices. If you want to buy a house, the notary will answer questions you have about the legal contract, etc., etc.

The speed of the transaction is not often the most important criterium, especially if each transaction is a bit different. Sometimes, there are other, more significant risks, and introducing the blockchain will not change the system efficiency, because the constraint is somewhere else.

In addition to that, we have plenty of hundreds of years old transaction approaches, which create extraordinary inertia. If you want to have good proof that you have sent your tax report, you will use national post service, because it is actually recognised as a trusted service by law. The blockchain is not.

This is also the missing link between the customer and the blockchain. What niches would really, really benefit from the blockchain solution instead of relying on a distributed database? I tend to think we have to standardise a lot of transaction kinds before we the market for the Blockchain will emerge.

And once that happens, but only then, we will have a room for distributed apps, which will be able to react to certain information announced in the blockchain. DApps seem to be in fact little automation, which could either notify people or even buy/sell things in appropriate conditions. But it is a long way before they will become ubiquitous.


#2

Blockchain is only one of the distributed ledgers. It has limitations and is very likely to be replaced with designs that have no chance of repudiation.

Perhaps this fine analysis should be done with tangle - https://www.iota.org/get-started/what-is-iota


#3

Thanks for that. Indeed, I should replace blockchain with distributed ledger.