Blockchain – don’t ask how, ask why

Every article about blockchain and related technology like cryptocurrencies starts with an explanation of the nuts and bolts of how the blockchain works. I hate that. Not just for the inevitable mansplaining techbro overtones, but because the focus on “how” plays down the really interesting question – why?

Cryptocurrencies, and blockchain more generally, come out of a very specific subculture that existed around cryptography mailing lists in the late 90s and early 00s. The sheer joy of the convoluted mathematical underpinnings mixed with an emerging techno-libertarianism, and elements of what would become neo-reactionary thought. In many ways, it represents a purer and more concentrated version of the ideology that now dominates silicon valley. A foul-tasting mixture of Ludwig von Mises, Ayn Rand, Tim O’Reilly and Marc Andreessen.

Solving the problem of trust

So – start, as always, with a problem that needs to be solved with technology. In this case, the problem is trust. Trusting people and entities is hard, specifically where buying and selling is involved – much harder than trusting something as cold and logical as code. Using code to manage transactions (code is law, with profound apologies to Larry Lessig) means that we can interact with things we don’t trust.

In the world in which you or I live, we use an intermediary to handle this problem – a bank. I may not necessarily trust the people I am buying things from online, but I do trust my bank, and my bank trusts their bank, and their bank trusts them. But what if I don’t trust banks?

Again, there’s a real-world solution. If I didn’t trust my bank – perhaps if I were purchasing something that was illegal, immoral or both – I would use cash. Cash is anonymous and largely untraceable, but it has value because it is backed by a government. But what if I don’t trust governments?

In that case, I’d need to develop an entirely new currency and transaction system that was anonymous, secure, reliable and not reliant on any third party or central control. And that is where blockchain comes from.

Cryptographic encryption (hiding information using the power of really difficult maths) lends anonymity and security, but the openly visible nature of transactions lends reliability. Decentralisation means that no one company or government has control of a blockchain – decisions are reached by consensus.

Here comes the science bit

When two entities (people, companies) decide to transact, details of the transaction (amounts, time, anonymous user ID) are encrypted onto the end of a huge distributed lump of code, using a bit of the pre-existing lump to signify where in the lump it should sit. This encryption is done competitively by a bunch of people with ridiculously powerful computers, one encryption is chosen – largely arbitrarily – as the “winner” and is added to the big lump of code. The winner is given a token as a prize – this token is a piece of the same digital currency that is used to denominate the transaction, and the winner is said to have “mined” this.

And that’s broadly it. If you didn’t follow, don’t worry, it’s not important. What is important are the downsides – and the first is inefficiency. With so many powerful computers entering the competitions, a great deal of energy is used for literally no purpose whatsoever. How much energy? Think running a medium-sized developed country for a year – that’s how much energy it takes to run the bitcoin blockchain for a year. Other chains are more efficient (Litecoin and the Etheriums) because they run their encryption competition in a slightly different way. But inefficiency also means slow transactions – minutes rather than microseconds.

Another big problem is irreversibility – once something is on a blockchain, it stays there. If – say – you accidentally pay for something twice, you can’t just void a transaction, you need to set up another transaction to refund. Again this has an energy and time cost, but it also re-introduces trust into a trustless system. You have to rely on the person you transacted with to repay you as there are no built-in safeguards.

And then we have artificial limitations. Cryptocurrencies like bitcoin are often limited as to the total possible number of coins that can exist. If you remember the curious mention of Von Mises above, this is because people who hung out on cryptography mailing lists liked the idea of the gold standard as a basis for a currency. It didn’t work out well in the thirties, and there’s no reason to suspect that running an economy without inflationary levers would be any easier in a globalised world.

What’s the HE angle?

There’s been a flurry of articles about bitcoin and other blockchain-based currencies as investments. You don’t need Wonkhe to tell you that investing in a hugely volatile financial product with no reliable – or even regulated – way to withdraw your money is probably a bad idea.

But although currency is the way most people are introduced to blockchain technologies, the real growth is in using the approach as a tool to store other information. A favourite doomed earth party game is to google “blockchain” and literally any noun – there’s always an example, usually around the creation and sharing of reliable records. There’s been a mini-bubble in initial coin offerings – ICOs – that allow you to invest in these ideas, providing an even less convertible and reliable store of value even than bitcoin itself.

In higher education, much of the action has been around storing learning credentials – providing a way to independently verify that person X has qualification Y in subject Z from institution A.

As a seasoned HE professional, you may wonder why anyone would take a course from an institution that they didn’t trust. Even the new regulatory framework has a feature to support ongoing access to such records in the comparatively rare case where an institution collapses. But – and this is true for much technology – blockchain is popular and therefore must be the answer to at least some problems, and if no problems exist they can, of course, be invented.

There is research ongoing in a few parts of the sector, most notably at the Open University, but we are very much at the stage of reports and concepts. There’s no immediate likelihood that blockchain will enter the everyday activity of institutions, for reasons both of cost of change and the underlying problems with the technology.

Ninety-five percent of everything pitched as a blockchain solution can be achieved more usefully with existing, mature, technology – permissioned distributed databases, git-like versioning control systems, or just a simple spreadsheet. If someone is pitching to you – focus on the problem and how much you need to solve it. How shiny or fashionable the technology may be is a potentially expensive distraction.