About blockchain technology

in blockchain •  12 days ago

I will share in this post some reflections about the blockchain, that, as you know, is the technology on which platforms such as this one are based.

First posted on Weku
Spanish version


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First of all I notice that I do not consider myself an enthusiast of cryptocurrencies, but not a detractor either. I have reviewed the arguments of those who defend them and those who attack them. Although on both sides one can find positions that from my point of view suffer from certain fundamentalism, I mean by this that in their expositions they sometimes move away from the objective reasoning giving rise to affirmations that are sustained only in the belief of the exhibitor, there are also solid arguments that in my opinion should be taken into account. In them I will focus.

About the utility of the blockchain

In my opinion one of the main objections of the detractors of cryptocurrencies that must be taken into account refers to their usefulness. And it is that certainly to this day they have no real use. It is not my purpose (and I am not qualified to do so) to define how much the bitcoin, the ether or whatever, should be worth today; but it must be said that, in effect, the current value of all of them is defined almost entirely by speculation and not by its genuine use.

So this objection is totally valid if one just observes the photo today. But, of course, what is involved is to know if in the future (some of them at least) will be really useful. [1]

Here we must bear in mind that the wide spectrum of cryptocurrencies that exist is justified in many cases by differences between them in relation to what they offer, so that the possible utility of each is related to the purpose with which it was designed. But I will focus on the two useful aspects that today are presented as more important and in my opinion are those that should be assessed in the first instance.


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1. Utility as a means of payment

The first is the most basic, which is the foundation of bitcoin from the beginning, to function as an exchange currency. [2]

In principle, nothing prevents any cryptocurrency from being used to make payments for products and services. It is something that is currently being done, although at a very low level. It is evident that one can sell a product or a service for whatever it wants. It's simply a matter of wanting to accept cryptocurrencies instead of FIAT coins. And in that want enters the dispute. Will the payment in cryptocurrencies be accepted or not in the future? This in principle should depend only on its acceptance by the people. And while it is true that a government could declare the use of cryptocurrencies illegal (as well as some prohibit the dollar), it must be seen that this does not detract from its usefulness, it could simply lead to clandestine use of it (as is the case with the dollar prohibited).

2. Utility as support of Smart Contracts

With the arrival of the Ethereum platform, devised by Vitalik, the possibility of using the system of blockchains to make Smart Contracts was opened. This for many happened to be the utility with better future in the cryptographic market. And it is that the management of intelligent contracts through the chain of blocks would end with the need for an arbitrator between the contracting parties. [3]

In any case, it is difficult to imagine that with the blockchain there will no longer be judges, lawyers, or intermediaries of any kind. Imagine, for example, a rental contract for a property. Its complexity tends to be such that it does not seem feasible that it can in its entirety depend on a Smart Contract. But not only because of its complexity, but also because as a social being the human being will always leave some instance of human intervention even in the previously agreed upon thing, because it is recognizable both himself and his environment and may well want the parties to modify something of the written . And remember that the chain of blocks is by definition immutable.

But it does seem more reasonable to imagine the possibility of hybrid contracts, in which some clauses are executed with the blockchain (such as the payment in term and the eventual liquidation of interest on arrears) and for others it continues contracting as until now with an instance of arbitration intermediation (judicial case). Especially in those cases in which anticipating all possible circumstances is impossible and therefore can lead to new negotiations or, given the lack of agreement between parties on the contractual implications, one or more professionals (brokers, lawyers, notaries, judges) to achieve an adequate (or negotiated) interpretation of the letter of the contract in terms of intention and consequences.


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Energy consumption

Another objection to attend is the high energy consumption necessary for a blockchain to work. This is because a network of computers that perform complex algorithms is necessary to validate transactions. But in addition blockchains use an asymmetric cryptography system, which means that two keys (one public and one private) are used for the validation of transactions. This is clearly what makes the system work, but it brings with it a considerably greater computational work, which then leads to still greater energy demand.

So the cost of eliminating, thanks to the blockchain, the intermediation of a central agent in which those involved deposit their trust (for example, the bank in the case of a money transfer) is significant in energy terms. And although there are some who seek different strategies to reduce that impact, the truth is that the need for greater energy consumption lies at the heart of the system used.

Cost-Benefit Analysis

Here, then, a basic concept involved in the decision making that sooner or later ends up imposing itself becomes key: the cost-benefit analysis. That is, a higher cost can not be justified if it does not imply a greater benefit in turn. [4]

It should be noted that, at least since the industrial revolution, technological progress has always demanded greater energy consumption. The very appearance of the Internet and the increase in its use implies an increasing energy consumption. It happens that the Internet has become over time in benefits such that the higher energy cost it requires is widely justified.

Now, with cryptocurrencies it happens that it is a technology in development, still in its experimental stage, without a considerable real utility. So today they cost considerably more than their benefits. The issue then is to decide if this technology in the future will yield or not benefits that justify the higher energy cost it requires. [5] Of course, that's where the discussions appear and, above all, the speculations. For the moment we know that it is a technology that more and more companies are interested in researching. And also at the governmental level there are cases of interest in investigating their possible uses (and I do not mean Maduro).

High volatility

A final objection that I consider worthy of attention is the great volatility shown by the market. Obviously, a currency with such wide variations in its value can not be reassuring for those who accept it in exchange for a product with a certain value. But also this extreme volatility makes it difficult, if not impossible, to assign values in some cryptocurrency such as bitcoin to products and services. Nowadays, if you want to pay something with bitcoins, it is necessary to first assess the bitcoin in terms of quotation in dollars, euros or another FIATcurrency to make the corresponding conversion later.


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It must be seen, however, that volatility is inevitable in an incipient technology such as this one in which values are dominated by speculation. In addition, a high centralization of cryptocurrencies is now recognized, which facilitates greater market manipulation by the so-called whales.

It is expected that to the extent that the value of cryptocurrencies is determined by their usefulness and not by their speculation, this volatility will tend to decrease and with that, it will be decentralized more; since with more stable values and moderate growth rates, the holders of large quantities that sell will no longer find purchase opportunities at prices lower than the sale price.

Also the arrival of more and more actors who know how to interpret the money markets (everything seems to indicate that this is happening) should help to moderate their volatility. Since they know how to read the signals to buy cheaply and sell expensive, this action leads to a correction (either downwards or upwards) in the market.

Blockchain yes, cryptocurrencies do not?

In conclusion, I believe that there are reasons to think both positively and negatively about the crypto market and its technology.

However, the concept of blockchain seems to be gaining increasing unanimity (especially in relation to smart contracts), and dissenting voices are focused on objecting with more emphasis the utility of cryptocurrencies.

But, as I understand it, the chain of blocks requires cryptocurrencies, because their justification lies in decentralization, that is to say in that the validation of transactions is made by a network of decentralized nodes. A chain of centralized blocks, like the one proposed by the detractors of the cryptocurrencies, is from my point of view a contradiction, something useless, because if the nodes of the chain will be centralized, with what end would appeal to the blockchain? Confidence in a central entity would still be necessary in the validation of such transactions and for that, as we saw earlier in relation to the higher energy consumption, it would be better to continue as before. That is, there would be a higher energy cost and apparently no added benefit.


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[1] Platforms like Steemit and Weku seems an exception to this, since they are fully operational and currently meets the purpose for which it was created.

[2] Some talk about Bitcoin in terms of the reservation of value, but it is necessary to note that only in a derivative way can it reach that charge, that is, only if it proves to be useful as an exchange currency.

[3] After Ethereum appeared many other platforms (such as NEO, EOS and ADA among the most popular) that support smart contracts and try to improve some flaws that seems to drag the first in their code.

[4] It should be borne in mind that the benefit may not be quantifiable in its entirety, since obviously many technological advances are justified by their qualitative benefit.

[5] It is also true that the technological and technical progress itself is allowing humanity to generate the energy it consumes in a progressively more efficient way.


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