The U.S. economist Nouriel Roubini recently declared that blockchain is just a big lie, stating it is “one of the most overhyped technologies ever”. Roubini further declared that blockchain was unlikely to remove the need for intermediaries in financial transactions and is unlikely to replace some of the existing systems used by banks.
Is this correct? Many would disagree, and Shidan Gouran of Global Blockchain Technologies explains why, in an interview with Digital Journal, he believes Mr. Roubini is wrong and why blockchain is the wave of the future.
Digital Journal: How would you define a blockchain?
Shidan Gouran: A blockchain is a decentralized ledger system. This is the opposite of a centralized ledger system, an example of which might be a bank. On a bank’s ledger, you have account records of who owns what. But there are some weaknesses of it being centralized. These include latency – processes can only be completed as fast as the bank’s resources can handle them, causing some transfers to take a long time to complete. Redundancy – if the bank goes up in flames overnight, it’s out of service… leaving clients in a tough spot; neutrality – since one organization controls the records, they can basically do what they want with it. This may include corruption (e.g. “forgetting” to complete a transfer to a competitor), or even committing outright theft.
A decentralized system, by comparison, consists of hundreds or thousands of computers that have ledgers on them. In order for that network to operate, all computers must have the exact same version of the ledger on it. This, then addresses all of the weaknesses of centralized systems. With latency. aside from being remarkably efficient, blockchains can easily be scaled upward in capacity. Blockchain networks have seen relatively few latency issues compared to banks for this reason.
With redundancy, since the network is made up of hundreds or thousands of computers, it does not matter if a handful of them suddenly go offline. Being distributed geographically, it is implausible for a blockchain network to “go down” at any time. With neutrality, there is no one central party that owns a blockchain network. Because of this, it is not possible for a corrupt individual or group to misappropriate funds or unduly restrict a transaction from happening.
Basically, think of a blockchain as being a democracy (decisions made and power held by the majority), as opposed to a dictatorship (where everything is concentrated to one or a few leaders). When you consider how this shift in power and efficiency can affect processes in sectors such as banking, insurance, and government, it can be the basis of some serious changes in the way we do things.
DJ: Why is blockchain being talked up so much by some developers as an ideal solution for businesses?
Gouran: Blockchain is an ideal solution for businesses in a lot of ways. Aside from being a scalable and reliable mode of record keeping, it also does not subject the business to liability arising from inaccuracies (whether intentional or not). As a simple example, say an electronics wholesaler uses blockchain to track their shipments from the warehouse to the retailer. If the shipment has to pass through several hands, there are many possible points of loss or theft. If each box has to be scanned at each point of transit, it will be easy to identify the point of loss if there are to be fewer boxes than originally sent.
Now, you may think this sounds just like existing ERP systems for logistics. There are two key differences though. The first is that ERP systems are costly and require a complex onboarding process for each party that uses them (and some logistics vendors may not offer ERP integration), whereas blockchain systems are much simpler by comparison, causing there to be no excuse for not participating in the tracking process.
The second difference is that blockchain networks are immutable. That is, once an entry has been made, it is permanent, and it cannot be changed. This is important because very often, supply chain theft consists of adjusting records to bury the discrepancy. Making it impossible for anyone to change their story forces a new standard of honesty, which will change the way in which a lot of companies do business.
DJ: Does blockchain always require the use of a token?
Gouran:Not exactly. To be clear, tokens can serve the purpose of allowing access to a network, and/or transacting value on it. Most blockchain networks do use a token for one or both of these reasons. Though there are networks that do not require the use of a token.
DJ: What are the complexities with setting up a blockchain?
Gouran:Aside from the programming of blockchains being complicated, it is complex to build a blockchain network on a viable scale, since it requires the onboarding of hundreds or thousands of users to provide computing resources. Further, there are complexities from a legal perspective, since blockchain is relatively unestablished, and there are certain areas (such as healthcare) where the manner in which data is stored is very highly regulated. Finally, it is not a very well understood technology by the majority of the population, so there are naturally some complexities when it comes to getting any given person or group to adopt it. These are the same problems that the internet faced in its early days.
DJ: Do blockchains have any flaws?
Gouran:They certainly can. Being a new technology, there will be some bugs in some blockchain networks and smart contracts. As the technology becomes more sophisticated, this will work itself out. Additionally, blockchains are subject to attacks such as a 51 percent attack, in which control of 51 percent or more of a blockchain’s mining power is controlled to manipulate the network in the interests of one party. However, as blockchains are built out on bigger and bigger scales, this will become a more and more daunting task – and correspondingly less possible.
DJ: Why did Nouriel Roubini challenge blockchains recently?
Gouran:In simple terms, he challenged blockchain because he has to. Nouriel Roubini’s persona of “Dr Doom” has pigeonholed him as a constant naysayer who always predicts the worst, meaning that he cannot say anything good even when it comes to a technology like blockchain that has objectively positive qualities to it. People take him seriously because of how he predicted the 2008 housing crisis, but no one talks about all of the times in which he was wrong, such as when he said in 2009 that banks in the US would become insolvent within six months, and that oil would crash that year – when, in fact, it jumped.
His writeup that challenged blockchain alleges that blockchains are essentially just glorified spreadsheets. He also tried to frame blockchain’s use cases as a “last ditch” effort for creators of failed ICOs to salvage the underlying technology. He also states that no organization of any kind would entrust a blockchain network to handle important tasks of any kind.
Why did he say these things? It seems that they sound plausible enough on the surface to someone who isn’t in blockchain… but more importantly, it fits into his narrative of always predicting the worst.
DJ: How would you counter these arguments?
Gouran:With regard to blockchains being glorified spreadsheets, spreadsheets don’t manage decision-making processes like blockchains do. Further, spreadsheets can be edited, whereas blockchain data is permanent. There are some similarities between a blockchain network and a spreadsheet, yes. Just in the same way that there are similarities between a bank’s accounts and a spreadsheet. Spreadsheets are a way of managing data commonly used all around the business world, but it is a mistake to say that blockchain is exactly the same thing. There are some clear differences, and I would consider this to be an apples and oranges comparison.
Then for the idea that blockchains are just a way to salvage value from failed ICOs, I would counter this by saying that blockchain network projects like IBM’s Hyperledger are being pursued strictly on the basis of blockchain’s merits as a technology, which have nothing to do with cryptocurrency. Yes, there are many failed ICOs. But that has nothing to do with blockchain as a technology, and how it is being used in ways that do not involve cryptocurrency in any way whatsoever.
As for no organization of any kind entrusting a blockchain network to handle important tasks, we’ve already seen applications of it with IBM. Another notable one is the town of Zug in Switzerland. Not only do they use the blockchain for their municipal voting processes, residents can also pay for services using Bitcoin. So it seems Nouriel hasn’t done his research at all in making these claims.
DJ: Which are the best case studies which showcase the successful implementation of blockchains?
Gouran:Aside from the town of Zug, the Walmart use case for tracking pork chop and mango shipments remains one of the most notable implementation use cases to date, cutting a multi-day tracing process down to two seconds. Also, the state of Andhra Pradesh in India has secured more than 100,000 land records using blockchain technology… a particularly profound use case, given the high rates of bribery and fraud in the country.