Beyond the hype of blockchain, a look at its reality

Blockchain is a fascinating data structure that generates a great deal of curiosity in computer science, social and political science, and public policy. However, there is a lot of hype around the concept and its adoption in various fields appears to be faith-based, fueled by unsubstantiated claims from vendors and consultants. This is perplexing and risky and is due, perhaps, to an inadequate understanding of the properties of the blockchain, as well as imprecise articulations of its application requirements.

At its core, a blockchain is a sequential public bulletin board of transaction records with two main functional properties. First, what can be added is reconciled by multiple participating peers following a predetermined consensus protocol. This process cannot be played under the assumption that most of the unlimited number of partners are honest. Second, the bulletin board is immutable; once a record is added, it is cryptographically guaranteed not to be modified. Each fellow participant usually has their own copy of the entire bulletin board, with identical content, and can read and copy more at will.

A “permissioned” or private blockchain has only pre-identified participating peers. Therefore, collusion is possible and integrity can only be guaranteed through regulations. Without political decentralization, consensus does not imply security, and this is no different from centralization in its threat model.

Despite many claims to the contrary, the structure of the blockchain has nothing to do with the highly nuanced notion of privacy, or even the limited secrecy aspect of it. To ensure the secrecy of bulletin board records, one must fall back on the traditional and well-established notions of cryptography, such as encryption, key management, and zero-knowledge proofs, and these techniques are not limited to blockchain. Decentralized consensus is orthogonal to the problem and privacy is not a resulting property of a blockchain.

“Consensus” is inapplicable when there is only one authority responsible for the integrity of transactions, for example, the Election Commission of India when a vote is cast in the privacy of a voting booth or a person is added or removed from the voting booth. voter list. ready. Blockchain-based security claims are orthogonal to verifiability requirements in voting, and despite near-consensus against their use (‘Securing the Vote, Protecting American Democracy’ (2018), Consensus Study Report, NAS) , the multitude of proposals on the use of blockchain for elections are puzzling. In addition, voting is not the only example of the inadequate analysis of the applicability of the blockchain, and there are proposals to use them in land registries, asset registries, etc. Most of these proposals fail the test for reasons similar to voting. In fact, a 2018 study found hardly any successful use cases.

The role of blockchain in RBI’s digital currency proposal is similarly dubious, and compelling methods independent of “consensus” must be developed to ensure the correctness and verifiability of transactions while protecting user privacy.

What can help in many of these applications is just the immutable public bulletin board part of a blockchain, with or without encryption and zero-knowledge proofs. This can be achieved simply by regular posting of the bulletin board by the appropriate authority on a publicly downloadable forum and the use of universally verifiable hashes to make tampering impossible.

Cryptocurrencies constitute valid use cases for blockchains, although the political decentralization of the participants involved is questionable. It also raises other concerns. The properties of currencies and monetary policies have evolved over thousands of years of barter, and it is not clear that cryptocurrencies are consistent with them or that the broader macroeconomic implications of cryptocurrencies are well understood. Crypto assets derive their values ​​from their potential to be exchanged for other currencies. However, since only a limited set of commodities are traded in crypto assets, and that too only by a privileged part of the world’s population, their pricing determinations with respect to sovereign fiat currencies are uncertain. Apart from the crucial problems of price stabilization, its potential to increase inequality is also considerable.

Furthermore, an asset becomes valuable when it is scarce and in demand. The scarcity of cryptocurrencies arises from the computational hardness of currency mining, from the process of solving a hash puzzle. And clearly there is a perceived demand, not unlike gold. However, gold mining not only involves labor, materials, and energy, there are also additional requirements such as environmental clearances and other regulations, import regulations, to name a few. In contrast, cryptocurrency mining is accomplished by spinning CPUs and thus consuming electricity. The total carbon footprint of cryptocurrencies is equivalent to that of a few megacities, and mining assets in this way seems clunky, energy inefficient, and unsustainable. Surely this requires regulation and taxes, especially because of the possible environmental impacts and because only a few participate.

It is surprising that cryptocurrency research and deployment has not adequately addressed these concerns to develop sound theories for its regulation.

Blockchain is certainly an elegant concept whose properties and potential require careful investigation. The overkill of treating them as solutions to everything with not so thoughtful use cases is perhaps the worst technological determinism.

This column first appeared in the print edition on February 19, 2022 with the title “Working with blockchain”. Banerjee works in the computer science department at Ashoka University, on leave from IIT Delhi. Sharma works in the Department of Computing and Engineering at IIT Delhi.