Note: translation.: this provocative article about blockchain was written and published around two years ago in Dutch. Recently, it was translated into English, sparking a new surge of interest from an even larger IT community. Although some figures have become outdated, the essence the author tried to convey remains the same.
Blockchain will change everything: the transportation industry, the financial system, government... in fact, it might be easier to list the areas of our lives that it won’t affect. Yet, the enthusiasm surrounding it often stems from a lack of knowledge and understanding. Blockchain is a solution in search of a problem.
Sjoerd Knibbeler created this image specifically for The Correspondent; the other images in this article are part of the ‘Current Studies’ series (2013-2016), which can be explored further at the end of the article.
Imagine a crowd of programmers in a large hall. They are seated on folding chairs, with laptops on folding tables in front of them. A person steps onto the stage illuminated by blue and purple lights.
“Seven hundred blockchain enthusiasts!” he shouts to his audience. Pointing to the people in the room: “Machine learning… — and then loudly: — Energy transition! Healthcare! Public safety and law enforcement! The future of the pension system!”
Congratulations, we are at the Blockchaingers Hackathon 2018 in Groningen, Netherlands (). If the speakers are to be believed, history is being made here. Just earlier, a voice from the accompanying video addresses the audience with a question: can they imagine that right here, right now, in this hall, they will find a solution that will change “billions of lives”? And at those words, the Earth on the screen explodes in a burst of light beams. 
Then the Dutch Minister of the Interior Raymond Knops appears, dressed in the latest tech fashion — in a black hoodie. He is here in the role of a “super-accelerator” (whatever that means). “Everyone feels that blockchain will fundamentally change governance,” says Knops.
In recent years, I keep hearing about blockchain. Well, as we all do. Since it’s everywhere.
And I’m clearly not the only one wondering: can someone explain to me what it actually is? And what its “revolutionary” nature is? What problem does it solve?
This is precisely why I decided to write this article. I can say right off the bat: it’s a strange journey to nowhere. I have never encountered such an abundance of jargon that describes so little. I have never seen such a level of pretentiousness that deflates so quickly upon closer inspection. And I have never witnessed so many people seeking a problem for their 'solution.'
‘Change agents’ in a provincial Dutch town
The residents of Zuidhorn, a town with a population of just under 8,000 in northeastern Netherlands, had no idea what blockchain was.
‘All we knew was: blockchain is coming, and global changes await us,’ said one of the city officials in ‘We had a choice: sit back and do nothing or take action.’
The residents of Zuidhorn decided to take action. It was decided to 'move to blockchain' a municipal aid program for children from low-income families. For this purpose, the municipality brought in an intern and blockchain enthusiast, Maarten Veldhuijs.
His first task was to explain what blockchain actually is. When I asked him a similar question, he said it was ‘a kind of system that cannot be stopped», «a force of nature’, if you will, or rather, ‘a decentralized consensus algorithm». «Alright, it’s hard to explain, he admitted eventually. — I told the authorities: ‘I’d rather create an app for you, and then everything will become clear.’».
Said and done.
The aid program allows low-income families to rent bicycles, attend theaters or movies at the city’s expense, and so on. In the past, they had to collect a pile of papers and receipts. But Velthuijs' app changed everything: now, it’s enough to scan a code — you get a bike, and the business owner gets paid.
Suddenly, the tiny town became one of the 'centers of the global blockchain revolution.' Media attention followed, along with awards: the town won a prize for 'innovation in municipal work' and was nominated for the best IT project and best civil service award.
The local administration showed increasing enthusiasm. Velthuijs and his team of 'students' were shaping a new reality. However, this term did not quite fit the excitement that engulfed the city. Some residents directly called them 'agents of change.' (this is a fixed expression in English about people who - translator's note).
How does it work?
Well, agents of change, revolution, everything is changing… But what exactly is blockchain?
At its core, blockchain is a highly publicized spreadsheet (imagine Excel with a single table). In other words, it's a new way of storing data. In traditional databases, there is usually one user responsible for it, who decides who has access to the data and who can input, edit, or delete it. With blockchain, it's different. No one is responsible, and no one can change or delete the data. They can only be input and viewed.
Bitcoin is the first, most well-known, and arguably the only application of blockchain. This digital currency allows money to be transferred from point A to point B without the involvement of a bank. 
How does it work? Imagine you need to transfer a certain amount of money from Jesse to James. Banks are great at this. For example, I ask the bank to send money to James. The bank begins the necessary checks: is there enough money in the account? Does an account with the specified number exist? And it records something like 'transfer money from Jesse to James' in its own database.
In the case of Bitcoin, it's a bit more complex. You announce loudly in some sort of giant chat: 'Transfer one Bitcoin from Jesse to James!' Then there are users (miners) who collect transactions into small blocks.
To add these transaction blocks to the public blockchain ledger, miners must solve a complex problem (they need to guess a very large number from a vast list of numbers). Typically, this problem takes about 10 minutes to solve. If the time to find the answer consistently decreases (for example, miners switch to more powerful equipment), the difficulty of the problem automatically increases. 
As soon as the answer is found, the miner adds transactions to the latest version of the blockchain — the one stored locally. A message goes to the chat: 'I've solved the problem, look!' Anyone can check and confirm that the solution is correct. After that, everyone updates their local versions of the blockchain. Voilà! The transaction is complete. As a reward for the work done, the miner receives bitcoins.
What is this task?
Why is this task even necessary? In reality, if everyone always behaved honestly, it wouldn't be needed. But imagine a situation where someone decides to spend their bitcoins twice. For example, I tell both James and John at the same time: 'Here you go, a bitcoin.' Someone must verify that this is possible. In this sense, miners do the job that banks usually handle: they determine which transactions are valid.
Of course, a miner might try to cheat the system by colluding with me. However, the attempt to spend the same bitcoins twice will be revealed, and other miners will refuse to update the blockchain. Thus, the malicious miner will invest resources in solving the problem but will receive no reward. Because of the complexity of the task, the costs to solve it are quite high, so it's much more profitable for miners to adhere to the rules. 
Unfortunately, this mechanism is quite inefficient. Things would be much simpler if data management could be entrusted to a third party (like a bank). But that is exactly what Satoshi Nakamoto — the infamous inventor of bitcoin — wanted to avoid. He considered banks to be a universal evil. After all, they can freeze or withdraw money from your account at any moment. That’s why he invented bitcoin.
And bitcoin works. The cryptocurrency ecosystem is growing and developing: according to recent estimates, the number of digital currencies has exceeded 1855. (as of February 2020, there are already more than 5000 — translator's note).
But at the same time, it cannot be said that bitcoin enjoys overwhelming success. Only a small percentage of stores accept digital currency, and there are good reasons for that. First of all, transactions are very (sometimes payments take 9 minutes, but there have been cases where a transaction lasted 9 days!). The payment mechanism is quite cumbersome (try it yourself — breaking open a hard blister with scissors is much easier). And finally, the price of Bitcoin is extremely unstable (it rose to €17,000, fell to €3,000, then jumped back to €10,000…).
But the worst part is that we are still far from the decentralized utopia that Nakamoto dreamed of, namely — eliminating unnecessary 'trusted' intermediaries. Ironically, just three mining pools (a mining pool is a large concentration of mining computers located somewhere in Alaska or in other places far beyond the Arctic Circle), which account for more than half of the new bitcoins generated,* (and, consequently, the verification of transactions). (Currently, there are 4 — ed.).
* Nakamoto believed that anyone could work on the solution to the problem alongside others. However, some companies took advantage of exclusive access to specialized equipment and location. Due to such unfair competition, they were able to seize a leading role in the ecosystem. What was intended as an exclusively decentralized project has become centralized again. The current level of decentralization for different cryptocurrencies can be viewed .
For now, Bitcoin is much better suited for financial speculation. A lucky person who bought cryptocurrency for $20 or €20 at the dawn of its existence now has an amount sufficient for several round-the-world trips.
Which brings us to blockchain. An impenetrable technology that brings sudden wealth — this is a tried-and-true formula for hype. Advisors, managers, and consultants hear about the mysterious currency that turns ordinary people into millionaires from the newspapers. 'Hmm… we should get involved in this,' they think. But with Bitcoin, this is no longer possible. On the other hand, there is blockchain — the technology that underlies Bitcoin, and makes it cool. Bitcoin, which is what makes it cool.
Blockchain summarizes the idea of Bitcoin: let's eliminate not only banks but also land registries, voting machines, insurance companies, Facebook, Uber, Amazon, the Lung Foundation, the pornography industry, government, and business in general. Thanks to blockchain, all of them will become redundant. Power to the users!
[In 2018] WIRED compiled from 187 areas that blockchain could improve.
An industry worth 600 million euros
Meanwhile, Bloomberg estimates the global size of the industry at approximately 700 million USD or 600 million euros (this was in 2018; according to , the market then amounted to 1.2 billion USD and reached 3 billion in 2020 — note by translator.). Major companies like IBM, Microsoft, and Accenture have entire divisions dedicated to this technology. The Netherlands has various subsidies for blockchain innovations.
The only problem is that there is a huge gap between promises and reality. It sometimes seems that blockchain looks best on PowerPoint slides. Bloomberg's research shows that most blockchain projects do not go beyond press releases. The government of Honduras planned to transition its land registry to blockchain. This plan was The Nasdaq stock exchange also intended to build a solution based on blockchain. And what about the Central Bank of the Netherlands? Once again, ! According to consulting firm Deloitte, of the 86000+ launched blockchain projects, 92% were abandoned by the end of 2017.
Why do so many projects fail? Enlightened — and therefore former — blockchain developer Mark van Cuijk says: "You can use a forklift to lift a crate of beer onto the kitchen table. It's just not very efficient."
I will list a few problems. First of all, this technology contradicts EU data protection laws, particularly the right to digital oblivion. Once information is on the blockchain, it cannot be removed. For example, Bitcoin's blockchain contains links to child pornography. And they cannot be deleted from there*.
* A miner can add any text to the Bitcoin blockchain if desired. Unfortunately, this can include links to child pornography and nude photos of ex-partners. For more details: “" by Matzutt et al (2018).
Moreover, blockchain is not anonymous but rather 'pseudonymous': each user is tied to a specific number, and anyone who can link the username to this number can track the entire history of their transactions. After all, every user's actions in the blockchain are exposed to everyone.
For instance, the alleged hackers of Hillary Clinton's email were captured by correlating their identities with Bitcoin transactions. Researchers from Qatar University were able to quite accurately identify the identities of tens of thousands of Bitcoin users using social media sites. Other researchers have demonstrated how easily using trackers on e-commerce sites.
The fact that no one is accountable and all information in the blockchain is immutable also means that any mistakes remain there forever. A bank can reverse a money transfer. In the case of Bitcoin and other cryptocurrencies, this is impossible. Therefore, everything that has been stolen remains stolen. A huge number of hackers constantly attack cryptocurrency exchanges and users, while fraudsters launch 'investment instruments' that are essentially . According to some estimates, nearly 15% of all Bitcoins have been . And it has not even turned 10 yet!
Bitcoin and Ethereum consume as much energy as all of Austria
Additionally, there is the question of ecology. 'Ecology? Are we not talking about digital currencies?' you might wonder. Indeed we are, which makes the situation quite strange. Solving all these complex mathematical problems requires a huge amount of electricity. So much so that the two largest blockchains in the world, Bitcoin and Ethereum, currently consume . A payment through the Visa system requires about 0.002 kWh; the same payment in bitcoins consumes up to 906 kWh of electricity — over half a million times more. This amount of electricity is what a two-person household uses in approximately three months.
Over time, the ecological problem will become more acute. Miners are utilizing newer capabilities (which means they will be building additional mining farms somewhere in Alaska), and the difficulty will automatically increase, demanding ever greater computing power. This endless, senseless arms race leads to the fact that more and more electricity is required for the same number of transactions. 
And for what purpose? This is actually the key question: what problem does blockchain solve? Sure, thanks to Bitcoin, banks can’t just take money from your account at will. But how often does that happen? I have never heard of a bank just taking money from someone’s account for no reason. If a bank did something like that, it would be immediately sued and lose its license. Technically, it is possible; legally, it's a death sentence.
Of course, fraudsters don't sleep. People lie and cheat. But the main problem lies ("someone secretly registers a piece of horse meat as beef"), not with administrators ("the bank makes the money disappear").
Someone proposed to transfer the land registry to blockchain. They believe it would solve all the problems in countries with corrupt governments. Take Greece, for example, where every fifth house is unregistered. Why are these houses not registered? Because Greeks simply build without asking for permission, resulting in unregistered homes.
However, blockchain cannot address this issue. Blockchain is just a database, not a self-regulating system that checks all data for correctness (let alone stopping all illegal constructions). The same rules apply to blockchain as to any other database: garbage in = garbage out.
Or, as Matt Levine, a Bloomberg columnist, writes: "My immutable, cryptographically secure record in the blockchain that I have 10,000 pounds of aluminum in my warehouse won’t really help the bank if I later sneak all that aluminum out the back door."
Data should reflect reality, but sometimes reality changes while the data remains the same. That's why we have notaries, supervisors, lawyers — essentially all those boring people without whom blockchain supposedly can get by.
Blockchain traces ‘under the hood’
So, what about the innovative city of Zuidhorn? Didn't the blockchain experiment there conclude successfully?
Well, not quite. I examined to help children from underprivileged families on GitHub, and there was little that resembled blockchain or anything like it. In any case, it included a single miner for internal research, running on a server that wasn’t connected to the internet. The final application was a very simple program with basic code operating on standard databases. 
I called Maarten Velthuijs:
— Hey, I noticed that your application doesn’t really need blockchain at all.
— Yes, that's correct.
— Isn’t it strange that you received all these awards when your application doesn’t actually use blockchain?
— Yes, it is strange.
— How did that happen?
— I don't know. We've tried repeatedly to explain this to people, but they don’t listen. Just like you’re calling me about the same issue…
So where is the blockchain?
Zuidhorn is no exception. If you look closely, you'll find a bunch of different experimental blockchain projects, where blockchain exists only on paper.
Take, for example, My Care Log (originally 'Mijn Zorg Log') — another award-winning experimental project (but this time in the field of maternity). All Dutch residents with newborns are entitled to a certain amount of postpartum care. Just like with the child benefits in Zuidhorn, this program was a bureaucratic nightmare. Now you can have an app on your smartphone that collects statistics about the volume of services you received and how many are left.
The final report shows that My Care Log does not utilize any of the features that make blockchain unique. A certain group of individuals was preselected by miners. As such, they can veto any registered data about services*. The report notes that this is better for the environment and for compliance with online data protection regulations. But isn't the main essence of blockchain to operate without trusted third parties? So what is actually happening?
* This is also true for all new generation blockchain service providers, like IBM. They too grant editing and reading rights to certain individuals or companies.
If you want my opinion, they are creating a completely ordinary, even mundane database, only doing it in a highly inefficient way. If you filter out all the jargon, the report turns into a boring description of database architecture. They write about distributed ledgers (which is a public database), smart contracts (which are algorithms), and proof of authority (which is the right to filter information entering the database).
Merkle trees (a way to 'detach' data from its verifications) are the only element of blockchain that made it into the final product. Yes, it's cool technology, nothing wrong with it. The only problem is that Merkle trees have existed since at least 1979 and have been used for many years (for example, in version control systems like Git, which are used by almost all software developers in the world). So, they are not unique to blockchain.
There is a demand for magic, and this demand is significant.
As I mentioned, this whole story is about a strange journey to nowhere.
During its writing, I decided to have a chat with one of our developers (yes, real live developers really do roam our office). And one of them, Tim Strijdhorst, knew little about blockchain. But he shared something interesting with me.
"I work with code, and those around me see me as a magician," he said proudly. This has always amazed him. A magician? Half the time he is shouting at his screen in despair, trying to come up with 'patches' for a long outdated PHP script.
Tim means that information and communication technology, like the rest of the world, is one big mess. 
And this is something that we — outsiders, ordinary people, non-technical geeks — simply refuse to accept. Advisors and consultants believe that problems (however global and fundamental they may be) will disappear with a snap of the fingers thanks to technology they learned about from a pretty PowerPoint presentation. How will it work? Who cares! Don’t try to understand it, just reap the benefits!*
* According to , conducted by consulting firm Deloitte, 70% of company directors stated they have 'extensive experience' with blockchain. They claim that speed is the main advantage of blockchain. This raises questions about their mental faculties, as even the most avid blockchain supporters consider its speed a problem.
Here it is, the market of magic. And this market is vast. Whether it's blockchain, big data, cloud computing, artificial intelligence, or other trendy buzzwords.
However, sometimes such 'magical' thinking can be necessary. Take, for example, the experiment with postpartum care. Yes, it ended without results. But Hugo de Kaat from the insurance company VGZ, which participated in the study, says that 'thanks to our Facet experiment, the largest software provider in postpartum care mobilized its efforts.' They are planning to create a similar application, but without any 'frills' — just traditional technologies.
What about Maarten Velthuijs? Could he create his wonderful app to help children without blockchain? No, he admits. But he is not dogmatic about technology at all. 'We didn’t always get it right either while humanity was learning to fly,' Velthuijs says. 'Search on YouTube — there's a video of a guy jumping off the Eiffel Tower with a homemade parachute! Yes, he crashed, of course. But we need people like that too.' 
So: if Maarten needed blockchain to make the app work — great! If the blockchain idea hadn’t panned out — that’s fine too. At least he would have learned something new about what works and what doesn’t. Plus, now the city has a great app to be proud of.
Perhaps the main merit of blockchain lies in the fact that it is an information campaign, albeit an expensive one. "Back-office management" rarely makes it to the agenda of board meetings; however, "blockchain" and "innovation" are frequent visitors.
Thanks to the hype surrounding blockchain, Maarten was able to develop his application to assist children, postnatal care service providers began to interact with one another, and many companies and local authorities felt the inadequacy (to put it mildly) of their data management.
Yes, this required wild, unfulfilled promises, but the results came quickly: leaders are now interested in the mundane topics that help make the world a little more efficient: nothing special, just a bit better.
As Matt Levine writes, the main advantage of blockchain is that it made the world "pay attention to updating back-office technologies and believe that these changes can be revolutionary.».
About the images. likes to experiment with various fleeting things in his studio. All the photographs for this article (from the Current Studies series) were taken using fans, blowers, and vacuum cleaners. The result is images that make the invisible visible: wind. His mysterious "paintings" lie at the intersection of the real and the unreal, transforming an ordinary plastic bag or a flat of smoke into something magical.
P.S. from the translator
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Source: habr.com
