GlobalData – a research firm has come out with a report about Blockchain and its future use cases. In the report named “Blockchain – Global Thematic Research“, it states that the blockchain bubble will burst in two years and it will lose all its shine by 2025. They also mention that the conventional database is more than sufficient for most of the cases where blockchain is recommended. Let’s go through the report in detail.
Blockchain Technology – GlobalData Says it is Overrated
GlobalData report mentions that the Blockchain technology is not “Magic.” The technology used in blockchain namely “Distributed Ledger Technology” has its drawbacks. They also admit that the DLT technology has value, but they argue that the tech is highly overrated and cannot replace everything that a traditional database can do.
The report from GlobalData argues that in 19-20 cases where blockchain is commonly recommended can be easily replaced with a traditional database. To understand this report and judge their findings, we must first understand DLT (Distributed Ledger Technology). DLT is a technology in which copy of the transactions is maintained in all the nodes that participate in the network. The copy of the transactional data is maintained everywhere, and so it is immutable and also removes the third party to maintain and verify the transactions.
The ability to maintain records without the intervention of a third party is considered one of the best benefits of blockchain technology. This eliminates third-party interference and also removes the need to trust someone since the system takes care of it completely. But the report submitted by GlobalData argues that it comes at a significant cost and is not efficient at all compared to the traditional database.
Blockchain vs. Traditional Database
The GlobalData report also mentions the drawbacks of Blockchain technology compared with the traditional databases used commonly now in record keeping. The report breaks the myth that blockchain technology is cost-efficient. DLT technology only brings down the cost of deploying the third party in maintaining the records, but in fact, DLT is resource intensive and a very costly mechanism. For instance, the energy used to mine one Bitcoin requires 5k times more energy than single Visa transaction – the report says.
The author of this report, Gary Barnett, admits that the Blockchain technology has some value, but it comes with a side effect. He quotes
“Any transaction that requires the coordination of more than one coordinator will always be slower.”
The report adds that the Blockchain’s immutability feature is usually seen as a benefit, but that can be used only for transactional data. Medical records and data on intellectual property cannot be shared among nodes and should be stored in a conventional database in an encrypted form. The report also adds one more example of that of songs stored in a traditional database. It would be insane to replicate those songs in all the nodes that required several machines, where it is not needed and can be stored in one single centralized database.
Blockchain Technology – A Fantasy?
Barnett – the author of this report by GlobalData, argues that the smart contracts are “A Holy Grail fantasy of Technology.” He argues that the business process incorporated in code is nothing new and blockchain is not the first to invent it. If corporations need them, they can look into SAP technology where the business process is automated in their software.
Blockchain technology is seen as a decentralized system that validates the entries without any need of a third party by arriving at a consensus by all participants in the network. This works without a central authority but this can be used only for validating the transaction, and that doesn’t validate everything according to the report. For Instance, if one wants to use blockchain technology to track and audit the path of cocoa beans being harvested from the deep forests of Peru till it is converted into chocolates and sold in another place in North America, one can verify the transactional details at every stage – the route taken by the cocoa beans via train, truck and cargo ship. But it is impossible to track the physical presence of the particular cocoa by blockchain technology, and there are many other effective ways to verify the provenance of the product without deploying DLT technology.
Barnett does not dismiss blockchain technology completely. He says that the technology can be used in cross-border trading where distributed ledger can replace central authority. This includes trading, land registration, gold bullion and other means that involve transactional data.
So the report concludes that the “Blockchain Technology replacing everything is a myth” and the scope is narrow and only useful for transactional data. We need to wait and watch if the blockchain is a bubble and whether it will fizzle out by 2025 as per the GlobalData report.