This month, the Bank of Canada published a staff analytical paper that explored the current landscape surrounding blockchain technology. The publication delivered many challenges to some of the commonly held views surrounding blockchain technology and its proposed applications.
Written by Bank of Canada currency department senior analyst, Hanna Halaburda, Blockchain Revolution Without the Blockchain attempts to illustrate a lack of understanding surrounding blockchain, and present arguments against “optimism in the face of novelty and uncertainty of a new technology.”
“Blockchain often bundled with adjacent technology”
Largely, the publication focuses on the idea that blockchain technology’s benefits do not depend on the technology itself, and claims that blockchain is often unnecessarily grouped with adjacent technologies.
“A more careful look into the technology reveals that most of the proposed benefits of so-called blockchain technologies do not actually come from blockchain,” it reads. “What gets bundled up as blockchain technologies—smart contracts, encryption and a distributed ledger—are separate concepts. The three may be implemented together, but they do not need to be.”
Further, the publication stated that, while a current wave of industry excitement is fueling the adoption of new technologies, the “the landscape after the so-called blockchain revolution may include very few actual blockchain applications.”
“Bitcoin and optimism are sources of confusion”
The paper indicates that the optimism surrounding blockchain technology is often better suited for encryption and smart contracts. While the author acknowledges that the grouping of these terms is a normal part of discourse, she stated that furthered understanding of their differences could play a key role in advancing the movement.
Here, the publication cites both optimism and Bitcoin as sources of confusion surrounding the technology. Purportedly, the popularity of Bitcoin and its functions as a decentralized and immutable platform led to people believing the “illusion” that all blockchain frameworks are able to function without the use a central party.
“[Blockchain’s properties] actually come from a combination of technology and an incentive system that accounts for the behaviour of human participants,” added Halaburda. “Yes, the Bitcoin system uses cryptographic tools: public-private key encryption, hashing algorithms. But the system is virtually immutable because changing the blockchain’s history is too costly.”
The current blockchain landscape
The author’s statements on blockchain technology could be seen as conflicting with proponents that disagree with the concept of the movement leaving blockchain behind.
However, challenging the usage and global adoption of blockchain is a practice necessary even from the industry’s championing figures.
In the current landscape, excitement surrounding the technology may create hyped-up situations like the trend of companies adding “blockchain” to their name and share prices soaring as a consequence. For example, Bloomberg reported that in December 2017, Long Island Iced Tea stocks rose 200% after the company said it was exploring changing its name to “Long Blockchain Corp” and focusing on blockchain technology. Other companies made similar adjustments, and the trend’s prevalence is enough to have earned a warning from the U.S. Securities and Exchange Commission in January of this year.
Ultimately, the Bank of Canada disclaims that the publication is only indicative of the opinion of its senior analyst, not the institution as a whole. However, it does seem to reflect a growing belief that even blockchain’s advocates are not clear in regards to the technology’s potential – and potential limitations.