BackMyth-busting blockchain

Myth-busting blockchain

It’s official. According to Gartner, Blockchain has long since reached and surpassed the Peak of Inflated Expectations. As blockchain moves through the Trough of Disilliusionment, there is now as much hype as there is misconception about the emerging technology.

Bad news for blockchain fans? The Gartner Hype Cycle is designed to illustrate the waves of excitement and the doses of realism that all new technologies endure before acceptance into common usage or before they can create meaningful value in society. Those in the know realise that hitting the peak of Inflated Expectations doesn’t predict the end of the technology. Indeed, all technologies go through this important, myth-busting phase. Only some come out the other side and into the Plateau of Productivity.

So, with any new technology, it’s important to sort the signal from the noise. Here, we debunk four common myths about blockchain and then outline why the technology has the potential to come through the hype cycle even stronger as the driving force behind the Internet of Value.

1. Blockchain is the same as Bitcoin

The most common misconception is arguably the most unhelpful and persistent.  Blockchain is the technology which powers Bitcoin, not Bitcoin itself. Indeed, as we see later, while Bitcoin is the most famous use case for blockchain technology, there are other ‘blockchains’ now in existence and in use, completely separate from the one used by Bitcoin.

2. Blockchain / Bitcoin = criminality

Thanks to references in the news media to its usage to fund criminal transactions on the ‘dark web’, Bitcoin has received plenty of negative press. The most common justification for holding on to this misconception is the argument that transactions recorded using blockchain technology cannot be traced and so are used by criminals wishing to remain incognito. This is a fundamental misunderstanding of blockchain technology. It would be more accurate to suggest that those using Bitcoin to transact are seeking pseudonymity, rather than anonymity - or rather, it is Bitcoin’s nature as a decentralised currency (i.e. not controlled by banks) that attracts criminals, not any pretense of secrecy. Moreover, there is nothing to suggest blockchain technology should carry the same negative labels as Bitcoin. Payments made using blockchain technology are more traceable as any payment transaction using blockchain can be traced to its origins through the distributed ledger.

3. There is only one, immutable, blockchain

Unlike the Internet or the one ring, there is no one blockchain to rule them all. Instead, so-called private blockchains are being built all the time, using different protocols for different purposes, from cryptocurrency to share dealing to smart contracts. The decentralised platform Ethereum offers users the opportunity to develop their own blockchain using its protocols. There are also numerous cryptocurrencies that aren’t Bitcoin which use their own blockchain to power their currency and further use cases for blockchain technology are being explored all the time.

4. Blockchain is all about finance

It’s important to recognise that finance is just one use case for blockchain technology. The technology is already being used in multiple ways for various purposes. In Estonia, the government houses records for its citizens using blockchain technology, as part of its e-Estonia initiative. In the field of legal services, companies are springing up to provide smart contracts, which draw on the immutability of the blockchain for the lucrative business of ensuring contracts are watertight. The potential for the technology beyond finance is less well known and arguably less well explored, however it is no less exciting.

Building the Internet of Value

All of that brings us to the second topic of this blog. Aside from the other non-financial use cases outlined, blockchain technology is predominantly being used already to move value around the world. The Internet of Value is a term used by Ripple for the movement of money or assets around the globe, powered by blockchain technology, in the same way as information is exchanged through the Internet as we know it.

As Blockchain is decentralised, it allows for direct connections between parties, which in turn logically facilitates a smoother transaction. This model, removing the middleman to connect consumer and provider directly, is becoming increasingly common across industries. AirBnB connects tourists to local property owners. Uber connects passengers to drivers. Likewise, blockchain technology can connect payee to receiver without a bank or payment scheme in between. Payments made using blockchain technology have the potential to be more traceable, faster and more efficient. In other words, blockchain technology is set to fundamentally disrupt the model of payment transactions in the global financial system - a transformation which Ripple calls the Internet of Value.

The Internet of Value is still under construction, however Ripple’s technology is already being used to tackle real-world problems. In emerging markets, often where liquidity is harder to get hold of and where exotic currencies are required, trade finance is being facilitated by Ripple to carry out transactions in real-time to reduce risk and increase efficiency.

Ripple sees a fundamental imbalance in the way value is moved now:

“In the US, a typical international payment takes 3-5 days to settle, has an error rate of at least 5% and an average cost of $42.”
Ripple, 2019.

In a global economy which is increasingly fast-moving, it’s frankly unacceptable for the transfer of value to be this inefficient. With ambitious players like Ripple and Ethereum working with the technology, we’re confident that commentators and consumers will realise the true potential of blockchain technology in the near future. More importantly, we believe that the Internet of Value can be built and we can truly transform the way value moves around the globe for the better.