Context

Blockchain is a fascinating data structure that generates great curiosity. However, there is a lot of hype around the concept and its adoption in diverse fields seems to be faith-based, driven by unsubstantiated vendor and consultant claims.

Two main functional properties of blockchain

• A blockchain is a sequential append-only public bulletin board of transaction records with two main functional properties. 
• 1] Verification by peers: What can get added is reconciled by multiple participating  peers following a pre-decided consensus protocol.
• This process cannot be gamed under the assumption that a majority of the unrestricted number of peers are honest.
• 2] Immutable record: recryptographically ensured that it  cannot be altered.
• Each participating peer normally has their own copy of the entire bulletin board, with identical content, and they can read and further copy at will.

Applications and their limits

• Private blockchain: A “permissioned” or private blockchain has only pre-identified participating peers.
• Hence, collusion is possible and integrity can only be ensured through regulations.
• Without political decentralisation, consensus does not imply safety, and this is no different from centralisation in its threat model.
• Privacy concern is not addressed: Despite many claims to the contrary, the blockchain structure has nothing to do with the highly-nuanced notion of privacy, or even the limited secrecy aspect of it.
• To ensure secrecy of the bulletin board records, one has to fall back on traditional and well-established notions from cryptography — like encryption, key management and zero-knowledge proofs.
• “Consensus” is inapplicable when there is only one authority responsible for the integrity of the transactions, for example, the Election Commission of India when a vote is cast in the privacy of a polling booth or a person is added or removed from a voters’ list.
• Issues with use for voting purpose: Also, voting is not the only example of the inadequate analysis of the applicability of blockchain, and there are proposals for using them for land records, asset registers, etc.
• Most such proposals do not pass muster for reasons similar to voting.
• The role of blockchain in RBI’s digital currency proposal is similarly doubtful, and convincing methods independent of “consensus” need to be developed to ensure the correctness and verifiability of transactions while protecting user privacy.

Issues with application for cyrptocurrencies

• Macroeconomic implications not clear: Currency properties and monetary policies have evolved over thousands of years of bartering, and it is not clear that cryptocurrencies are consistent with them or that the larger macroeconomic implications of cryptocurrencies are well understood.
• Crypto assets derive their values from their potential to be exchanged for other currencies.
• Uncertain price determination: Since only a limited set of commodities are traded with crypto assets,  their price determinations with respect to sovereign fiat currencies are uncertain.
• Potential to increase inequality: Apart from the crucial price stabilisation issues, their potential to further inequality is also considerable.
• Environmental impact: The total carbon footprint of cryptocurrencies is equivalent to that of a few megacities, and it does seem ungainly, energy-inefficient and unsustainable to mine assets this way.

Way forward

• What may 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 may be simply achieved by the concerned authority periodically publishing the bulletin board in a publicly downloadable forum, and using hash chains verifiable by all to make alterations impossible.
• Given the carbon footprint associated with cryptocurrencies, it requires regulation and taxation, especially for the potential environmental impacts and because only a few participate.

Consider the question “What is blockchain technology? What are its potential applications and concerns with these applications?” 

Conclusion

Blockchain is certainly an elegant concept whose properties and potential require careful research. The hype of treating them as solutions for everything with not-so-thoughtful use cases is perhaps techno-determinism at its worst.

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