The blockchain paradox: Why DLTs may do little to transform the economy

I always thought of bitcoin as a commodity, not a currency. It seems to solve the same problems and follow the same rules. E.g.: a commodity (such as gold) can not be created, but it is an important feature for a currency. Without inflation it will never be a good choice for currency anyways because it will always be a more interesting to hold on it rather than use it.

the article is spot on when it comes to Distributed Ledger Technology (DLT) but misses the point of Bitcoin. Many in the community cite the lack of governance as a strength of Bitcoin. It's resilience is a virture because it becomes difficult to corrupt, unlike centralized governance of traditional payment methods.

It's also convenient for purchasing illegal stuff instead of having to go trough stuff like western union (if you think BTC fees are huge I have a surprise for you). Surprisingly acquiring bitcoin was the hardest part of acquiring controlled substances (coinbase transaction failed twice with my credit card and had a tedious registration process requiring photo, scan of ID, etc. etc. - ended up buying from localbitcoin using bank transfer but it felt risky and the markup was considerable) - the rest was as simple as using a online shop and it shipping to home address - even got free shipping for a bigger order :)

You are right of course, i would argue though that that use case is a deterrent of mainstream adoption rather than an incentive.

Edit: proper english.

I think that the core value crypocurrencies and blockchains provide is a distributed system of trust. I also think that we people in developed nations have been spoiled by our trustworthy institutions, relatively speaking. I don't know too many people in US/UK/AUS/JP hesitant to put money away in the consumer banks, take out mortgages, or file disputes in the state courts. Those systems work well enough, with acceptable speeds for most use cases.

While crypto technologies are improving, they have some glaring drawbacks:

- The recent BTC confirmation time (transaction processing duration) was in days[1].

- The consumer loses significant protections because transactions are final.

- On a broader note, no centralized controls or responsible entities means no one to point fingers at when something goes wrong.

- There are very steep learning curves for all participating parties.

These are all being worked on through technology improvements and new blockchains, but they're still issues that prevent blockchains from displacing existing systems. I think they could one day change everything in an Innovator's Dilemma fashion, but not anytime soon (5-20 years). There is already staunch opposition to using clearly superior technologies due to cultural factors, for example:

- Americans won't use chip readers partly because the magnetic strip was already widespread[2].

- Developed nations don't use mobile chat operating systems such as WeChat partly because they already had laptops[3].

So in the case of blockchains, not only is there an overwhelming opposing cultural force, but also they happen to make inroads in sensitive industries such as finance/contracts, and the technology is not superior on many levels. This would make adoption very difficult.

Where it will work

However, some people don't have such great institutions. Look at how successful BTC has been in turmoil-ridden South American nations such as Venezuela and Argentina[3]. The inflation is out of control, and consumers don't trust any of the banks or institutions. In this environment, the blockchain is leaps and bounds better than anything else that these consumers have access to, so it's immensely valuable. You'd be willing to wait several days for transaction clearance. You wouldn't care that the transfer is final. You'll do whatever awkward dance it takes to operate and secure a Bitcoin wallet. There's no better alternative, and financial asset security is important.

I think characteristics of an ideal market for blockchain technology today could be:

- Very low trust among participants.

- No trusted central authority.

- Expensive, long, or nonexistent arbitration cycles.

- High transaction costs.

Its most compelling value is the provision of trust where there is none. An example where this might work well is in the specification and mediation of international contracts for small businesses. There is currently little accountability after getting burned in an international transaction with a small entity, as a small entity. If there were a standard trusted registry of company reputation, transaction histories, and contracts, then it could go a long way to building systems of trust that enable more fluid trade afar.

[1] https://blockchain.info/charts/avg-confirmation-time?timespa...

[2] http://www.digitalcheck.com/emv-will-usa-be-ready/

[3] https://techcrunch.com/2016/06/01/it-might-be-time-to-stop-l...

[4] https://reason.com/archives/2016/11/28/the-secret-dangerous-...