Wall Street rethinks blockchain projects as euphoria meets reality

Take for instance the blockchain De Beers (the diamond cartel) says it wants to create to track diamonds. Things like country of origin, quality etc... Tracking diamonds is especially important because you want to make sure that the diamonds you buy are not from a conflict zone, the so-called "blood diamonds".

Now imagine that you have a completely trustless bitcoin-like blockchain to track this. What prevents an African warlord from pretending to be Canadian and create fake entries for its diamonds into the blockchain pretending that they were mined in America? Then he can trade them without issue. The blockchain is unable to detect that a user hasn't the right nationality, nor can it track the physical origin and location of a diamond without having to trust somebody to tell it. Ergo your trustless blockchain is no more valuable than a random file on pastebin.com.

To solve this issue you'd need some trusted certification authority that would audit miners and grant them access to the blockchain once they've asserted that they are who they pretend to be. But if you do this then you have a trusted 3rd party and the blockchain can advantageously be replaced by any regular database of your choice managed by this 3rd party.

You can apply this reasoning to any physical good, from organic produce (how do you make sure that the producer isn't lying about making organic oranges?) to paper rolls (how do you know the producer isn't lying about using sustainable foresting techniques?). You need trusted third parties certifying and controlling these things to weed out cheaters.

>You could then still increase the virtual money supply through fractional reserve banking

You can't do fractional reserve banking on-chain as far as I know so that would mean having your money managed by 3rd party banks who would take ownership of your coins, pool them with other people's coins and manage them for you. So... Back to the start?

Furthermore I don't think it solves the problem of deflation, even with a fractional reserve the bank has no incentive to invest the money if the expected return are less than what it would end up with by not doing anything at all (and therefore not taking any risks either). If you have inflation of, say, 2% then any investment expected to create value or even lose less than 2% is a good one. If you have deflation of 2% then an investment that managed to generate 1% of additional value over your investment actually made you lose money because you'd have been better off not doing anything.

Therefore deflation will make it a lot harder to loan money, fractional reserve or not. Interest rates will be a lot higher to make up for it. The poor will pay the price for being poor, the rich will reap the reward for being rich.

>“investing” is a lot more like hoarding than it is spending…

Depends what you invest into I suppose, if you "invest" in gold bullions then you're right, if you're investing in a startup or loaning money to people buying houses then you're powering the economy.

It is important to note that "they" is usually the company that charged the card, not the bank or merchant processor. It is very similar to receiving a refund.

Currently, if you want to buy or sell real-estate, you have to record that transaction on a central government database. These "databases" used to be paper documents, but are now slowly moving to electronic systems. But they are still centrally controlled, and often even new systems are horribly out-of-date and require specialized real-estate companies to record transactions and pull transaction history, with hefty service fees, often several thousand dollars per sale.

If this real-estate system was based on the blockcahin, it could remove the government as a central source of trust and title companies that specialize in interacting with it would face far more competition. In theory, it could reduce transaction costs to buy and sell real-estate. Admittedly, this may solve some problems but create others, but the benefit is quite clear.