Man who championed bitcoin says blockchain is a bust

Mike Caldwell, a 35-year-old software engineer, holds a 25 Bitcoin token at his shop. (Rick Bowmer, AP, file)
Mike Caldwell, a 35-year-old software engineer, holds a 25 Bitcoin token at his shop. (Rick Bowmer, AP, file)

New York - Stefan Thomas, who introduced millions of people to bitcoin, has had a change of heart.

Blockchain, the ledger software that makes the digital currency possible, is too rigid to gain wide adoption, he wrote in an essay titled The Subtle Tyranny of Blockchain.

The technology’s backers think it can revolutionise a wide range of industries including finance, international trade and health care. 

READ: Questions over bitcoin safety after R870m hack

But tweaking the software, as will inevitably be necessary as pioneers bring it to new areas, requires consensus from a huge collection of software developers and so-called miners who make up the bitcoin network.

“Blockchains are a pain to work with,” wrote Thomas, the chief technology officer of Ripple Labs. 

“Harmony and consensus are valuable,” he added. 

“But harmony taken to the extreme becomes a detriment. In the Lego Movie utopia, ‘everything is awesome’ only on the surface. 

"Behind the scenes, there is tremendous diversity and a rapidly changing world, which doesn’t match the established consensus.” 

His essay includes a picture of the authoritarian President Business from The Lego Movie.

It’s a stark departure for Thomas, who five years ago helped make bitcoin easier to use and whose website weusecoins.com bills itself as “a single resource” where the currency is “explained for the average non-technical user.” 

READ: Bitcoin price surges on SA-linked exchange

And it’s a warning shot to start-ups trying to bring blockchain to the masses.

Industries from finance to health care to utilities are working with blockchains such as the one powered by ethereum, with the goal of radically changing how payments are tracked, securities and derivatives trades are processed, and health records are stored, to name just a few of the potential uses.

In finance, the ability to connect everyone in a market on the same database, with pre-loaded securities and cash to pay for them, could vastly speed up executions and make settlement and clearing much simpler than it is today.

There are many hurdles, however. 

Getting Wall Street firms to trust one another and cooperate on the same network is one. 

Thomas points out another: experimentation and improvements to the software are hampered in a blockchain system because a majority of miners who run the software must agree to deploy the update before it can be rolled out.

DAO hack

To be sure, consensus can be struck. After a smart contract known as the Distributed Autonomous Organisation, or DAO, was hacked and millions of dollars worth of ether were removed, enough ethereum users decided to update the network so that it was as if the theft hadn’t happened. 

That decision, though, has raised the ire of blockchain users, who believe the purported immutability of the technology is one of its most compelling attributes.

Thomas favours a system like the internet where breakthroughs can be deployed by anyone, with wider adoption following if the change proves useful. 

“The fact that one corner of the system can be updated and good ideas can eventually spread to the system as a whole has been essential for the Web’s ability to keep pace with technological innovation,” he said.

Wall Street firms see blockchain as a way to reduce costs and increase efficiency as they face stricter regulatory requirements following the 2008 financial crisis. 

Thomas’s company, San Francisco-based Ripple, already lets customers move money internationally in minutes rather than days by utilising a distributed ledger system.

Thomas, whose YouTube video What is Bitcoin? has been viewed more than 6.8 million times since 2011, isn’t abandoning bitcoin as a new kind of currency. 

READ: Cape startup taps Bitcoin to fight piracy

But he’s done with the blockchain.

“In a blockchain like ethereum, everyone has to think the same,” he said. 

He plugs Ripple’s Interledger Protocol at the end, describing it as a more flexible and individualised way to send or receive payments.

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