Why Blockchain May Never Benefit Corporations

everyone was obsessed with bitcoin late last year. Yeah, November last year was when I think this sort of like mania that was already at place for several months really turned into an incredible just absolute euphoria, particular early around Thanksgiving time. But at this time last year already I think basically all anyone was talking about was bitcoined and other cryptocurrencies, right, And I think we reached the record

for bitcoin eighteen thousand dollars or something was that in December? Yes, I think middle of December. Now know one cares, right, pretty much, nobody cares. Nothing is happening. It appears the prices don't swing around like they used to. All the speculators have probably moved on to marijuana stocks. And it's

just it couldn't feel more different. The overall environment surrounding cryptocurrencies and all that than it did exactly a year ago, right, And I don't know how many of our listeners ever went to industry conferences where people would talk about bitcoin. Um. But the trope, the cliche that you always heard there was oh, I don't believe in bitcoin, but I do believe in the underlying technology blockchain. Yes, people are still

saying that. Yes, people still say that, and they might even be more confident in their assertions today because of the sort of diminished cryptocurrency bubble and like, oh there's still something here. We're sure of it. We don't really know exactly how it's gonna work it, but we know that the underlying technology is going to have all these great applications like tracking shipping or tracking tomatoes or verifying

the provenance of pharmaceuticals or diamonds. And so people continue to search for that problem that the technology could theoretically be helpful in addressing. Yeah, my favorite project that I heard most recently was Walmart putting Lettuce on the blockchain in order to track like quality control exactly. But the question is, do you really need a blockchain to track lettuce?

And I've always been kind of skeptical that, or track tomatoes or ships or anything like that, or is this really just a great buzzword where if you're sort of like a senior level executive somewhere and you mentioned conferences and you want to be at a conference and you want to sound smart on a panel, you want to have something going uh to say, oh, yes, of course,

we're actively working to incorporate blockchain. This is a pretty open debate because first, much talk about all the people saying blockchain not bitcoin, there doesn't seem to be many actual practical examples yet in the field where someone is clearly demonstrating the value of the technology now, and a lot of the projects that we did hear about have been quietly shelved or at least there hasn't been a lot of tangible progress on them, or progress that we

are able to see exactly right. So then the question is why haven't we seen more progress and why haven't we uh seen some sort of tangible uh connection between what people talk about a conferences to how businesses actually operate. And today's guest will hopefully shed some light on this question on the Odd Lots podcast this week, we have angers championed Krepni. He used to be a blockchain leader at e Y and help companies learn about blockchain technology.

Now he is off doing independent stuff in the crypto world, and he has a lot of thoughts on blockchain and how it might or might not be of benefit two companies, and so he has experience and looking forward to getting his perspective Angus, thank you very much for joining us. Thank you very much for having me. So how many conferences have you been at where someone said blockchain is the interesting thing, not bitcoin? I I could not possibly count.

And the it's funny when you mentioned November last year, there was a glorious two week period where what I did was cool. Prior to that, no one had any idea what bitcoin was. After that, people very quickly found someone else to talk to because that was sick of hearing about it. But it's it's been it's been a number of years, and I've got to admit I was at one point a blockchain not bitcoin person. But as you sort of alluded to, when you strip away all

of the hype, how does this technology actually help? And I've founded my my work it generally doesn't. So this is pretty big because, as you said, you used to be a blockchain not bitcoin person. You should talk to companies, work with them about the idea of incorporating blockchain into their business practices. And now you say it generally doesn't.

So walk us through this stepsode. What do companies think is going to happen when they sort of you draw some blockchain related technology into their business, and then what actually happens when they try. Generally, the story is that we've got we've got a number of entities that we want to all coordinate our data together, and blockchains help coordinate, coordinate data, coordinate people or entities without there being some

sort of central party. What generally happens, though, to get to that stage, you need to form some sort of consortium, some group of players together. You need to define some sort of standards, you need to you need to work out how you how you perform governance going on, and generally, when you're doing that, you form some central body to

do all of that and um. And the thing is, by when once you've formed that central body, you've done all the complex coordination that's required generally in the enterprise space. Technology addressing these problems is not the It's not the issue it's just getting really hundreds of different stakeholders on board. Because if you're just dealing with one entity, you know, one large bank, you're dealing with technology compliant operation to the front office, there are a lot of stakeholders just

in that. So when you want to build a blockchain across all of these various entities, the tough bit is getting all of those different parties together. Once you've done that, once you've addressed that, this is pretty inefficient technology to actually use to implement the solution. Right, So the sales pitch is that I can build essentially a database or you know, a line of information that's immutable and that is not controlled by a single party, and that can

exist amongst entities that maybe don't trust each other. But you're saying that in order to get to that point, you pretty much have to have a group of entities that trust each other and are able to coordinate in some sort of centralized fashion exactly. And we've got a pretty solid legal system to ensure that people can trust

each other. Right. Financial institutions form contracts with each other all the time, even though they will be competitors in um in some way, and and and that where the enforcement falls back on if you create some technology to try to re enforce that, you're going to need to end up relying on the legal system if someone breaks those rules anyway. So why use what's fundamentally a very inefficient technology that was developed for a very specific purpose.

Explain this because I think a lot of people who don't know much about the space are surprised to hear that the technology is inefficient, because the appeal is like, Oh, it's going to strip out all of this legacy code and it's really fast, and it's decentralized, and decentralized sounds like a really good buzzword, and so it's very efficient, and we imagine that there's it's gonna like strip out all these like gigantic server rooms. Why are blockchains inherently inefficient?

It's a funny fallacy that that hunger that's caught on from back in the earlier days of bitcoin, where the message was we can move bitcoin or we can perform payments or move value faster than the current financial system. It's more efficient in the current financial system because I can send you will send money instantly to Tracy now who is on the other side of the world. I think literally on the other side, so I could I can send money and Tracy will have it with within

ten minutes. Right, Um, that sounds great, but there's a lot of stuff in that that's not included. There's not the all of the transaction monitor monitoring, anti money launching, all the operational stuff that's around any bank, right, that's around any payment system. So people realize that didn't work, and then they said, well, if this technology can move payments more efficiently, what else can it do more efficiently? And then it's sort of stuck. So that was sort

of something that hung around. Now, if you have a look at how bitcoin accomplishes that that movement, it's it does a couple of things. One, if I'm sending money or sending bitcoin to Tracy, Tracy knows that I have sent it because she can see that it's a little bit more complicated, but she can see that I had that balance to send, and the rest of the network can see that I had that balance to send. So

everyone is storing all of this information right right. And the second piece is how does Tracy know that I have only sent that to her and I haven't also sent it to you. There's this very complex mathematical calculation, this mining process that makes sure that I'm not doing that. This really seems like the key thing, which is that it's not just that you're sending money to Tracy, it's that everyone on the entire bitcoin network is seeing you

send money to Tracy. So it's actually wildly inefficient in a sense. It may serve a purpose, but if it's like if I sent you an email, but the only way I could send you an email is if everyone in the entire world who had an email account also got to see that, we could just see This would be an extremely computationally intense process. Absolutely, and when you're when you're sending and that's a that's a good example.

If we have a look at something like email, that's just data, So it doesn't matter if you're the only one that gets it or someone else doesn't validate that you received it. That's just between us. If you're talking about value, that does matter. If people are duplicating it, that does matter, if people are creating more than they should. So you sacrifice a lot of that computational efficiency to solve this very specific problem, which was what bitcoin solved

in the first place. So it's been one of these unfortunate things where that that initial fallacy of this efficiency, of this speed was was sort of taken and run with it, and people forgot that this was a very niche computer science problem that was solved using, you know,

very complex, inefficient solution. So I believe in the world before blockchain, we would call that database sprawl, right, So absolutely, how how much of an issue is that for a company that is trying to do a real world application

with blockchain? And it kind of feeds into a second question that I would like to ask, which is how many of the real world applications or projects with blockchain we're actually distributed in a significant way, because we saw a lot of companies announced test cases with blockchain, but then they would say, oh, and by the way, this is only for us, it's only on our servers, it's

not even decentralized. Yeah, a couple of things. Firstly, any enterprise technology transformation is very costly and requires a huge amount of coordination. So there's in my ten years at the firm UM, I don't think I came across a client that couldn't have benefited from one giant data warehouse where all of the data is reconciled all of its console it dated. The number that had that is very few, just because to set up something like that is hugely

costly and you're you're talking multiple years for paybacks. So these are coordinating. What technology spend is useful and what isn't in an enterprise is the job of the CTO, and it's complex. A block chain doesn't change that. A blockchain is still very costly to implement, just like any other just like any other infrastructure. So the question is if we could have done this previously with architecture that we have that we had before blockchains, then why didn't

we Because I'm not sure it would change. A blockchain is going to change that dynamic. The second thing is, and this is worth noting, is it's neon impossible to define exactly what people mean by blockchains. There's a common thing that comes that keeps on coming up is that in many definitions that people when people try to define what a blockchain is, how it often doesn't differ from say a Google spreadsheet UM or just an append only database.

Because if you start talking about distributed systems, well that's a distributed database. UM. If you talk about decentralization. Well, that's very that can be difficult to define because there can be spectrums of that and people have different views on exactly what is decentralization. So it's one of those things that it's sort of got a buzzword that everyone thinks they know what they're talking about when they say

a blockchain. But I've seen a lot of technologies out there that define themselves as you know, as blockchains, that work very, very differently. So it comes down to is a blockchain just simply a chain of blocks um, In which case it's that's just an append only database and a pretty boring data architecture UM. But that doesn't really address all of the clams that people say it does. So another selling point of blockchain technology is that it's

a sort of shared database. It's replicated across participants, depending you know, on how they want to use it. But the integrity of the data is supposed to be ensured because you're using you know, these mathematical calculations to verify it each time, and everyone can see all the underlying blocks and all of that. Is that actually true or is it possible that blockchains can be gamed by a bad actor? And that the underlying data can be manipulated.

The data can really almost anything in computer scidence or in in data structures like this can be gamed. It's just how difficult is it. A blockchain in this, in the in the sort of bitcoin or um in that sense, is incredibly difficult to game because the data is spread out across a lot of participants, so you've got to get everyone to change it. And secondly, the software that is adding that data is run by all of those different systems, so you've got to go in and change

that software as well. So yes, it is very, very difficult to change that data, but it's worth noting what you've sacrificed to do that. In at least in enterprise systems, Essentially you are giving up governance of that data structure, and so on the plus side, you can never change

the data. On the downside, you can never change the data if there is an error, if the software needs to be upgraded, if there needs to be a format change, any any of that sort of Any of that sort of stuff then needs to be coordinated across every single system that's managing this. So the more complex you make, you a technology solution using a blook chain, the bigger

the chance that something will go wrong. Yeah, well, I was gonna say so, Like one of the things about bitcoin, and it's a plus in a minus, which is that if I, like send want to send you some money or send you some bitcoin, but I accidentally like put in the wrong address, then we're screwed. Like that's I mean, maybe the person who if we can find that person who got the money, maybe they'll be kind enough if they can figure it out to reverse it, but probably

we're screwed. And so when I like hear about stuff like we're gonna put like real estate on the blockchain, it's like, what if, like I buy a house from you and it turns out that at the very last second during the closing, someone puts in the wrong address. Either they were really screwed or we can reverse it, in which case it probably wasn't really a blockchain in the first place, you or a fat finger error. And so yeah, and you so half the state. Yeah, it's Um.

The the other thing in real estate is a funny one because that that also gets brought up because um, how do you tie the blockchain to the actual real world as well? Right, And this gets actually, so it was something I want to ask, and I think it's sort of I want to flesh out your first point, which is that the challenge with all this stuff is not the technology, but in getting everyone to agree. And once you've gotten everyone to agree, then you've kind of

solved the problem that the tech is. So I'm thinking about something like, okay, tracking lettuce on a block chain, like the real challenges like who gets to scandal at us? Right, you have to like, you can't have anyone go around with a barcode and a scanner scanning let us into the blockchain. Someone has to be like authorized participants to go around with a scanner and their scanner is connected

to the database. But it seems like if you can then all agree on who gets to have these scanners and whose passwords work, then again, like you've already solved the hard part. Absolutely, And how do you make sure that people are scanning all the lettuces or that someone hasn't substituted a poor let us for a good let us. I'm not sure how big a problem. Yeah, absolutely, absolutely, you know, counterfeit let us. So there is the data in a blockchain in theory is perfect, but that's not

the data problem that that we generally have. It's on the ins and out data quality doesn't happen because a sequel server is fundamentally bad at keeping the data right. It's wrong because the data the different formats between systems. Absolutely, that doesn't change with the blockchain, so vegetable arbitrage aside. I'm curious how we got to the point that we began our discussion with this blockchain but not bitcoin idea, Like, how did companies actually ease upon this technology as something

that was going to transform their various businesses? How did we get to that point. It's it's a funny one because the question comes up when I when I'll say this, as people will say, well, are you telling me that

all of these companies are wrong? The challenge is that when certainly in any sort of innovation, sometimes headlines are you know, headlines are quite important to the business, and you know, some of this will be sort of marketing strategies, and some of this will be you know, just simply

experimentation and learning about this. If I were a major financial um, if I were running a major financial institution and everyone's telling me that this technology is going to make me redundant um, I would be full to not invest and explore this and with my work when I was, when I was with the first moment um, you know, with well with with all of these organizations, it makes sense to assess this, to do your due diligence to understand what this technology is and isn't. What's happened is

that some of that's really sort of caught on. And so my my theory, when people start seeing press releases from different organizations, when people start hearing all of these grand promises, what's important is to demonstrate that you're doing something. And there's a certain, you know, a certain level of group think where there's a lot of looking sideways and

not necessarily looking, you know, looking underneath. I think there's a great analogy here with the asset management industry, in which there's a lot of risk to swimming against the tide and you could get So let's just say there is a world in which banking primarily goes on the blockchain. Whatever that means. You would be taking a lot of career risk and someone would probably get fired if you're

the CTO of some bank who didn't do that. Like if everyone else said wow, we've we've really found a way to like cut out all this back office and efficiency by putting all this data on the blockchain, and they're everyones reduced their costs and one bank didn't like that CTO is in trouble. But if everyone jumps at the same time into it and it doesn't work out, then it's like, well, we invested some money, it didn't

work out, but no one gets into trouble. So for the individual, there's a lot of pressure then to just sort of go along with all the press releases and all the other people. We absolutely and to be perfectly honest, it's not that expensive to do it right, it's it And so it's it makes sense to make that bet, as you say, because do you do you really want to stand up and say that all of these other ones are wrong, because you know, on the if you don't say that, like you could at least go on

a panel and sounds smart. And I say that I'm only like have joking when I say that, But I I often like wonder, like how much is that motive ation for someone who is like a technology executive at

a bank. They're just like, you want to sound smart, you want to be a thought leader, right yeah, And and also you know, as um, while I you know, I preach restraint and all with this technology, one thing that I think it is doing, and I think this is where a number of the projects are getting to, is it's making institutions rethink their core infrastructure and maybe start looking at making some of these investments that they

haven't previously because they've realized we've just been plotting along for you know, ten twenty years, just doing minimal upgrades to our technology because that's been good enough. But this has made the rethink that, you know, maybe our position isn't always going to be safe, and maybe we need to have a real rethink of this core infrastructure, even if it goes down the track of something centralized and

something that doesn't really need a blockchain. Has it really sort of disrupted the technology organized nation enough that they've thought about new ways of restrctfrastructure. So okay, so maybe it's forcing some institutions to think about their technology infrastructure in a more holistic way. But I have to ask, do you see any real world application for blockchain technology where it would actually a work and be makes sense? Private block chains? No? The one thing or at least

there's nothing that I can see right now. But look, I could be you know, I could be wrong. There is a reason why bitcoin was designed as a very simple technology in that it only really transferred value and had some very small, simple bits of logic for the reason that if something goes wrong, um, it's very difficult to change. So you want to limit the number of things that can go wrong consequent lee applications for this technology.

If you're not talking value transfer, you're really talking about time stamping, right, or storing data in a way that it can't be changed. You're not necessarily talking about you know, big complex logic or anything anything like that. You're talking value transfer or time stamps of data making sure that something was at a particular state at a particular point

in time, and that can be valuable. The thing is, when you're looking at that sort of time stamping, you can do that on a public blockchain, and it would probably be cheaper than all of them, than all of the complications around setting up your own That distinction you make between a private blockchain and a public blockchain For people who aren't familiar with those terms, the private blockchain is essentially like the consortium of lettuce growers, and a

public blockchain is like a bitcoin or an ethereal. Yeah. Yeah. The the idea was the bitcoin or ethereum you could send around value or do other sorts of things. But to do that, you had this whole mining process that's had the computational problems to solve. Uh, to incentivize people to look at this data the private blockchains, I said, well, if we all know who each other are, we're incentivized to cooperate, so we can do away with the mining.

So I guess to sort of sum this up, the maybe like okay, obviously quite bearish on the sort of private blockchain enterprise blockchain stuff. Within the public blockchain world, there's still massive debate about whether anything at any value besides bitcoin, or whether there needs to be anything besides bitcoin or ethereum. Now you have a you know, the last couple of years, this Cambrian explosion of all coins trying to do something different. Stable coins are in this year.

But you said something very interesting at the beginning, which is that, so what bitcoin was created? The technology is very complex or sorry, there's a very inefficient, cumbersome to serve a very narrow specific use case. As you look at the crypto blockchain lands kept going forward, do you see any other use cases besides essentially that essentially narrow value transfer from you to tracing. There could be, but I think that that builds on that base of value transfer.

So if you have a look at the Internet, we didn't We didn't get all of the fancy apps and social networking and all of all of these applications without just getting a web browser an email. Right. There was friends to back in the nineties, and there were IoT devices and a number of other sorts of things that

we have now. The dot com boom is is uh, you know, it's the famous period where where people were developing a whole lot of stuff, but fundamentally there wasn't There weren't enough pill on board using that just core applications and decentralization you mentioned very exciting buzzword. I don't think your person on the street really knows or cares what that is at the moment. But what we do have, and um, I've seen you make this point before and

it's it's absolutely where I stand with this. Value transfer at the moment is something that bitcoin censorship resistant value transfer or storage is the thing that bitcoin or these other cryptocurrencies can do that no other system can do. And there are parts of the world where that's important, where you don't have the choice to use a traditional financial system. So in my view, that's really where the

benefit for this is. You've got countries Zimbabwe, Turkey, Iran where people value a store of value that's away from that's away from the government. In the developed world, people like to bet on commodities and people would like to bet on the future. And I think that's the application here.

So until we get that real adoption of that value transfer, which happens by solving a need that people actually have, I question the other applications because in a lot of cases you can do decentralization or create distributed applications without a blockchain. So a blockchain doesn't really change that paradigm.

So are you you are now bitcoin not blockchain? Yeah? Yeah, And and the you know, while while bitcoin has the network effect and is the is dominant at the moment, whether that is the one that's going to be going to be dominant in future and more open about but yes, without that, I think it just all comes down to censorship resistant you transference storage, in other words, just a digital commodity that's away from government. And I hear this

a bit when I talk to people. They say, look, I don't really think that bitcoin is going to be a thing unless maybe you're in the developing world. My view is I sort of agree with that, but the developing world is the world's population. That's a reasonable market. On that note, great conversation, Angus Champion to Kutny, thank you very much for a coming on. Thank you Joe's Joe.

I thought that was an absolutely fantastic conversation and really encapsulated a lot of the criticism that we've seen about blockchain throughout the years in a really relatable way. I could agree more because you just see all these press releases and people trying to sound smart and all this obvious stuff, and you just have so many questions and it's like, look, if you're gonna scand the lettuce, like who's gonna scandal lettuce? And if anyone can scandal let us,

Like what are you really accomplishing? And if you have a sort of white list of people who are allowed to scan the lettuce, then why do you need a blockchain?

All these questions I've had in my head for so long, and it's great to hear from someone who has been talking to companies and involved in it for a while basically saying, yeah, the scandal Lettuce problem really is a problem, right, because if you can build the consortium, you can build the consensus to do that much, then yeah, you're sort of just throwing technology on top of it for no

reason at all. But I thought the conversation as well on that point about why companies insist on doing this was really interesting and the notion that you know, if everyone else, if there's a chance that everyone else is going to do this, you don't want to be the one left out. And but that said, you know that old saying about how you never got fired for buying Microsoft, Um,

do you remember that? It is weird to me that this technology that came from this mysterious bitcoin white paper that was basically designed, you know, for circumventing the existing financial system got adopted so readily by so many sort

of white chee corporations around the world. Well, maybe no one will get fired for talking about it, but maybe the first person to get fired will be because they actually full up to put their words into action and then when their entire business system grinds to a halt, they will be fired. But yeah, I totally agree, and I had the exact same thought about you never get fired for buying Microsoft or IBM or whatever it is.

That is just such a powerful business incentive. And we think about, you know, if you take the sort of sort of neo classical view of economics and business of rational actors in the economy making decisions based on profit and losses and stuff like that, but then you realize that in the real world people are just scared to not do what other people are doing. You get a much sort of much more honest sense of about it of how business actually works. Yeah. Absolutely, and you're right.

I think it was you never get fired for buying IBM? Wasn't it quickly one forgets? Yeah? Alright, Uh well, this has been another edition of the Odd Thoughts podcast. I'm Tracy Alloway. You can follow me on Twitter at Tracy Alloway and I'm Joe Why Isn't All? You could follow me on Twitter at the Stalwart and you can follow Angus on Twitter at Angus Champion, and be sure to follow our producer tofur Foreheads on Twitter. He's at foreheads t as well as the bloomberg head of podcast, Francesco

Levy at Francesco Today. Thanks for listening year