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Is Blockchain Technology Overhyped? Posted on : Feb 15 - 2019

Blockchain, the ingenious database technology best known for underpinning the faddish digital currency Bitcoin, is reviving the utopian fantasies of the early internet era. In an influential manifesto from that time, “A Declaration of the Independence of Cyberspace,” published in 1996, the essayist and activist John Perry Barlow opposed the idea of government regulation of the internet, offering instead an anarchical vision of an online world in which a decentralized network of people existed free from all authorities and intermediaries save for their own “social contract.” Whatever else Barlow’s statement might have been, it was not prophetic. The online world today is full of authorities and intermediaries — search engines, social media platforms, cloud computing services, internet service providers — all of which exert considerable control over cyberspace and are themselves shaped by laws and regulations. It is hard to imagine a cyberlibertarian paradise emerging from that.

Or it was hard to imagine, until blockchain came along. The first blockchain was the database introduced in 2009 as the infrastructure of Bitcoin; it is where every transaction involving Bitcoin is stored. Because this database is “distributed” (it is supported only by the network of its many thousands of users, with no central or controlling nodes) and because, thanks to a cunning design, it can essentially guarantee the integrity and authenticity of the information it stores, it demonstrates that a functioning currency does not require a bank or equivalent centralized institution. Whether Bitcoin itself ends up being successful is not what matters. What matters is the discovery that the underlying blockchain technology can obviate the need for centralized authorities in contexts where they were once thought to be indispensable. This includes social, political, economic and legal transactions involving not just currency but also stock certificates, deeds to plots of land, titles to copyrighted works, remittance payments, food supply chains, votes in an electoral system and so on.

For the John Perry Barlows of today, blockchain represents a new opportunity to free people from governments, corporations and other sources of centralized control. (Indeed, a few true believers, made rich during the recent digital currency boom, are spending millions of dollars on potential experimental communities where rights and contracts would be implemented using blockchain technology.) But for the legal scholars Primavera De Filippi and Aaron Wright, the innovative promise of blockchain, though real, has been exaggerated. As they argue in BLOCKCHAIN AND THE LAW: The Rule of Code (Harvard University, $35), the growth and evolution of this technology “will follow a similar path” to that of the internet itself: from anarchic potential to a more regulated and controlled reality. They also argue that this is desirable — that blockchain visionaries looking to free people from the hegemony of governments and corporations “could wind up surrendering themselves (and others) to the whims of a much more powerful enemy”: namely, the self-governing code of blockchain itself.

To understand why many proponents of blockchain assume, contrary to De Filippi and Wright, that the technology can and should remain impervious to external control, it helps to understand some details about how such a technology works. Imagine you want to send someone a certain amount of Bitcoin as payment for a service provided. Rather than having the payment go through a bank to be authorized, as it would if you paid with a check or credit card, the proposed transaction is shared with and authorized by the entire Bitcoin network. To determine whether you have enough Bitcoin to make your payment, the computers on the network search through the history of all previous Bitcoin transactions. If your transaction is valid, it is added to a list, or “block,” of recent pending transactions. Every 10 minutes or so, the latest block is collectively verified by the network and added to the “chain” of all the previous blocks. Everyone’s Bitcoin account balance is updated accordingly. This communally maintained history of total transactions — a copy of which is shared with every node of the network — is the blockchain. View More