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Why blockchain is a belief system


In an interview with Fox Business on Tuesday, JP Morgan CEO Jamie Dimon back-pedaled on his September claim that bitcoin is a fraud “worse than tulip bulbs”.

He said “he regretted” making the remarks because they dismissed the technology in broad terms, adding “the blockchain is real. You can have crypto yen and dollars and stuff like that.”

It’s not clear how much of the U-turn was prompted by the highly personalised hate campaign run against him on social media by crypto promoters. What is worth noting is Dimon’s especially apologetic stance towards “blockchain”, the technology that underpins cryptocurrency. Financial institutions are heavily investing in this technology in a bid to revolutionise settlements.

According to Bloomberg, Dimon “believes in blockchain” — a turn of phrase that speaks volumes about the state of the technology being advocated.

As argued here, however, “blockchain” as a phrase is entirely meaningless. For the most part it is just a bundle of pre-existing technologies brought together in a cryptocurrency context to solve a problem most of the regulated financial system does not have: a lack of trusted intermediaries.

Aside from solving that very specific issue — and doing so extremely expensively — blockchain achieves little beyond the novelty of broadcasting transactions publicly and pseudonymously in a way that achieves ledger immutability.

To all other extents and purposes, blockchain in its original bundle is not cheaper to run, not more efficient to operate and certainly not faster than the conventional settlement system. Proof of this comes in bitcoin’s own payment dysfunctionality.

Moreover, since banks don’t actually want or need immutable ledgers or trustless systems, that leaves only one aspect of the technology with any potential use: its resilience and security features against hacking. Ironically, this feature (by way of the proof of work function which achieves it) is often the first thing dropped by those adapting the tech for official business due to its expense.

Hence when it comes to official blockchain projects, it’s all about the subjective selection of some parts of the cryptocurrency technology bundle (the bits that suit the banking industry) and the rejection of others (the bits they don’t think they need).

What blockchain is thus lies entirely in the eye of the developer. And since every developer sees something different, no-one can ever be on the same page when talking about it. Perhaps this is why “belief” is such a vital component in the investment narrative. Belief in blockchain, all things considered, really is as vague a construct as belief in fairies and other mythical creatures.

The flood of new, derivative terms populating the field demonstrates the vagueness of “the blockchain” as a concept. From distributed ledger technology and permissioned ledger technology to the shared database, each represents a unique interpretation of the initial blockchain construct and is highly removed from the other.

Which gets us to the key point.

The presentation of blockchain as a technological fait accompli, especially with regards to its potential issuance of official crypto yens, roubles or dollars, is arguably most disingenuous of all. In a world where nobody can agree on what a blockchain-enabled crypto yen actually constitutes, it becomes an entirely meaningless assertion.

Related links:
Cbank digital currencies and the path to Gosbankification – FT Alphaville
The diminishing returns of blockchain fetishism – FT Alphaville
BIS hones in on the paradox at the heart of central bank cryptocurrencies – FT Alphaville


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