Blockchain bubble may pop too

The technology behind cryptocurrency may prove to be as much of a bubble as Bitcoin itself, writes

early adopters will reap the benefits when it goes mainstream. The other more likely possibility is that the blockchain is simply not going to live up to its wild promises.

Storing records on a network of computers, and having changes to those records cryptographically signed, is vastly resourceintensive and time-consuming.

The energy use of Bitcoin, the biggest blockchain to date, is close to that of Portugal, and while other blockchain networks are more efficient, they are still an order of magnitude less so than a payment system such as Visa.

Neither does blockchain’s core appeal – that its decentralised nature builds trust – stand up to much inspection.

As a society, we like centralised systems: in the PC wars, Microsoft’s Windows beat the decentralised Linux software; the web is dominated by centralised systems like Facebook and Google. We have put our trust in institutions rather than taking every decision ourselves, since it allows for efficiency.

Most financial institutions that have adopted blockchain in some way have endorsed so-called ‘‘permissioned’’ networks, closely controlled blockchains in which only a handful of approved parties can participate – which rather defeats the point somewhat.

But if you wanted any other proof about blockchain’s shortcomings, you need only look at Bitcoin.

Financial transactions should be one of the most clear uses for blockchain. But the Bitcoin network’s inefficiencies mean nobody is using it as a means of payment, merely speculating on its price.

It has become fashionable to dismiss Bitcoin as a speculative mania, and assert that the real value lies in blockchain. But the latter may prove to be as much of a bubble as Bitcoin itself.

– The Telegraph