The only commercially successful application of blockchain technology so far is
electronic cash, and in particular, Bitcoin. The most common potential
applications touted for blockchain technology—payments, contracts, and asset
registry—are only workable to the extent that they run using the decentralized
currency of the blockchain. All blockchains without currencies have not moved
from the prototype stage to commercial implementation because they cannot
compete with current best practice in their markets. Bitcoin's design has been
freely available online for nine years, and developers can copy and improve on it
to introduce commercial products, but no such products have appeared.
The market test shows that the redundancies of transaction recording and proofof‐work can only be justified for the purpose of producing electronic cash and a
payment network without third-party intermediation. Electronic cash ownership and transactions can be communicated in very small quantities of data. Other
economic cases which need more data requirements, such as mass payments and
contracts, become unworkably cumbersome in the blockchain model. For any
applications which involve intermediaries, the blockchain will offer an
uncompetitive solution. There cannot be wide adoption of blockchain technology
in industries reliant on trust in intermediaries, because the mere presence of
intermediaries makes all the costs associated with running a blockchain
superfluous. Any application of blockchain technology will only make
commercial sense if its operation is reliant on the use of electronic cash, and
only if electronic cash's disintermediation provides economic benefits
outweighing the use of regular currencies and payment channels.
Good engineering begins with a clear problem and attempts to find the optimal
solution for it. An optimal solution not only solves the problem, but by definition
does not contain within it any irrelevant or superfluous excess. Bitcoin's creator
was motivated by creating a “peer-to‐peer electronic cash”, and he built a design
for that end. There is no reason, except for ignorance of its mechanics, to expect
that it would be suited for other functions. After nine years and millions of users,
it is safe to say his design has succeeded in producing digital cash, and,
unsurprisingly, nothing else. This electronic cash can have commercial and
digital applications, but it is not meaningful to discuss blockchain technology as
a technological innovation in its own right with applications in various fields.
Blockchain is better understood as an integral cog in the machine that creates
peer-to‐peer electronic cash with predictable inflation.
