The path to the future for modern anarchists begins with the ledger of household expenses: where trust was previously provided by public or private bodies, in the future this will be done by a decentralized database with cryptographic protection. Financial transactions, conclusion of digital contracts and confirmation of identity will be carried out through the so-called “blockchain”.

All the power of the blockchain

Blockchain systems promise a truly revolutionary breakthrough: from now on, the decision about the correctness or error, validity or invalidity will not be made by states or departments “from the past”, but by a publicly managed transaction log. This radical openness and efficiency aims to abolish the old centers of power and give individuals dominion over money and destinies.

Gert Lovink
“Bitcoin is
nothing but an avatar of a privileged class”
Gert Lovink, network critic
Network Culture Institute, MoneyLab

For blockchain advocates, the Internet is an example of how a simple protocol can change everything else: the ability to exchange vast amounts of information around the world at low cost would not have been possible without the ingenious idea of ​​TCP/IP. These days, a similar upheaval is expected from the blockchain. It is supposed to allow you to do everything that is already possible on the Internet, but even better, safer and faster, as well as digitize the latest offline transactions, eliminating the problem of finance and trust.

Thus, the supporters of the Ethereum project argue that mechanisms to overcome many vices can be developed on their blockchain platform: timeouts, censorship, fraud, or third-party interference in transactions using their smart contracts are impossible. And the bitcoin cryptocurrency, for which the blockchain in its current form was invented, is now even being promoted as the “Internet of Things”. According to bitcoin activist Roger Fehr, this is “one of the most important inventions in the history of mankind.” Even U.S. presidential candidate Al Gore once said that “in the world of bitcoin, an algorithm alone replaces the functions of government.”

Reality, of course, is presented in less rosy colors. Bitcoins are primarily used for illegal transactions on the shadowy part of the Internet, currency speculation, and the development of ransomware Trojans. Popping speculative bubbles, destructive hacks and theft on a gigantic scale undermine the credibility of cryptocurrencies and thus the very principle of the blockchain.

So, in July 2017, over 30 million euros worth of so-called “etheriums” were stolen within a week, while their rate fell significantly. Changes in the bitcoin exchange rate can also attract speculators, but in everyday life it is hardly useful. The temptingly named “blockchain” system fails in an imperfect world where code is buggy, programmers are up to no good, and users are incompetent.

Definition of terms

> Blockchain is a decentralized database, supplemented by records (“blocks”), made on the basis of consensus, and is public and immutable. The blockchain database grows as it is used, making it difficult to store it decentralized. So, at present, the size of the bitcoin data array is about 130 GB.

> Cryptocurrencies such as bitcoin, ethereum, litecoin and zcash use the blockchain principle to manage transactions securely. Separate blocks of their blockchains must be calculated by individual users, which is intended to prevent inflation, but requires huge amounts of energy: currently (according to unverified data) about 300 megawatts. Cryptocurrencies play an important role only for speculators, buyers and sellers of illegal goods.

> Smart contracts are programs that represent contracts or control their terms. Built into the blockchain, they control or modify blockchain transactions. The most infamous smart contract was the German The DAO (Decentralized Autonomous Organization), which managed $150 million in speculative finance and was hacked by hackers just three weeks later (June 2016); while the damage amounted to more than $ 50 million.

Complete failure

The social environment itself acted as a “shot in the heart”, that is, the reason for the loss of technical trust: since this summer, separate groups of stakeholders with different requirements could not unite, on August 1, 2017, the most popular cryptocurrency split into classic Bitcoin (BTC) and Bitcoin Cash (BCC). Those who were not alert lost significant amounts of money.

This fact shows that the promise of a decentralized structure really carries weight: blockchain technology is independent of government institutions. For example, the “power” over bitcoin is competed by miners (who bear the maximum cost), professional node module providers (who carry out data transfer and can make or block changes to the protocol), and the soldered core of the development team. Anyone who owns bitcoin and wants to keep control of their money will have to join one of these groups; there is nothing more to add to this.

This is probably the biggest mistake of blockchain adherents: you can’t just take and abolish power structures. They reappear on their own. The institutions and regulators they oppose with their cunning programs must mitigate this problem and provide stability, which is a prerequisite for trust.

hot ether
This is how it looks when the hype has died down: the rate of Ethereum, the cryptocurrency of the Ethereum project, after a series of hacks, thefts and disagreements. The guarantee of stability is incompatible with the pattern of ups and downs.

What is the problem?

Gert Lovink, a critic of networking, has succinctly stated the problem with blockchain: it should simply remove social complexity and large institutions from its structure. An imprecise, fluid reality must be captured in a system that offers technological certainty. Evgeny Morozov, another critic of network technologies, already in 2013 called this worldview solutionism in his book “To Save Everything, Click Here” (“Click here to save everything”).
At the same time, the blockchain could quite easily do without revolutionary upheavals, since the fact that it is really useful is beyond doubt.

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PHOTO: Reuters/Jemima Kelly (caption); private person (portrait)