No, the blockchain does not actually appear to be useful for anything much

Merry belated Christmas and a happy new year! For the following note that this is my personal opinion, which I present not as a professional statement and as not necessarily representative of the views of my employer, colleagues, friends and family. I am not a specialist in investment, nor in blockchain technology.

So it is fairly clear that the blockchain based crypto-"currency" Bitcoin is in a speculative bubble. Owning a Bitcoin is not like owning a useful commodity or the share of a company. The price of Bitcoin is entirely based on the assumption that others are willing to pay at least that price at some point in the future, which sounds like a good definition of speculative bubble thinking. (The same may well apply to some degree to the Australian housing market, but at least there you still have a house even if it is currently overvalued; with Bitcoin you will only have a bunch of electrons when the price is corrected to $0).

It is also fairly clear that the ICO (Initial Coin Offering) market is in a speculative bubble. I have been reading the finance section of Charles Mackay's Memoirs of Extraordinary Popular Delusions and the Madness of Crowds, and his descriptions of the various stock offerings during the English South Sea Bubble of 1720...

In the mean time, innumerable joint-stock companies started up every where. [...] Some of them lasted for a week or a fortnight, and were no more heard of, while others could not even live out that short span of existence. Every evening produced new schemes, and every morning new projects.
[...]
Some of these schemes were plausible enough, and, had they been undertaken at a time when the public mind was unexcited, might have been pursued with advantage to all concerned. But they were established merely with the view of raising the shares in the market. The projectors took the first opportunity of a rise to sell out, and next morning the scheme was at an end. Maitland, in his History of London, gravely informs us, that one of the projects which received great encouragement, was for the establishment of a company "to make deal boards out of saw-dust." This is no doubt intended as a joke; but there is abundance of evidence to shew that dozens of schemes, hardly a whit more reasonable, lived their little day, ruining hundreds ere they fell. One of them was for a wheel for perpetual motion--capital one million; another was "for encouraging the breed of horses in England, and improving of glebe and church lands, and repairing and rebuilding parsonage and vicarage houses." [...] But the most absurd and preposterous of all, and which shewed, more completely than any other, the utter madness of the people, was one started by an unknown adventurer, entitled "A company for carrying on an undertaking of great advantage, but nobody to know what it is." Were not the fact stated by scores of credible witnesses, it would be impossible to believe that any person could have been duped by such a project.

 ... read eerily similar to the current craze in ICOs. Check out this excerpt from David Gerard's book Attack of the 50 Foot Blockchain, which I can recommend, by the way. I am not an investment expert, but even I can tell that "whatever these people do, I'm going all in" is not so much a sophisticated investment strategy as mania.

Blockchain technology

It is amazing how often one will read from otherwise sensible people something to the effect of "clearly Bitcoin is worthless, and ICOs are a bubble, but the blockchain is an amazing technology". In fact I was shocked some weeks ago to be sitting in a meeting of taxonomists and hearing somebody say words to the effect of, "it would be great if we could somehow use blockchain in taxonomy", apparently just to be in on something newfangled.

Even without going into any details this seems kind of odd. Surely the rational way to go about one's business is to say, hey, here is a problem, does anybody know a solution?, as opposed to, hey, here is a supposed solution, can we all pretend that we have a problem that it solves?

But let's take a closer look nonetheless. What is a blockchain? And what could it be useful for, perhaps even in taxonomy?

I am going to simplify here, obviously, but to the best of my understanding a good mental model of a blockchain is as follows. Imagine you have a database or, even simpler, an Excel style table. In the realm of taxonomy, let's assume it is a big sheet showing, for each published species name in your country, what its type specimen is, where the name was published, and what the currently accepted name is. This latter piece of information may be a reference to a different line on your sheet if the name has been synonymised, and if the field is empty then the name is accepted. (Again, simplified assumptions.)

One way of managing this taxonomic database is to have one authoritative version of your sheet sitting on the computer of a trusted, central authority, where everybody can look it up and download it, for example like this one. When changes need to be made the central authority implements them on their master copy, done.

As I understand it, the blockchain way would be to have no central authority. Instead, the sheet is distributed in numerous identical copies across lots of different networked computers. The network needs some kind of process for deciding who gets to make a change to the sheet ever so often. Bitcoin uses a tremendously wasteful procedure, but it seems as if there are less wasteful ones that could be used instead. The point is still that instead of one central authority we have lots of copies that constantly need to be harmonised against each other.

Notice something? Of course you do. The whole affair can be made considerably more efficient by simply centralising it, by creating a central trusted authority that manages the one accepted copy, and by dispensing with all the equivalent copies that constantly have to be harmonised against each other. The blockchain approach is just a waste of storage space and computing power.

Really the only reason anybody ever seems to have thought that the decentralisation inherent in blockchain is a good idea is a pathologic distrust of central authority, and concerning crypto-currencies like Bitcoin specifically a pathological distrust of government.

(I am wondering a bit whether there is some kind of psychological projection at work. As an illustrative example take conservative, fundamentalist Christians. Why do they constantly fear that secularists are going to outlaw Christianity, including harmless things like saying "Merry Christmas"? Is it perhaps because outlawing every belief system except their own is what they would do the second they had the power to do so, and they cannot fathom that there are other people out there who are very different, people who genuinely believe that everybody else should be allowed to practice their religion as they see fit, even if they personally don't believe in it? Similarly here I wonder if the proprietarian-libertarian anarcho-capitalists who are constantly afraid that Evil Government Thugs will print so much money that inflation will be at 10,000% are so afraid because abusing government power to enrich themselves is what they would do the second they had such power. Maybe they simply cannot fathom that there are many other people out there who are very different; people who do not constantly obsess about Getting Rich Quick and gloating at the less fortunate but who are happy to live on a modest salary; craftspeople who are simply proud of making high-quality products; academics who simply enjoy figuring out how the world around us works; public servants who genuinely find satisfaction working for the common good; and central bankers who take serious their mandate of keeping inflation near 2%. Not a psychiatrist myself, but wondering.)

So again, nearly every system using a blockchain could immediately be improved by removing the blockchain. But there is another problem. One of the main selling points of the blockchain is that it is "tamper-proof" or in other words "immutable". Again this is an expression of pathological distrust, here the fear that others would tamper with a list of transactions or some other kind of valuable information. For Bitcoin, for example, one of the selling points is that all transactions are irreversible, the idea being that a merchant has the confidence that the customer cannot reverse a payment.

The problem should be immediately obvious: What if a mistake has happened? What if fraud has happened, and the result has already been written into the blockchain? In reality, there is simply close to no market for immutability and irreversibility. All human relationships and interactions have an element of trust, and trying to replace that with the blockchain is doomed to failure.

In financial transactions the merchant benefits more from customers having the confidence that they can reverse transactions with fraudsters than they would from customers becoming very hesitant to make any transactions at all. In other systems the same principle applies: If I were running a taxonomic database, for example, I would want the ability to reverse vandalism or mistakes. As far as I can tell blockchain technology is superfluous and wasteful, and most of its supposed selling points actually appear to be drawbacks.

For a more thorough examination of the issue I can recommend Kai Stinchcombe's essay Ten years in, nobody has come up with a use for blockchain, but of course he does not consider taxonomy :-).