Amazon recently publicized their entrance into the blockchain space and this seems to be the trend with other major companies. Household names like IBM and Microsoft have announced patents and products on the blockchain. Is this blockchain craze capable of being applied to the number of promising innovations around it?
Blockchain is a creation by Satoshi Nakamoto that offered a wise combination of some sophisticated technologies. Distributed ledger, consensus through proof of work, and cryptography are three of the fundamental elements of blockchain. As a way to create hard money, as opposed to easy money like fiat, blockchain was designed to be difficult. This raises the question: why would companies use a technology designed to be inefficient for solutions that require one component of blockchain tech?
IBM answers the question of how blockchain can impact an industry with a use case in the diamond industry. They say that through blockchain tech, companies can access high-resolution photos, immutable payment records, certificates of authenticity, and more. Is a blockchain the solution that will revolutionize these capabilities? Well, let’s go over each one.
First, let’s take a look at a theoretical example of blockchain application. Using a blockchain to revolutionize the diamond industry would be extremely inefficient because before any of this can be done on a blockchain, IBM and/or a group of individuals in the diamond trade will need to operate nodes and consume electricity to do this. This requires a high degree of technical expertise and consumption of resources many companies will not want to buy in to. So, let’s assume IBM centralizes the blockchain on their nodes and utilizes this technology to upload this kind of info to blocks that diamond buyers and sellers then have access to. There is still a central point of failure with complete ownership of nodes, and therefore the entire process is no more reliable than a certificate of authenticity that already comes with diamonds.
High-resolution photos would be pretty large, weighing in at approximately 3MB if the image was 1024 x 768 pixels, amounting to a small yet reasonable picture size. This would mean a blockchain with fairly large blocks would be required, and with time and additions to the blockchain, it would become huge and unscalable. Once the blockchain grows to a certain size, it would be impossible to sync a node and uphold all of the added data. This process would be an implosion waiting to happen with unknown fallout. An alternative could utilize distributed ledger tech, such as a central database with the same access to info that requires a username and password.
A blockchain would be a completely inefficient use of this style of record keeping. Understanding the value of immutable ledger is great, but is it worth sacrificing the resources required to uphold that information on a blockchain? The answer is absolutely not when there are much more efficient methods again, like a central database requiring a username and password. It is probably even better to have a central database in this case, because it would be easier to control what information is added to the database vs. a world with equal access to info that can be changed or compromised in many ways for multiple reasons. We already know there are exploiters in the world, and particularly this space, of 51 percent attacks. So, what would stop global trolls from disrupting a blockchain belonging to a massive central authority?
The addition of certificates of authenticity would presumably run alongside an image of the diamond. If the certificate became a code that represented an image of a particular diamond, would that be sufficient proof of authenticity? It doesn’t matter how many mechanisms are in place to secure the authenticity of a diamond; the fact is, they are able to be made in labs now. Would an image alongside a certificate of authenticity and payment record be sufficient proof that a purchased diamond is the one imagined on the blockchain? In many cases, absolutely not. The more inclusions a diamond has, the more likely it is to be uniquely identified. But what about high-grade diamonds with little or no inclusions, and high in grade on the color scale too? A blockchain would be an overuse of sophisticated technology and process over something with so much ability to be exploited and manipulated.
This blockchain craze reminds a lot of older investors of the dot-com bubble. There was a massive entrance into a new space with speculative technologies that received a lot of funding and the inability to deliver on promises. All these big companies dropping blockchain in their business are attracting investors, but the speculative technologies they offer are likely to fail, and investors with no knowledge of the space other than the name 'blockchain' will be the ones who suffer.