Book review: Blockchain Revolution

[Disclaimer: The views expressed below are solely my own and do not necessarily represent the views of my employer or any organization I advise.]

A couple weeks ago I joked that while containment is impossible, it would be nice to know who patient-zero was for using the term “blockchain” without an article preceding it.  The mystery of who exactly removed the “a” before “blockchain” is probably residing on the same island that Yeti, Sasquatch, and the New England Patriot’s equipment team are now located.

Don and Alex Tapscott, a Canada-based father-son duo, co-authored a new book entitled Blockchain Revolution that not only suffers from this grammatical faux pas but has several dozen errors and unproven assertions which are detailed in this review.

Below is a chapter-by-chapter look into a book that should have baked in the oven for a bit more time.

Note: all transcription errors are my own.  See my other book reviews.

Chapter 1

On p. 5 the authors write:

“A decade later in 2009, the global financial industry crashed. Perhaps propitiously, a pseudonymous person or persons named Satoshi Nakamoto outlined a new protocol for a peer-to-peer electronic cash system using a cryptocurrency called bitcoin.”

Ignoring the current drama surrounding Craig Wright — the Australian who claims to be Satoshi — during the initial threads on Metzdowd, Satoshi mentioned he had been working on this project for 18 months prior; roughly mid-2007.  So it was more coincidental timing than intentional.

And much like other books on the same topic, the authors do not clarify that there are more than one type of blockchain in existence and that some are a type of distributed ledger.

For instance, on p. 6 they write:

“At its most basic, it is an open source code: anyone can download it for free, run it, and use it to develop new tools for managing transactions online.”

With the ‘it’ being a ‘blockchain.’  The problem with this grammatical issue is that we know empirically that there many different types of distributed ledgers and blockchains currently under development and not all of them are open sourced.  Nor does being open source automagically qualify something as a blockchain.

On p. 6 they write:

“However, the most important and far-reaching blockchains are based on Satoshi’s bitcoin model.”

That’s an opinion that the authors really don’t back up with facts later on.

In addition, on the same page they make the “encryption” error that also plagues books in this space: the Bitcoin blockchain does not use encryption.

For example, on page 6 they write:

“And the blockchain is encrypted: it uses heavy-duty encryption involving public and private keys (rather like the two-key system to access a safety deposit box) to maintain virtual security.”

Incorrect.  Bitcoin employs a couple different cryptographic processes, but it doesn’t use encryption.  Furthermore, the example of a ‘two-key system’ actually illustrates multisig, not public-private key pairs.

On p. 8 they write:

“Bankers love the idea of secure, frictionless, and instant transactions, but some flinch at the idea of openness, decentralization and new forms of currency.  The financial services industry has already rebranded and privatized blockchain technology, referring to it as distributed ledger technology, in an attempt to reconcile the best of bitcoin — security, speed, and cost — with an entirely closed system that requires a bank or financial institution’s permission to use.”

There is a lot of assumptions in here:

(1) it is unclear which “bankers” they are speaking about, is it every person who works at a bank?

(2) the term ‘openness’ is not very well defined, does that mean that people at banks do not want to have cryptographically proven provenance?

In addition, in order for something to be privatized it must have been public at first.  Claiming that the “blockchain” toolkit of ideas and libraries was privatized away from Bitcoin is misleading.  The moving pieces of Bitcoin itself are comprised of no less than 6 discrete elements that previously existed in the cryptography and distributed systems communities.

The Bitcoin network itself is not being privatized by financial institutions.  In fact, if anything, empirically Bitcoin itself is being carved away by entities and efforts largely financed by venture capital — but that is a topic for another article.  Furthermore, research into distributed computing and distributed consensus techniques long predates Bitcoin itself, by more than a decade.

Lastly, and this is why it helps to clearly define words at the beginning of a book, it is important to note that some blockchains are a type of distributed ledger but not all distributed ledgers are blockchains.

On page 9 they write that:

“In 2014 and 2015 alone more than $1 billion of venture capital flooded into the emerging blockchain ecosystem, and the rate of investment is almost doubling annually.”

This is only true if you conflate cryptocurrency systems with non-cryptocurrency systems.  The two are separate and have completely different business models.  See my December presentation for more details about the divergence.

On p. 9 they write:

“A 2013 study showed that 937 people owned half of all bitcoin, although that is changing today.”

First off, this is a typo because the original article the authors cite, actually says the number is 927 not 937.  And the ‘study’ showed that about half of all bitcoins resided on addresses controlled by 937 on-chain entities.  Addresses does not mean individuals.  It is likely that some of these addresses (or rather, UTXOs) are controlled and operated by early adopters (like Roger Ver) as well as exchanges (like Bitstamp and Coinbase).

Furthermore, it is unclear from the rest of the book how that concentration of wealth is changing — where is that data?

On p. 18 they write about Airbnb, but with a blockchain.  It is unclear from their explanation what the technical advantage is of using a blockchain versus a database or other existing technology.

On p. 20 they write:

“Abra and other companies are building payment networks using the blockchain. Abra’s goal is to turn every one of its users into a teller. The whole process — from the funds leaving one country to their arriving in another — takes an hour rather than a week and costs 2 percent versus 7 percent or higher.  Abra wants its payment network to outnumber all physical ATMs in the world.  It took Western Union 150 years to get to 500,000 agents worldwide.  Abra will have that many tellers in its first years.”

There are at least 3 problems with this statement:

  1.  the authors conflate a blockchain with all blockchains; empirically there is no “the” blockchain
  2.  Abra’s sales pitch relies on the ability to convince regulators that the company itself just make software and doesn’t participate in money transmission or movement of financial products (which it does by hedging)
  3.  Abra was first publicly announced in March 2015 and then formally launched in the Philippines in October 2015.

Fast forward to May 2016 and according to the Google Play Store and Abra has only been downloaded about 5,000 times.

Perhaps it will eventually reach 500,000 and even displace Western Union, but the authors’ predictions that this will occur in one year is probably not going to happen at the current rate.

Furthermore, on p. 186 they write that “Abra takes a 25-basis-point fee on conversion.”

Will this require a payment processing license in each jurisdiction the conversion takes place?

On page 24 they write:

“Other critics point to the massive amount of energy consumed to reach consensus in just the bitcoin network: What happens when thousands or perhaps millions of interconnected blockchains are each processing billions of transactions a day?  Are the incentives great enough for people to participate and behave safely over time, and not try to overpower the network? Is blockchain technology the worst job killer ever?”

There are multiple problems with this statement:

  1.  on a proof-of-work blockchain, the amount of energy consumed is not connected with the amount of transactions being processed.  Miners consume energy to generate proofs-of-work irrespective of the number of transactions waiting in the memory pool.  Transaction processing itself is handled by a different entity entirely called a block maker or mining pool.
  2.  as of May 2016, it is unclear why there would be millions of interconnected proof-of-work blockchains.  There are perhaps a couple hundred altcoins, at least 100 of which are dead, but privately run blockchains do not need to use proof-of-work — thus the question surrounding incentives is a non sequitur.
  3.  while blockchains however defined may displace workers of some kind at some point, the authors never really zero in on what “job killing” blockchains actually do?

On p. 25 they write:

“The blockchain and cryptocurrencies, particularly bitcoin, already have massive momentum, but we’re not predicting whether or not all this will succeed, and if it does, how fast it will occur.”

Nowhere do the authors actually cite empirical data showing traction.  If there was indeed massive momentum, we should be able to see that from data somewhere, but so far that is not happening.  Perhaps that changes in the future.

The closing paragraph of Chapter 1 states that:

“Everyone should stop fighting it and take the right steps to get on board. Let’s harness this force not for the immediate benefit of the few but for the lasting benefit of the many.”

Who is fighting what?  They are presumably talking about a blockchain, but which one?  And why should people stop what they are doing to get on board with something that is ill-defined?

Chapter 2

On p. 30 they write that:

“Satoshi leveraged an existing distributed peer-to-peer network and a bit of clever cryptography to create a consensus mechanism that could solve the double-spend problem as well as, if not better than, a trusted third party.”

The word “trust” or variation thereof appears 11 times in the main body of the original Satoshi whitepaper.  Routing around trusted third parties was the aim of the project as this would then allow for pseudonymous interaction.  That was in October 2008.

What we empirically see in 2016 though is an increasingly doxxed environment in which it could be argued that ‘trusted’ parties could do the same job — movement of payments — in a less expensive manner.  But that is a topic for another article.

On p. 33 they write:

“So important are the processes of mining — assembling a block of transactions, spending some resource, solving the problem, reaching consensus, maintaining a copy of the full ledger — that some have called the bitcoin blockchain a public utility like the Internet, a utility that requires public support. Paul Brody of Ernst & Young thinks that all our appliances should donate their processing power to upkeep of a blockchain: “Your lawnmower or dishwasher is going to come with a CPU that is probably a thousand times more powerful than it actually needs, and so why not have it mine? Not for the purpose of making you money, but to maintain your share of the blockchain,” he said.  Regardless of the consensus mechanism, the blockchain ensures integrity through clever code rather than through human beings who choose to do the right thing.”

Let’s dissect this:

  1.  the process of mining, as we have looked at before, involves a division of labor between the entities that generate proofs-of-work – colloquially referred to as miners, and those that package transactions into blocks, called blockmakers.  Miners themselves do not actually maintain a copy of a blockchain, pools do.
  2.  while public blockchains like Bitcoin are a ‘public good,’ it doesn’t follow how or why anyone should be compelled to subsidize them, at least the reasons why are not revealed to readers.
  3.  the only reason proof-of-work was used for Bitcoin is because it was a way to prevent Sybil attacks on the network because participants were unknown and untrusted.  Why should a washing machine vendor integrate an expensive chip to do calculations that do not help in the washing process?  See Appendix B for why they shouldn’t.
  4.  because proof-of-work is used in a public blockchain and public blockchains are a public good, how does anyone actually have a “share” of a blockchain? What does that legally mean?

On p. 34 they write:

“The blockchain resides everywhere. Volunteers maintain it by keeping their copy of the blockchain up to date and lending their spare computer processing units for mining. No backdoor dealing.”

There are multiple problems with this:

  1.  to some degree entities that run a fully validating node could be seen as volunteering for a charity, but most do not lend spare computer cycles because they do not have the proper equipment to do so (ASIC hardware)
  2.  to my knowledge, none of the professional mining farms that exist have stated they are donating or lending their mining power; instead they calculate the costs to generate proofs-of-work versus what the market value of a bitcoin is worth and entering and exiting the market based on the result.
  3.  this is a contentious issue, but because of the concentration and centralization of both mining and development work, there have been multiple non-public events in which mining pools, mining farms and developers get together to discuss roadmaps and policy. Is that backdoor dealing?

On p. 35 they write:

“Nothing passes through a central third party; nothing is stored on a central server.”

This may have been true a few years ago, but only superficially true today.  Most mining pools connect to the Bitcoin Relay Network, a centralized network that allows miners to propagate blocks faster than they would if they used the decentralized network itself to do so (it lowers the amount of orphan blocks).

On p. 37 they write:

“The paradox of these consensus schemes is that by acting in one’s self-interest, one is serving the peer-to-peer (P2P) network, and that in turn affects one’s reputation as a member of the economic set.”

Regarding cryptocurrencies, there is currently no built-in mechanism for tracking or maintaining reputation on their internal P2P network.  There are projects like OpenBazaar which are trying to do this, but an on-chain Bitcoin user does not have a reputation because there is no linkage real world identity (on purpose).

On p. 38 they write:

“Trolls need not apply”

Counterfactually, there are many trolls in the overall blockchain-related world, especially on social media in part because there is no identity system that links pseudonymous entities to real world, legal identities.

On p. 39 the authors list a number of high profile data breaches and identity thefts that took place over the past year, but do not mention the amount of breaches and thefts that take place in the cryptocurrency world each year.

On p. 41 they write:

“Past schemes failed because they lacked incentive, and people never appreciated privacy as incentive enough to secure those systems,” Andreas Antonopoulos said. The bitcoin blockchain solves nearly all these problem by providing the incentive for wide adoption of PKI for all transaction of value, not only through the use of bitcoin but also in the shared bitcoin protocols.  We needn’t worry about weak firewalls, thieving employees, or insurance hackers. If we’re both using bitcoin, if we can store and exchange bitcoin securely, then we can store and exchange highly confidential information and digital assets securely on the blockchain.”

There are multiple problems with this statement:

  1.  it is overly broad and sweeping to say that every past PKI system has not only failed, but that they all failed because of incentives; neither is empirically true
  2.  Bitcoin does not solve for connecting real world legal identities that still will exist with our without the existence of Bitcoin
  3.  there are many other ways to securely transmit information and digital assets that does not involve the use of Bitcoin; and the Bitcoin ecosystem itself is still plagued by thieving employees and hackers

On p. 41 they write:

“Hill, who works with cryptographer Adam Back at Blockstream, expressed concern over cryptocurrencies that don’t use proof of work. “I don’t think proof of stake ultimately works. To me, it’s a system where the rich get richer, where people who have tokens get to decide what the consensus is, whereas proof of works ultimately is a system rooted in physics. I really like that because it’s very similar to the system for gold.”

There are multiple problems with this as well:

  1.  people that own bitcoins typically try to decide what the social consensus of Bitcoin is — by holding conferences and meetings in order to decide what the roadmap should or should not be and who should and should not be administrators
  2.  the debate over whether or not a gold-based economy is good or not is a topic that is probably settled, but either way, it is probably irrelevant to creating Sybil resistance.

On p. 42 they write:

“Satoshi installed no identity requirement for the network layer itself, meaning that no one had to provide a name, e-mail address, or any other personal data in order to download and use the bitcoin software. The blockchain doesn’t need to know who anybody is.”

The authors again conflate the Bitcoin blockchain with all blockchains in general:

  1.  there are projects underway that integrate a legal identity and KYC-layer into customized distributed ledgers including one literally called KYC-Chain (not an endorsement)
  2.  empirically public blockchains like Bitcoin have trended towards being able to trace and track asset movement back to legal entities; there are a decreasing amount of non-KYC’ed methods to enter and exit the network

On p. 43 they write:

“The blockchain offers a platform for doing some very flexible forms of selective and anonymous attestation. Austin Hill likened it to the Internet. “A TCP/IP address is not identified to a public ID. The network layer itself doesn’t know. Anyone can join the Internet, get an IP address, and start sending and receiving packets freely around the world. As a society, we’ve seen an incredible benefit allowing that level of pseudonymity… Bitcoin operates almost exactly like this. The network itself does not enforce identity. That’s a good thing for society and for proper network design.”

This is problematic in a few areas:

  1.  it is empirically untrue that anyone can just “join the Internet” because the Internet is just an amalgamation of intranets (ISPs) that connect to one another via peering agreements.  These ISPs can and do obtain KYC information and routinely kick people off for violating terms of service.  ISPs also work with law enforcement to link IP addresses with legal identities; in fact on the next page the authors note that as well.
  2.  in order to use the Bitcoin network a user must obtain bitcoins somehow, almost always — as of 2016 — through some KYC’ed manner.  Furthermore, there are multiple projects to integrate identity into distributed ledger networks today.  Perhaps they won’t be adopted, but regulated institutions are looking for ways to streamline the KYC/AML process and baking in identity is something many of them are looking at.

On p. 44 they write:

“So governments can subpoena ISPs and exchanges for this type of user data.  But they can’t subpoena the blockchain.”

That is not quite true.  There are about 10 companies that provide data analytics to law enforcement in order to track down illicit activity involving cryptocurrencies all the way to coin generation itself.

Furthermore, companies like Coinbase and Circle are routinely subpoenaed by law enforcement.  So while the network itself cannot be physically subpoenaed, there are many other entities in the ecosystem that can be.

On p. 46 they write:

“Combined with PKI, the blockchain not only prevents a double spend but also confirms ownership of every coin in circulation, and each transaction is immutable and irrevocable.”

The public-private key technology being used in Bitcoin does not confirm ownership, only control.  Ownership implies property rights and a legal system, neither of which currently exist in the anarchic world of Bitcoin.

Furthermore, while it is not currently possible to reverse the hashes (hence the immutability characteristic), blocks can and have been reorganized which makes the Bitcoin blockchain itself revocable.

On p. 47 they write:

“No central authority or third party can revoke it, no one can override the consensus of the network. That’s a new concept in both law and finance. The bitcoin system provides a very high degree of certainty as to the outcome of a contract.”

This is empirically untrue: CLS and national real-time gross settlement (RTGS) systems are typically non-reversible.  And the usage of the word contract here implies some legal standing, which does not exist in Bitcoin; there is currently no bridge between contracts issued on a public blockchain with that of real world.

On p. 50 they write:

“That was part of Satoshi’s vision. He understood that, for people in developing economies, the situation was worse.  When corrupt or incompetent bureaucrats in failed states need funding to run the government, their central banks and treasuries simply print more currency and then profit from the difference between the cost of manufacturing and the face value of the currency. That’s seigniorage. The increase in the money supply debases the currency.”

First off, they provide no evidence that Satoshi was actually concerned about developing countries and their residents.  In addition, they mix up the difference between seigniorage and inflation – they are not the same thing.

In fact, to illustrate with Bitcoin: seigniorage is the marginal value of a bitcoin versus the marginal cost of creating that bitcoin.  As a consequence, miners effectively bid up such that in the long run the cost equals the value; although some miners have larger margins than others.  In contrast, the increase in the money supply (inflation) for Bitcoin tapers off every four years.  The inflation or deflation rate is fully independent of the seigniorage.

Chapter 3

On p. 56 they quote Erik Vorhees who says:

“It is faster to mail an anvil to China than it is to send money through the banking system to China. That’s crazy!  Money is already digital, it’s not like they’re shipping palletes of cash when you do a wire.”

This is empirically untrue, according to a user could send $1,000 from the US to China in 24 hours using TransFast. In addition:

  1.  today most money in developed countries is electronic, not digital; there is no central bank digital cash yet
  2.  if new distributed ledgers are built connecting financial institutions, not only could cross-border payments be done during the same day, but it could also involve actual digital cash

On p. 59 they write:

“Other blockchain networks are even faster, and new innovations such as the Bitcoin Lightning Network, aim to dramatically scale the capacity of the bitcoin blockchain while dropping settlement and clearing times to a fraction of a second.”

This is problematic in that it is never defined what clearing and settlement means.  And, the Bitcoin network can only — at most — provide some type of probabilistic settlement for bitcoins and no other asset.

On p. 67 they write:

“Private blockchains also prevent the network effects that enable a technology to scale rapidly. Intentionally limiting certain freedoms by creating new rules can inhibit neutrality. Finally, with no open value innovation, the technology is more likely to stagnate and become vulnerable.”

Not all private blockchains or distributed ledgers are the same, nor do they all have the same terms of service. The common theme has to do with knowing all the participants involved in a transaction (KYC/KYCC) and only certain known entities can validate a transaction.

Furthermore, the authors do not provide any supporting evidence for why this technology will stagnate or become vulnerable.

On p. 70 they write:

“The financial utility of the future could be a walled and well-groomed garden, harvested by a cabal of influential stakeholders, or it could be an organic and spacious ecosystem, where people’s economic fortunes grow wherever there is light.  The debate rages on, but if the experience of the first generation of the Internet has taught us anything, it’s that open systems scale more easily than closed ones.”

The authors do not really define what open and closed means here.  Fulfilling KYC requirements through terms of service at ISPs and governance structures like ICANN did not prevent the Internet from coming into existence.  It is possible to have vibrant innovation on top of platforms that require linkage to legal identification.

On p. 72 the authors quote Stephen Pair stating:

“Not only can you issue these assets on the blockchain, but you can create systems where I can have an instantaneous atomic transaction where I might have Apple stock in my wallet and I want to buy something or you.  But you want dollars.  With this platform I can enter a single atomic transaction (i.e., all or none) and use my Apple stock to send you dollars.”

This is currently not possible with Bitcoin without changing the legal system.  Furthermore:

  1.  this is probably not safe to do with Bitcoin due to how colored coin schemes distort the mining incentive scheme
  2.  from a technological point of view, there is nothing inherently unique about Bitcoin that would enable this type of atomic swapping that several other technology platforms could do as well

On p. 73 they write:

“Not so easy.  Banks, despite their enthusiasms for blockchain, have been wary of these companies, arguing blockchain businesses are “high-risk” merchants.”

Once again this shows how the authors conflate “blockchain” with “Bitcoin.”  The passage they spoke about Circle, a custodian of bitcoins that has tried to find banks to partner with for exchanging fiat to bitcoins and vice versa.  This is money transfer.  This type of activity is different than what a “blockchain” company does, most of whom aren’t exchanging cryptocurrencies.

On p. 74 they write:

“Third, new rules such as Sarbanes-Oxley have done little to curb accounting fraud. If anything, the growing complexity of companies, more multifaceted transactions, and the speed of modern commerce create new ways to hide wrongdoing.”

This may be true, but what are the stats or examples of people violating Sarbanes-Oxley, and how do “blockchains” help with this specifically?

On p. 78 they write:

“The blockchain returns power to shareholders. Imagine that a token representing a claim on an asset, a “bitshare,” could come with a vote or many votes, each colored to a particular corporate decision.  People could vote their proxies instantly from anywhere, thereby making the voting process for major corporate actions more response, more inclusive, and less subject to manipulation.”

First off, which blockchain?  And how does a specific blockchain provide that kind of power that couldn’t otherwise be done with existing non-blockchain technology?

On p. 80 they quote Marc Andreessen who says:

“PayPal can do a real-time credit score in milliseconds, based on your eBay purchase history — and it turns out that’s a better source of information than the stuff used to generate your FICO score.”

But what if you do not use eBay?  And why do you need a blockchain to track or generate a credit rating?

On p. 81:

“This model has proven to work.  BTCjam is a peer-to-peer lending platform that uses reputation as the basis for extending credit.”

BTCjam appears to have plateaued. They currently have a low churn rate on the available loans and they exited the US market 2 months ago.

On p. 83 they write:

“The blockchain IPO takes the concept further. Now, companies can raise funds “on the blockchain” by issuing tokens, or cryptosecurities, of some value in the company. They can represent equity, bonds, or, in the case of Augur, market-maker seats on the platform, granting owners the right to decide which prediction markets the company will open.”

From a technical perspective this may be possible, but from a legal and regulatory perspective, it may not be yet. Overstock has been given permission by the SEC to experiment with issuance.

On p. 86 they write:

“Bitcoin cannot have bail-ins, bank holidays, currency controls, balance freezes, withdrawal limits, banking hours,” said Andreas Antonopoulos.

That’s not quite true.  Miners can and will continue to meet at their own goals and they have the power to hard fork to change any of these policies including arbitrarily increasing or decreasing the issuance as well as changing fees for faster inclusion.  They also have the ability to censor transactions altogether and potentially — if the social value on the network increases — “hold up” transactions altogether.

Also, this doesn’t count the subsidies that miners receive from the utilities.

On p. 98 they write:

“To this last characteristic, Antonopoulos notes: “If there is enough financial incentive to preserve this blockchain into the future, the possibility of it existing for tens, hundreds, or even thousands of years cannot be discounted.”

It can arguably be discounted.  What evidence is presented to back up the claim that any infrastructure will last for hundreds of years?

On p. 100 they write:

“And just imagine how the Uniform Commercial Code might look on the blockchain.”

Does this mean actually embedding the code as text onto a blockchain?  Or does this mean modifying the UCC to incorporate the design characteristics of a specific blockchain?

On p. 102 they write:

“What interests Andreas about the blockchain is that we can execute this financial obligation in a decentralized technological environment with a built-in settlement system. “That’s really cool,” he said, “because I could actually pay you for the pen right now, you would see the money instantly, you would put the pen in the mail, and I could get a verification of that. It’s much more likely that we can do business.”

I assume that they are talking about the Bitcoin blockchain:

  1.  there is no on-chain settlement of fiat currencies, which is the actual money people are settling with on the edges of the network
  2.  since it is not fiat currency, it does not settle instantly.  In fact, users still have a counterparty risk involving delivery of the pen versus the payment.
  3.  if a central bank issued a digital currency, then there could be on-chain settlement of cash.

On p. 103 they write:

“If partners spends more time up front determining the terms of an agreement, the monitoring, enforcement, and settlement costs drop significantly, perhaps to zero.  Further, settlement can occur in real time, possibly in microseconds throughout the day depending on that deal.”

The DTCC published a white paper in January that explains they can already do near real-time settlement, but T+3 exists due to laws and other market structures.

On p. 105 they write that:

“Multisig authentication is growing in popularity. A start-up called Hedgy is using multisig technology to create futures contracts: parties agree on a price of bitcoin that will be traded in the future, only ever exchanging the price difference.”

As an aside, Hedgy is now dead.  Also, there are other ways to illustrate multisig utility as a financial control to prevent abuse.

On p. 106 they wrote that:

“The trouble is that, in recent business history, many hierarchies have not been effective, to the point of ridicule. Exhibit A is The Dilbert Principle, most likely one of the best-selling management books of all time, by Scott Adams. Here’s Dilbert on blockchain technology from a recent cartoon…”

The problem is that the cartoon they are citing (above) was actually a parody created by Ken Tindell last year.

The original Scott Adam’s cartoon was poking fun of databases and is from November 17, 1995.

On p. 115 they write:

“But the providers of rooms receive only part of the value they create. International payments go through Western Union, which takes $10 of every transaction and big foreign exchange off the top.”

Western Union does not have a monopoly on international payments, in fact, in many popular corridors they have less than 25% of market share.  In addition, Western Union does not take a flat $10 off every transaction.  You can test this out by going to their price estimator.  For instance, sending $1,000 from the US to a bank account in China will cost $8.

On p. 117 they write about a fictional blockchain-based Airbnb called bAirbnb:

“You and the owner have now saved most of the 15 percent Airbnb fee. Settlements are assured and instant.  There are no foreign exchange fees for international contracts.  You need not worry about stolen identity. Local governments in oppressive regimes cannot subpoena bAirbnb for all its rental history data. This is the real sharing-of-value economy; both customers and service providers are the winner.”

The problem with their statement is that cash settlements, unless it is digital fiat, is not settled instantly.  Identities can still be stolen on the edges (from exchanges).  And, governments can still issue subpoenas and work with data analytics companies to track provenance and history.

On p. 119 they write:

“Along comes blockchain technology.  Anyone can upload a program onto this platform and leave it to self-execute with a strong cryptoeconomical guarantee that the program will continue to perform securely as it was intended.”

While that may have been the case when these cryptocurrency systems first launched, in order to acquire ether (for Ethereum) or bitcoin, users must typically exchange fiat first.  And in doing so, they usually dox themselves through the KYC requirements at exchanges.

On p.123-124 they write about a ‘Weather decentralized application’ but do not discuss how its infrastructure is maintained let alone the Q-o-S.

On p.127 they write:

“Using tokens, companies such as ConsenSys have already issued shares in their firms, staging public offerings without regulatory oversight.”

The legality of this is not mentioned.

On p. 128 they write:

“Could there be a self-propagating criminal or terrorist organizations?  Andreas Antonopolous is not concerned.  He believes that the network will manages such dangers. “Make this technology available to seven and a half billion people, 7.499 billion of those will use it for good and that good can deliver enormous benefit to society.”

How does he know this?  Furthermore, the Bitcoin network itself is already available to hundreds of millions, but many have chosen not to use it.  Why is this not factored into the prediction?

On p.131 they write:

“What if Wikipedia went on the blockchain — call it Blockpedia.”

The total article text of English Wikipedia is currently around 12 gigabytes.  If it is a public blockchain, then how would this fit on the actual blockchain itself?  Why not upload the English version onto the current Bitcoin blockchain as an experiment?  What utility is gained?

From p. 129-144 they imagine seven ideas that are pitched as business ideas, but in most instances it is unclear what the value proposition that a blockchain provides over existing technology.

Chapter 6

On p. 148 they write that:

“The Internet of Things cannot function without blockchain payment networks, where bitcoin is the universal transactional language.”

What does that mean?  Does that mean that there are multiple blockchains and that somehow bitcoin transactions control other blockchains too?

On p. 152 they write:

“Last is the overarching challenge of centralized database technology — it can’t handle trillions of real-time transactions without tremendous costs.”

What are those costs?  And what specifically prevents databases from doing so?

On p. 153 they write:

“Other examples are a music service, or an autonomous vehicle,” noted Dino Mark Angaritis, founder of Smartwallet, “each second that the music is playing or the car is driving it’s taking a fraction of a penny out of my balance. I don’t have a large payment up front and pay only for what I use.  The provider runs no risk of nonpayment. You can’t do these things with a traditional payment networks because the fees are too high for sending fractions of a penny off your credit card.”

Depositing first and having a card-on-file are types of solutions that currently exist.  “Microtipping” doesn’t really work for a number of reasons including the fact that consumers do not like to nickel and dime themselves.  This is one of the reasons that ChangeTip had difficulties growing.

Furthermore, the tangential market of machine-to-machine payments may not need a cryptocurrency for two reasons:

  • M2M payments could utilize existing electronic payment systems via pre-paid and card-on-file solutions
  • The friction of moving into and out of fiat to enter into the cryptocurrency market is an unnecessary leg, especially if and when central bank digital currency is issued.

On pages 156-169 nearly all of the examples could use a database as a solution, it is unclear what value a blockchain could provide in most cases.  Furthermore, on p. 159 they discuss documentation and record keeping but don’t discuss how these records tie into current legal infrastructure.

Chapter 7

On p. 172 they write:

“We’re talking billions of new customers, entrepreneurs, and owners of assets, on the ground and ready to be deployed. Remember, blockchain transactions can be tiny, fractions of pennies, and cost very little complete.”

Maybe some transactions on some blockchains cost fractions of pennies, but currently not Bitcoin transactions.

On p.177 they write that “David Birch, a cryptographer and blockchain theorist, summed it up: “Identity is the new money.”

David Birch is not a cryptographer.

On p. 179 they write:

“Financing a company is easier as you can access equity and debt capital on a global scale, and if you’re using a common denominator — like bitcoin — you need not worry about exchange rates and conversation rates.”

Unless everyone is using one currency, this is untrue.

On p.185 they write:

“Sending one bitcoin takes about 500 bits, or roughly one one-thousandth the data consumption of one second of video Skype!”

But users still need to cash out on the other side which requires different infrastructure than Skype, namely money transmitter licenses and bank accounts.

On p. 192 they write that:

“Second, it can mean better protection of women and children. Through smart contracts, funds can be donated into escrow accounts, accessible only by women, say, for accessing food, feminine products, health care, and other essentials.”

How can a smart contract itself detect what gender the user is?

On p.194 they write:

“In jurisdictions like Honduras where trust is low in public institutions and property rights systems are weak, the bitcoin blockchain could help to restore confidence and rebuild reputation.”

How does Bitcoin do that?  What are the specific ways it can?

Chapter 8

On p. 202 they write:

“People can register their copyrights, organize their meetings, and exchange messages privately and anonymously on the blockchain.”

Which blockchain does this?  There are external services like that purportedly let creators take a hash of a document (such as a patent) and store it into a blockchain.  But the blockchain itself doesn’t have that feature.

On p.214 they write:

“But surely a more collaborative model of democracy — perhaps one of that rewards participation such as the mining function — could encourage citizens’ engagement and learning about issues, while at the same time invigorating the public sector with the keen reasoning the nation can collectively offer.”


Chapter 10

On p. 255 they mention that Greek citizens during 2015 would’ve bought more bitcoins if they had better access to ATMs and exchanges.  But this is not true, empirically people typically try to acquire USD because it is more universal and liquid.  Perhaps that changes in the future, but not at this time.

On p. 260 they write:

“The cost for having no central authority is the cost of that energy,” said Eric Jennings, CEO of Filament, an industrial wireless sensor network. That’s one side of the argument. The energy is what it is, and it’s comparable to the cost incurred in securing fiat currency.”

Where is the citation?  The reason the costs of securing the Bitcoin network are currently around $400 million a year is because that is roughly the amount of capital and energy expended by miners to secure a network in which validators are unknown and untrusted.  If you know who the participants are, the costs of securing a network drop by several orders of magnitude.

On p. 261 they write about the BitFury Group, a large mining company:

“Its founder and CEO, Valery Vavilov, argued the view that machines and mining operations overall will continue to get more energy efficient and environmentally friendly.”

Actually what happens is that while the ASIC chips themselves become more energy efficient, miners in practice will simply add more equipment and maintain roughly the same energy costs as a whole.  That is to say, if a new chip is 2x as efficient as before, miners typically just double the acquisition of equipment — maintaining the same amount of energy consumption, while doubling the hashrate.  There is no “environmental friendliness” in proof-of-work blockchains due to the Red Queen Effect.

On p. 274 they write:

“There will be many attempts to control the network,” said Keonne Rodriguez of Blockchain. “Big companies and governments will be devoted to breaking down privacy. The National Security Agency must be actively analyzing data coming through the blockchain even now.”

With thousands of copies being replicated around the world, it’s unclear who actually is storing it, perhaps intelligence agencies are.  We do know that at least 10 companies are assisting compliance teams and law enforcement in tracking the provenance of cryptocurrency movements.

On p. 282 they write:

“Indeed, Mike Hearn, a prominent bitcoin core developer, caused a quite a stir in January 2015 when he wrote a farewell letter to the industry foretelling bitcoin’s imminent demise.”

Wrong year, it was in January 2016.

On p. 291 they write that:

“Licensed exchanges, such as Gemini, have gained ground perhaps because their institutional clientele know they’re now as regulated as banks.”

Actually, Gemini hasn’t gained ground and remains relatively flat over the past ~5 months.  Even adding ether to their list of assets didn’t move the dial.


Overall the book was published a little too early as there hasn’t been much real traction in the entire ecosystem.

The content and perspective is currently skewed towards telling the cryptocurrency narrative and seemingly downplays the important role that institutions and enterprises have played over the past year in the wider distributed ledger ecosystem.

If you are looking for just one book to read on the topic, I would pass on this and wait for a future edition to rectify the issues detailed above.  See my other book reviews.

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