Fact Check: Bitcoin Skeptics Claim ‘Nobody Has Come Up with a Use for Blockchain’

A laptop featuring the logos of Bitcoin (BTC), the Basic Attention Token (BAT), and Factom's Factoid (FCT).
Pexels.com / Edit: BNN

It’s been a tough time for new owners of Bitcoin.

After the decentralized digital currency rocketed to prices of $20,000 for one whole BTC, those values dropped roughly 50 percent and have bounced back and forth between $10k and $12k for the past week. And, while the asset’s 9-year history suggests the bear market won’t last forever, Bitcoin critics are out in force warning the recent adopters that the fundamentals of their investment are not sound.

The Guardian‘s editorial board declared it and all other digital currencies “fool’s gold,” a bubble that will one day pop for good. Matt O’Brien of the Washington Post calls it “a revolutionary technology built on reactionary economics.” Though the design is “genius,” he concludes, the product is “useless.” Paul Krugman tweet-threaded about how it is a “natural Ponzi scheme” whose underlying technology is “interesting” but may not be “useful for anything.” 

And the most popular content on this theme has been a blog on HackerNoon from Kai Stinchcombe, CEO of “a banking and investment service for seniors,” titled: “Ten years in, nobody has come up with a use for blockchain.” The post, published before Christmas last year, is still getting passed around in investment and tech circles — as it comprehensively purports to debunk all the proposed use cases for Bitcoin’s underlying technology.

“What if there isn’t actually any use for a distributed ledger at all?” Stinchcombe writes in his introduction. “What if, ten years after it was invented, the reason nobody has adopted a distributed ledger at scale is because nobody wants it?” And through the piece, he argues that apps built on Bitcoin-style tech are inferior to the tech and business worlds’ existing solutions.

I can see why Stinchcombe has such a negative view on Bitcoin. Most likely, many of his clients see Bitcoin as a get-rich-quick investment or have put their money in outright scams built around the Bitcoin ecosystem, like the now-defunct Ponzi “lending platform” Bitconnect. ICOs (initial coin offerings) are probably 98% scams and overhyped garbage. A considerable number of the top-traded projects are just tokens with the promise of a future product, and there are so many half-baked “_______ on the blockchain” schemes the phrase has become its own punchline.

However, his article gets many facts wrong, and he is ignorant of several big players in blockchain who effectively shut down his objections on specific use cases. Here are three of the biggest issues with the piece:

Claim: “Freedom to transact without government supervision” is bad because private transactions are for hiding evil activities from a benevolent government.

Stinchcombe writes:

[G]overnment policies are designed to disrupt terrorist financing and organized crime, and prevent traffic in illegal goods like stolen credit card numbers or child pornography. The mainstream preference is to have transactions private but not undiscoverable under warrant — ask “should the government have a list everyone you’ve paid money to,” and most will say no; ask “should the government be able under warrant to get a list everyone a child pornography collector has paid money to,” and most will say yes. Nobody wants bitcoin to 100x the total traffic in goods and services our government defines as illegal.

Fact: The real use case is censorship resistance.

Stinchcombe has a valid point in that we do want law enforcement to be able to uncover illicit online transactions. But “we” refers to western societies where governments are not nakedly authoritarian. Around the rest of the world, not all private transactions are illicit, and not all governments interfere with economic activities for the greater good. For instance, what if a person wants to send money to a missionary or church in communist China? What if a government has blacklisted your family or business from its financial institutions, as happened with Wikileaks (far before any whiff of “Russian collusion”)?

This is Bitcoin 101 stuff. Stinchcombe would do well to spend 15 minutes on Andreas Antonopoulos’s lecture “Money as a System of Control.”

Just for the record, Bitcoin itself does not have the kind of privacy criminals want; in 2017, only 1% of Bitcoin transactions occurred on darknet markets. Coins like Monero are now dominating that niche.

Claim: Blockchain doesn’t improve micropayments.

Stinchcombe writes:

People have proposed that you will use bitcoins for micropayments — for example, paying two cents to a musician to listen to their song on the internet, or four cents to read a newspaper article. Yet the infrastructure to do this — for example, advance authorization with the source of funds so you don’t have to wait eight minutes to read the article you just clicked — actually eliminates the need for bitcoin at all. If you’re happy to pay four cents an article or two cents a song, you can set it up to bill once a month from your bank account and read to your heart’s content. And in practice, people prefer subscription services to micropayments.

Yes, you read that right. Manually set up a recurring bank payment for each newspaper/site you read, and set yourself a budget of how many songs you will stream every month; that’s simple and convenient enough, right?

Fact: Only if you’re blind as a BAT.

Compare Stinchcombe’s system for micropayments with this: You load up prepaid funds into your web browser in the form of digital tokens, then once a month, your browser calculates how much time you spent at various websites (and you can filter which of them are whitelisted/blacklisted for payment).

Then, your browser automatically sends out your monthly budget to the webmaster of each site, divided proportionally based on how much attention you gave them, and the transaction is anonymous — no one can hack a particular server and find out that you frequent and support that site.

If you don’t already have Bitcoin or another top digital currency, the process requires a third-party exchange, but you can minimize your interactions with it — for example, convert $100 into the token, and you can set a minimum budget of 5 tokens a month, or ~$2.50. At that rate, you’ll need another top-up in… 3+ years.

That system isn’t just a whitepaper; it’s already live. It’s called Brave Payments, using the Brave web browser and the Basic Attention Token (BAT), an Ethereum-based utility token. It’s much more convenient and private than Stinchcombe’s DIY workaround, and it empowers populist support for web content that is too controversial for corporate advertisers.

Claim: Blockchain doesn’t improve data integrity.

One property of the Bitcoin blockchain is that it is a public ledger whose history cannot be altered. Stinchcombe says that utilizing blockchain for record-keeping or proving the authenticity of a product or document is much too costly and inefficient:

Without diving too thoroughly into the details of each of these, it seems the use cases all fall apart pretty quickly… For establishing the authenticity of brand name goods like watches or handbags, or that a diamond was ethically mined, the ledger being distributed and encrypted doesn’t add any value — the originating company can just include a certificate you can verify online, just as they have done in the past… And finally, if you want to irrefutably prove that you knew X at time Y without disclosing the actual knowledge publicly, encrypt it and email it to yourself at both a gmail and a hotmail address or post it on bitbucket, or print it out and notarize it, or postmark it by mailing it to yourself, or tweet an md5 of it, or whatever. But then again, how large is the irrefutably-prove-you-knew-X-at-time-Y-without-disclosing-X industry? Can you think of any leading company, or any company at all, that provides this service?

I can think of at least one…

Fact: You are like a little baby. Watch this.

The problem with Stinchcombe’s pooh-poohing is that he is thinking small — so incredibly small.

Meet Factom, one of the only blockchain companies with a real working product that can boast of Fortune 100 clients — not “partnerships” but paying customers.

[For full disclosure, I am a total fanboy of their CEO and co-founder Paul Snow, whose ability to explain the value of Bitcoin without any Silicon Valley VC hype jargon (even off the cuff) has been an invaluable resource for my knowledge of the space. I own less than half of one Factoid, the company’s token for investment/speculation (currently valued around $43 for one whole unit), and I plan to buy more. So understand that an increase in the value of Factoids does increase my net worth personally, and the success of Factom as a company gives me personal satisfaction. Yet, with that said, I believe their value proposition speaks for itself.]

Factom stood out to me when I first began investigating Bitcoin and blockchain, because so many projects were promising cool, sexy products (“an unstoppable world computer,” “a trillion dollar project, or nothing”), but Factom was pushing… mortgages? Insurance? So boring! But those happen to be industries that already are worth trillions of dollars, and those products are ones that profoundly affect people’s lives. And Factom’s product is a tool for improving enterprise-level data management.

It’s actually a very neat hack of the Bitcoin blockchain. Factom takes data and “anchors” it into Bitcoin’s public ledger — with Factom spending a little bit of BTC and embedding their client’s data in the transaction — piggybacking off the work and self-interest of Bitcoin miners, who are defending hundreds of billions of dollars’ worth of value. Thus, each data entry has its own ID hash for quick lookup, the privacy of that data is secured by the most excessive cryptographic computations in the world, and there is a 100% guarantee that no one can retroactively edit or compromise that data or its timestamp. Used properly, it is possibly the most powerful and efficient audit trail in existence.

I asked Factom to weigh in on Stinchcombe’s dismissal of their product’s underlying tech. A statement from CEO Snow, Chief Marketing Officer Jay Smith, and VP of Sales Jason Nadeau calls out Stinchcombe for over-simplifying the issue of authentification.

“The word missing from [Stinchcombe’s] definition is ‘provenance,'” they wrote. “Provenance is knowing the entire lifecycle of a piece of data from the beginning to the present moment. Who created it, when, what has changed, by who, and if it is the same data as when it was originally relied upon.”

As an example, they cite a deceased person’s will. What if he or she failed to publish it before dying? How can the executor know what is the most recent version of the will? How can he or she know who last edited the document if it was typed on the word processor of a shared computer?

“We agree that blockchain solutions will not eliminate all manual processes, nor should they all be eliminated,” the Factom execs continue. “But the need for a better technology becomes obvious if we focus instead on processes that are not so simple as subscriptions, or credit disputes — processes such as those behind mortgage-backed securities.”

And here’s where the process — and thus the potential to save time and money — gets wild:

For example, consider a mortgage bank that sells a loan to a correspondent lender who then assembles a pool of loans and sells them to the Wall Street investor. This process involves a review and due diligence of the pool of loans. Hundreds of dollars are spent on each loan just to verify the data that originally was used to create the loan is accurate, complete, and unchanged since the original assembly. And these reviews happen every day at each and every step of the process — all because the acquiring party cannot rely upon (“trust”) the data they have received.

Looking at the volume of financial transactions, mortgage loans, real estate loans, supply chain transactions, it is hundreds of millions maybe billions of records. For enterprise applications in the real business world, these sorts of ad hoc solutions (e.g., “send it to myself in an email”) can’t scale and don’t really solve the fundamental problem.

CMO Smith also states in a recent blog post that this use case specifically relates to businesses defending themselves in lawsuits or regulatory actions. “Factom provides the proof to support decisions,” he writes. “Why did you deny that claim? Why was this payment made? Can you prove you met the requirement to ‘Know Your Customer’? Did you miss a step before you foreclosed on that family’s house? The list goes on and on.”

The question, again, was: “how large is the irrefutably-prove-you-knew-X-at-time-Y-without-disclosing-X industry?” The answer: As big as the FTC, SEC, mortgage industry, insurance industry, agricultural industry (e.g., “What was the origin of this listeria outbreak?”), and whatever else might ever require a complex audit trail.

The Bitcoin ‘bubble,’ long-term

Again, I sympathize with Stinchcombe, who likely has had to talk down hundreds of clients fooled by marketers’ sketchy get-rich-quick schemes. But his understanding of the Bitcoin ecosystem as a whole is so uninformed that a public correction was necessary.

And, even without this rebuttal, the Bitcoin community has not backed down. The price of Bitcoin continues to rebound every time it hits $10,000. That means that even after a “crash,” an overwhelming number of buyers want to enter the market at a price that’s double the all-time high reached… last September. And even establishment writers who hate the fans’ populist politics are conceding the potential of the technology. Steven Johnson in New York Times Magazine writes that blockchain is “the only real hope for a revival of the open-protocol ethos.”

As always, this is not financial or investment advice. Exchanging your time or resources for any of these digital assets could result in total loss, as we have seen from sites like Bitconnect, and you should be skeptical of any pie-in-the-sky promises. I’m not rich from the fraction of BTC that I own, I don’t expect to become rich from Bitcoin, and the people who have become rich have mostly done so through delayed gratification and refusing to sell during awful bear markets.

Yet I believe that we are seeing not just a bubble but the S-curve adoption of a new technology that will affect our lives as profoundly as the personal computer and the Internet (with a few bubbles along the way). To deny that requires either a Stinchcombe-level lack of research or a Krugman-level lack of common sense.

Ezra Dulis is Deputy Managing Editor of Breitbart News. Follow him on Twitter or on Steemit.

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