Blockchains – or when will the next nerd be driven through the village?

Hardly a day goes by without a journalist feeling called upon to preach the promising future of the bankless society. In search of new jobs & Zuckerbergs, the news- and money-hungry gang of investors and journalists has now stumbled upon the topic of blockchain and bitcoin. The most recent examples are the articles in the Economist on the topic of blockchain and in the Tages-Anzeiger Magazin on 14.11.2015 about the nerd Vitalik Buterin. In the Tages-Anzeiger article, Buterin is described as the “Lenin of the digital age”. When I read through the article, I had the unpleasant feeling that I was dealing not with Lenin, but with Rasputin!

Buterin is a typical representative of Generation Y, with a clear tendency toward digital egomania. Or to put it another way: you get the impression that, as a programmer, he wouldn’t even let the pizza slide under the door, but would produce it himself in the 3-D printer. One rightly wonders how a twenty-one-year-old gets the dubious honor of being named in hundreds of articles teaching experienced entrepreneurs and computer scientists how the digital revolution works. If you detach yourself from the person, then you immediately realize that the investment community as well as the press have been desperately looking for new showcase figures for years (driving nerds through the virtual village just looks good).

The technology that Buterin made famous is based on crypto processes (primarily hash algorithms) and is the basis for the virtual currency Bitcoin. It’s called blockchain. This process serves many new startup companies in the environment of the so-called “fintech” scene as an enabler or catalyst for a wide variety of business ideas. Blockchain is being hyped as a great technology of the future that will replace a host of existing communication and transaction methods. The focus of the press and investors is primarily on financial flows. The augurs promise that payment flows and other financial transactions can be executed without having to be channeled through banks or supporting organizations (SWIFT, SIC, credit card organizations.). An anonymous multitude of users becomes part of the transaction without being able to influence it directly. Trust in regulated entities is to be replaced by trust in an unlimited number of anonymous users.

If the world worked the way many nerds imagine, there would probably no longer be a central control authority – but there would also be no one left to pull the plug in the event of a crisis. In their imagination, the system develops autonomously due to the high level of networking and can thus no longer be influenced. These characteristics can be understood positively, but from my point of view they are highly threatening. The greatest weakness of the business models in the sharing economy (Bitcoin is also one of them) is the lack of responsibilities and persons who have to answer for mistakes in case of a crisis. It’s clear that the typical nerd prefers to rely on a group of anonymous benefits that he or she doesn’t need to know, rather than connect with real people. Stupidly, however, the question of trust is central when it comes to financial considerations. Trust is based on various pillars. In this context, both the executing and, above all, the controlling instances are elementary. The separation of powers as a basic principle of democracy forms the foundation on which our trust in the state is based. The same applies to trust in the handling of financial matters. Technology is always a means to an end, never an end in itself. Cultural differences also shape the relationship with trust authorities. As early as the 1990s, we conducted research projects aimed at identifying which entities enjoy a high level of trust in the processing of electronic transactions. One thing became clear: Depending on the culture and country, the instances of trust are different. While in one country a bank enjoys a high level of trust, in another it is the public administration or it may be private companies.

The network as a whole or its user community cannot constitute a trust authority. There is simply a lack of responsibility and, in the legal sense, liability. However, this is a very important aspect, because the technology known today has various horse feet. The performance to cover even a marginal part of today’s financial flows is simply not there. But what is much more thought-provoking is the fact that a blockchain can be taken over by an attacker equipped with high computing power. in the age of professional cybercrime, people will think twice about using such a system for real financial flows. No regulator will allow this in the near future. That’s poison for any business case!

So why are various banks and investors rushing into blockchain anyway? This question is now very easy to answer: We are facing Bust 2.0. The astronomical overvaluation of a wide range of companies in recent months shows that we are back at the same point as in 2001. Companies with few employees that generate little or no revenue but have valuations in the billions are merely vehicles to an end for money-hungry investors. Big banks that jump on the bandwagon assign one or two employees to take care of the matter: you have to be there! There is hardly any real interest in this. These are just hangers-on who try to sell themselves internally and externally as “technology leaders” in order to be able to squeeze the most attractive yield lemons possible!

But what is the real potential of blockchain and similar processes? The methods are very well suited for matching rule sets or checking the integrity of distributed data sets. The so-called smart contracts form an interesting application and have been researched for years. However, it must be mentioned in the same breath that implementation has hardly taken place to date. This could change, because Buterin and his colleagues certainly make a valuable contribution by making the technology available to developers as a neutral platform.

Conclusion: As is usually the case, it will turn out that the technology is only a very small part of the overall solution. Without the necessary legal and organizational as well as social environment, such solutions will not be suitable for mass use. Many of the great-sounding business models will not be realized in the short term because precisely these framework conditions are lacking.

It is therefore necessary to distinguish very precisely whether one is talking about the technology as such or about its application. The expectations of the financial sector or investors are so far exaggerated that they can certainly be relegated to the realm of fairy tales. The first investors will be able to make their money, as always it will hit the second to third wave, which will take the big losses. It is to be hoped that the impact will not be of the same magnitude as was the case with dot com bust 1.0.


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