Central bank digital currency
Potential benefits and limitations of blockchain technology
I share my views about the potential benefits and limitations of blockchain technology.
I became interested in blockchain technology when I learned that it is the underlying technology that is used for processing bitcoin. The key features are:
a) It uses a distributed ledger
b) It does not rely on a central database, avoiding the risk of manipulation by the people who have access to it.
c) The distributed ledger is validated by a large number of validators (also called miners).
I enrolled for an online course on blockchain technology and paid the appropriate fee. After attending the two lessons, I felt that I knew enough of the technology to understand its potential benefits and limitations.
I did not want to attend the other lessons, as they contained technical details that are best left to younger people who have the passion and time to master it.
If I need technical knowhow to develop a blockchain application, there will be many qualified people who can take care of the work. I do not need to be that expert.
My key findings are:
a) Blockchain technology is useful for crypto-currency and NFT (non fungible tokens), but there does not appear to be any use for this technology outside of crypto assets.
b) The technology appears to be trying to solve an problem that does not exists, i.e. the use of a distributed ledger to enhance "trust". The integrity of the system can be enhanced by its proper design, and not by using a distributed ledger.
c) It is costly to process transactions using blockchain technology. It also has several shortcomings and risks that are not adequately addressed. (I shall not talk about the shortcomings here).
The most successful use of blockchain technology is in the managing of crypto assets, i.e. crypto currencies and non fungible tokens. Even so, many of these crypto assets have failed. There are still a few crypto assets that are still being traded, but their future is bleak. I do not see them surviving over the long term.
Beyond its use in crypto assets, blockchain technology is still being explored by several governments and businesses.
I personally remain skeptical about their potential benefits. However, I am aware that I might be wrong, and that the powerful brains behind the projects might produce something useful in the future.
The central bank of China embarked on a project to develop a digital currency, called e-CNY, based on blockchain technology in 2014. They committed substantial resources behind this project. They have a strong motivation to introduce the e-CNY as an alternative to the US dollar in international trade.
After 7 years, the central bank has decided not to use blockchain technology for the e-CNY. See this article. It stated: PBOC officials have confirmed that it does not use distributed ledger, or blockchain, technology because it would be unsuited to handle anticipated transaction volumes.
This finding is in line with my common sense and understanding of the technology.
I searched the internet for examples where blockchain technology has been used by businesses to better manage their processes. I came across a few websites listing these examples. These websites are managed by consultancy and technology enterprises that markets the blockchain technology.
They mentioned a few examples of success applications. I read these examples. I could not find any mention of the cost of implementing the blockchain technologies and the advantage over the traditional technologies. I am not convinced that these are real successes.
I will continue to research and follow up on this subject. Meanwhile, I remain skeptical.
Tan Kin Lian
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Thanks for sharing your insightful findings . I'd enjoyed reading this article
Anonymous 24 Dec 2022