Blockchain Revolution without the Blockchain

The technology behind blockchain has attracted a lot of attention. However, this technology is for the most part not well understood. There is no consensus on what benefits it may bring or on how it may fail. A careful look into the technology finds that most of the proposed benefits of so called blockchain technologies do not really come from elements unique to blockchain. Instead, they come from more conventional elements such as encryption and smart contracts. Moreover, even those applications that would benefit from a distributed system may benefit more from a distributed database designed differently than blockchain. Bank Topics: Digital Currencies, Recent Economic and Financial Developments, Service Sector JEL: D8, G2, O3, O33 Blockchain—often called “the technology behind Bitcoin”—has attracted a lot of attention, perhaps somewhat comparable to that devoted to the Internet at the time of the dot-com boom. Many are excited about this new technology, supposedly based on a public, permissionless, distributed ledger that cryptographically assures immutability without a need for a trusted third party and allows for smart contracts. Large and small companies want to get on board, since they expect this technology to lower their costs by making transactions quicker, safer, transparent and decentralized. However, the technology behind the blockchain is for the most part not well understood. There is no consensus on what benefits it may really bring, or on how it may fail. Optimism in the face of novelty and uncertainty of a new technology is not a new phenomenon, but it does affect the economy, for example, through optimistic valuations of blockchain-referencing 1 The views expressed in this paper are those of the author. No responsibility for them should be attributed to the Bank of Canada. For example, some pundits point to “privacy” while others to “transparency” as a benefit of blockchain.