The Beautiful Imperfections of Blockchain | Must Read!

Ever since the first Bitcoin block was mined in 2009, blockchain technology has been spreading its wings and becoming more popular day by day. At the moment, around 65 million people make use of blockchain technology.

The reason for this is simple: the blockchain space is developing a lot of use cases across several industries. The change has been so irresistible that established companies like Microsoft, Adidas, and Meta, are now providing blockchain-powered solutions.

No wonder some always use the word “disruptive” for blockchain technology.

Having said that, the truth is that the knee of the blockchain industry has been weakened by a couple of imperfections. For instance, how UST—a supposed stablecoin—fell to zero was a reality that would forever linger in the memory of everyone.

Recall also how several NFT projects including Azuki rugged a lot of people – thereby, scooping out millions of dollars.

Moreso, there are a lot of arguments that blockchain is a contradiction because it preaches decentralization, while it—allegedly—does not operate that way.

These series of incidences, among other things, are the reasons keeping 99.3% of the people away from using blockchain technology. But amidst all this, some are still advocating for the adoption despite its current weaknesses, ills, and imperfections.

Of course, these ideologies and occurrences are not as straightforward as they may appear. No doubt, there are a couple of grey areas and nuances.

On this note, we will critically examine the various weaknesses of blockchain technology.

More importantly, we will look into how people should not be distracted by the supposed "imperfections" of blockchain, but rather look into its immense potential.

What Is Blockchain Technology All About?

Popularly referred to as the fourth industrial revolution, blockchain technology is the newest tech on the block. In essence, blockchain technology is a system that enables people to perform activities among themselves without the aid of real-world authorities.

This industry was birthed as a result of age-long research across several disciplines like Cryptography, Law, Economics, Programming, Governance, and lots more.

One programmer or a group called Satoshi Nakamoto—that wasn’t his real name though—claims the credit for getting this technology started – at least, to a large extent. At its inception, it gained popularity through Bitcoin.

Just as we know that the quality of a great developer is the ability to document, Satoshi penned the philosophy behind the creation of Bitcoin when he wrote the whitepaper entitled “Bitcoin: A Peer-to-Peer Electronic Cash System.”

In the whitepaper, he explained that the reason behind this system is to enhance fairness, bypass authorities, and distribute power to everyone.

At this juncture, it is important to bear in mind that what we know as the blockchain is a bedrock for other possibilities like DeFi, Web3, NFT, DAO, and the Metaverse.

But for the ease of communication, we will use “blockchain” as a blanket name for both the blockchain and its subsets interchangeably throughout this piece.

Decentralization Is A Myth

For a long time, some people have always stressed that the underpinning of blockchain is ironic. They premised their arguments on the fact that the technology at its core doesn’t distribute power evenly.

While the pro-decentralization factions might be quick to disperse this with a wave, the critics indeed have a point – at least, prima facie. They claim the power is in the hands of a few.

A couple of months back, Jack Dorsey—the former CEO of Twitter and now the CEO of Circle—once mentioned that VCs and LPs still control Web3 and it is merely a rebrand of centralized entities.

Microstrategy, a Micheal Saylor-owned Bitcoin exchange-traded funds company, currently holds 129,218 bitcoin.

Specifically, DeFi hopes to redistribute financial power to everyone. But in reality, the major decisions concerning the direction of the market are made by the whales.

For those not familiar with crypto, whales are investors that have an extremely greater percentage of an asset.

Thus, the equitable message of DeFi is arguably compromised. At the moment, Vitalik—a single individual—has 355,000 Ethereum, while Satoshi mined 1 million bitcoins all to himself.

From this same standpoint, some have argued that DeFi is not banking the unbanked. And if a larger percentage of people are not in the system, can it still be safe to say that it is indeed inclusive and decentralized?

Apart from the imbalances in DeFi, some blockchain projects and companies heavily depend on a few big Web3 brands for node infrastructure.

Moxie, a veteran cryptographer, opined that these “few” Web3 infrastructure companies are becoming central points of attraction – centralization lite.

Defense

Equality is a lost cause. Blockchain technology is not trying to ensure equality because there will always be imbalances even in the financial capability of individuals. In place of that, it is entrenching equity.

In as much as the distribution of power in the blockchain space is not equal throughout, no one can deny that it has been equitable and fair. Moreso, those who are against how Satoshi and Vitalik are holding Bitcoin and Ethereum respectively are missing a point.

It is a custom in the blockchain space that founding members and developers collect what we call “native tokens.”

This is to serve as a way of rewarding them for their active contributions to the growth of the project which is fair enough. Meanwhile, only a small percentage of the entire native tokens is allocated to the builders.

What the media doesn’t emphasize most times is the tenacity of Vitalik and others about how they didn't sell off their allocated tokens. Holding these tokens to date show how much they believe in what they are building.

Secondly, some say DeFi is not banking the unbanked. First of all, FinTechs appear to be more guilty of this, but that is beside the point.

Particularly, Celo is building an infrastructure for this. People in Kenya, Uganda, and some parts of Asia—who don’t have access to financial products—are already leveraging blockchain technology to cater to their financial needs.

That aside, critics including Moxie may say that platforms like Alchemy and Chainstack are becoming centralized infrastructure companies in the blockchain space, but that is not the case.

Competitors such as Velas, Kaleido, BlockCypher, and a host of others are maintaining market dominance equilibrium.

Rugs, Frauds, and The Need For Regulation

Perhaps one of the most obvious loopholes of the entire blockchain industry is the lack of regulatory framework and infrastructure. Thus, it has been a playing ground for carrying out various fraudulent activities.

Fresh news of hacks and rugs always take the headline almost every week with frauds siphoning millions of dollars consistently. In the just-concluded coordinated attack against LUNA & UST, the attackers took away nothing less than an approximation of $800 million.

We should note some important facts here, the attacker didn’t only defraud the LUNA protocol, but by extension, several millions of people who bought these assets received the greatest shock of their lives when the assets crashed to zero.

Meanwhile, these are parents, workers, and individuals with real-life responsibilities who are into DeFi for a better financial life.

At least, no one can forget the tragic story of JJ Olatunji—a popular YouTuber commonly called KSI—who lost almost $3 million to the crash. Of course, this is only one out of several other pathetic stories.

Cases of fraud are even more prominent in the NFT world. For those who can remember, in October last year, Baller Ape Club—a big Solana project at the time—rugged its holders of over $2 million.

On an investigative note, tracing these frauds can be extremely difficult because the hackers always convert the fund to tornado cash protocol before eventually scooping it out.

By the way, tornado cash is a protocol that when ensures maximal anonymity of the users on how they receive funds and where they send them.

Although blockchain might have a lot to offer, the reality of uncertainty and heist in the industry is a huge red flag to some. To a large extent, this has always been a hindrance against mass adoption both on an individual and governmental levels.

Defense

Every game or industry should have its rules including the blockchain space. However, regulation—as most people know has a few nuances when it comes to blockchain.

The blockchain industry would not demand the regulatory protection of the parliament, court, or FBI. That is clearly against the tenet of decentralization. This is what people need to know.

Therefore, the regulations that are needed in the blockchain space must stem from itself, rather than from the outside.

Sequel to this, there are now blockchain-native courts and auditing companies that will—to a large extent—enhance regulatory compliance within the ecosystem. There will also be ways of punishing those who rug or hack.

Due to the peculiar nascent nature of the industry, the formulation of standards and implementation of regulations might take a little while before they are entrenched. It is one step before another.

How Blockchain Is Allegedly Destroying The Earth

There is no other time to be concerned about the "health" of the earth than now. Once the earth becomes more polluted and of less quality, the ripple effects would be apparent to all its inhabitants.

Hence the reason a lot of organizations, nations, and international bodies are on their toes to ensure that the earth is maintained as healthy as possible.

But it is counter-productive that while some are trying to build the earth, blockchain is allegedly tearing down their efforts.

In their arguments, some environmentalists claim that the Proof-of-Work consensus mechanism which is being adopted by Ethereum and Bitcoin has caused a severe hazard to the environment.

The BBC once reported that Bitcoin utilizes more utility than some countries including Finland and Argentina. As a result, it emits an unhealthy amount of carbon into the atmosphere.

No wonder countries like China are placing strict regulations against mining.

Defense

On a more critical side, the allegation that blockchain is damaging the earth doesn’t seem to hold water. In a way, it shows that those who make this statement most likely do not know about the ecosystem in-depth. Here is why:

Of a truth, Bitcoin uses a consensus mechanism that requires a lot of power. But Nasdaq carried out research and found out that Bitcoin mining uses less power than the banking industry.

In fact, the banking industry consumes almost twice the amount of terawatt-hours that Bitcoin mining consumes.

Moreover, Bitcoin has a total supply of 21 million, while 19 million have been mined as of the moment of writing. Meaning that Bitcoin will soon reach where all its tokens will be mined. At that point, there will be no need for heavy consumption of power.

Meanwhile, it is only Bitcoin and Ethereum use the proof-of-work mechanism. Even at that, Ethereum will switch to proof-of-stake in the coming months.

With this analysis, only less than 2% of blockchain networks use the consensus mechanism that consumes power. The other 98% are using eco-friendly methods.

Against this backdrop, blockchain is the last thing environmentalists should attack.

NFTs Have No Realistic Utility, Alleged To Be A Ponzi Scheme

Non-fungible tokens, always called NFTs for short, have been the center of attraction in blockchain for some time now. At the beginning of this year, DAppRadar reported a Total Locked Value of almost $180 billion.

This stunning figure is not surprising as a lot of people are spending thousands of dollars on NFTs. Particularly, the NFT space is being pumped by supporters of artists and blue-chip NFT projects.

On this note, critics claim that aside from how rewarding NFTs are to artists and creators' economies, there seems to be no other tangible use case of the ecosystem.

Of course, there have been counter-arguments that blue-chip projects like BAYC and DeGods are creating close-knit communities of rich people.

But realists don't see this as a “utility” because while the whole world is in dire need of innovation, some NFT projects are ridiculously spending money on gas wars just to appear “rich.”

To explain this better, Yuga Labs recently launched its Otherside virtual land property. The minting led to a gas war where prospective buyers were trying to outbid one another.

Eventually, a total of $172 million worth of gas went with the minting. Some individuals spent as high as 2.4 ETH.

The billion-dollar question is, “After buying these NFTs? What is the actual benefit the holders gain apart from later flipping it?”

Concerning flipping itself, some have alleged NFTs to be a Ponzi scheme. This is their reasoning: NFT projects thrive on hype. Once the hype is no longer present, the floor price will drop and might eventually come down to zero.

Apart from that, regular cases of wash trading on some NFT marketplaces show that some NFT creators and collectors are mainly into NFTs so they can wash trade.

To put into context, LooksRare—the second largest marketplace after OpenSea—has a reward system for those who interact with its platform. As a result, wash traders have leveraged the opportunity to make over $8 billion so far.

Defense

No doubt, art NFTs blew up the whole NFT industry into the limelight. But it will be sheer ignorance to opine that the NFT space has no "utility" as such, except for the creator's economy.

So far, several industries are actively using NFTs as a touchpoint for enhancing their services. This includes supply chain, real estate, sports, education, social media, and a lot of others.

Not long ago, the aviation industry started incorporating NFTs. Recall how Emirates Airlines in Dubai recently adopted NFTs to enhance the experiences of its customers. In February this year, a house in Florida was turned into an NFT and someone bought it for $653k.

After the sale, the owner got the documents, while the seller also got the payment within minutes. Unlike the usual lengthy processes in the traditional real estate industry. Meanwhile, there are still more use cases of NFTs that the world is yet to tap into.

Concerning blue-chip NFTs and the recent gas wars. First, the point of communal-centric NFTs will be missed if people think the buyers are only buying the arts. No, it’s beyond that.

In practice, NFTs are brands. Thus, when someone buys an Okay Bear NFT, [s] he is paying access into that clique.

For someone to afford a BAYC for example, such a person is considerably rich. The high price is the filter to sieve out some and bring these rich people together because your network, as they say, is your net worth.

Having said that, the recent gas war on the Otherside was simply a mishap that could have been avoided by an optimized smart contract. Thus, it is avoidable in the future.

Moving on, it will also be extremely inaccurate to say that wash trading has perverted the NFT industry. Rather, only LooksRare which incentives those on its platform was affected. To curb that, the platform is taking steps against it.

Who Cares About The Metaverse Though?

The attention of the world, or at least the blockchain geeks, is shifting from the usual face-to-face experience to a virtual one.

This virtual world in this regard is simply the Metaverse; it is deeper than that anyway, but that’s the basic fact about it.

Starting from the middle of last year, several NFT projects and DeFi protocols have been built around the Metaverse. The Sandbox and Decentraland are two leading projects creating the Metaverse.

Subsequently, fashion brands like Gucci, Dolce and Gabbana, and Adidas are creating Metaverse-version of their products.

But while all this is going on, who cares about the Metaverse? Answering this question is important because if no one cares about the whole idea of the Metaverse, then it is a time bomb ready to burst.

The main concern of some against the Metaverse is that it will herald the actual disintegration of humanity. No doubt, we live in an era where everyone is always on their phones and laptops; chatting on Twitter, buying items online, and even working remotely.

This is reducing the amount of time people spend with their loved ones. Parents no longer give attention to their children. The children are also on their phones 24/7.

The world is still battling for the expression of physical attention and real-life interaction among human beings, then comes the Metaverse that wants to throw everyone into the oblivion of a world that doesn’t exist.

The second standpoint is premised on how Facebook—or Meta as they now preferred to be addressed—is dominating the overall appearance of the Metaverse.

In other words, the notion of a decentralized virtual world that the Metaverse seems to ship has fatally sunk if one entity is dominating it.

Moreover, Meta is proposing to receive a cut of 48% from the sale of every item in its Metaverse.

Defense

When mobile phones were invented, not a lot of people used them. Some thoughts they would not need it because they could always have real-life conversations with whomever they wanted to talk to.

But every day, reality spelled out the truth that everyone has to care about mobile phones. At the moment, almost everyone in the world has a phone. Whereas, no one thought would need it per se.

The same story of mobile phones is playing out with the Metaverse, and most people are not taking note.

People often resist the technology they don’t understand and call it names. It is understandable; they are only being human, and that’s normal.

Another allegation towards the Metaverse is that it will disintegrate human interactions. This is not [entirely] true because the Metaverse is not forcing us out of real life, it is only a compliment.

So far Zoom and Google Meet didn’t disintegrate human lives, the Metaverse cannot do that either. Having cleared that, the next is on how Meta or Facebook is controlling the Metaverse.

Most people have never heard about the Metaverse, so when Facebook rebranded to Meta, they developed the idea that Meta is the gateway to the Metaverse.

This idea is erroneous. In fact, Meta is a Web2 company trying to learn the ropes of Web3. It therefore cannot be seen as a pioneer. To be clear, Facebook doesn’t own the Metaverse.

But With These Weaknesses, What Does The Future Hold For Blockchain?

To be honest, blockchain technology is far from perfect. Indeed, there are a whole lot of things to work on. Most of the innovations it is offering may still be misunderstood or not maximally explored yet.

But then, it is in its infancy and time will be a great factor in the more perfect evolution of the industry. At least, perfectionists would agree that perfection doesn’t come overnight. It is a gradual process.

Now, it will be extremely myopic to discard everything that this new technology has to offer because of a few dents. That will be the case of throwing the baby out with the bathwater.

Later in the future, “online” will simply mean on-chain. What we consciously call Web3 will simply be known as the Web. NFTs will be digital goods and brands, while DeFi will be the new method of finance.