Like practically everyone else on the planet you will have found it impossible not to notice the price of Bitcoin rallying hard vs defunct fiat currencies all over the world. If you’re a Bitcoin HODLer then you will no doubt be enjoying the rapid growth in your purchasing power.
Vindication never tasted so good…
But now is the time to make sure you don’t let this vindication turn into hubris. As with all Bitcoin ‘bull markets’ the explosion in price will bring with it global attention, excitement, and media hype. This heady mixture will inevitably lead to a mania of speculation and the all too predictable affinity scams that seek to ride Bitcoin’s coat tails and tempt you to part with some of your stack.
Today we want to warn you about one of the most pernicious forms of these affinity scams. The ‘BlOcKcHaIn TeChNoLoGy’ scam.
Read on to learn more and get better prepared to navigate a wild Bitcoin bull market whilst avoiding the snake oil salesmen.
Many talking heads over the years have claimed that Bitcoin isn’t that interesting or useful, but that the blockchain technology that “powers it”, is. This is then usually followed by an array of incoherent and vague statements that suggest Bitcoin is just for speculation whilst other blockchains could be deployed to solve for all manner of different use cases.
Most of the time this line of thinking is relatively harmless and simply reveals that the person in question hasn’t put enough hours into understanding how Bitcoin works. They haven’t yet understood that Bitcoin’s blockchain is only one of the essential components of its design and that on its own, a blockchain can’t solve many problems at all.
Thinking you could remove Bitcoin and its blockchain would remain useful is akin to thinking you can remove the engine of a car and it will still be able to move. Blockchains alone can’t “power” anything.
Unfortunately, this lack of understanding creates the perfect breeding ground for scammers. People who are ‘Interested in Blockchain’ but dismiss Bitcoin are some of the easiest market participants to mislead. Unscrupulous VCs and misguided or unethical developers are always quick to jump on this information asymmetry and offer these people the next big ‘blockchain innovation’. Even the big consultancy firms are at it…
These doomed projects are extremely effective at luring people to part with their money. In comparison to ridiculous meme coins, they are more pernicious because they come with a veneer of respectability. Flashy websites, VC funding and prominent influencers all lend credence. You might even be graced with what looks like a very accomplished and complicated white paper.
It's the perfect trap…
As you can see from the diagram presented by Deloitte, the shape and nature of these scams knows no bounds. Like the .com mania, speculators are busy putting ‘everything on the blockchain’ in an endless game of solutions looking for problems. The VCs and consultancies involved in promoting these projects are either complicit in the scam themselves or lack competence and haven’t done their due diligence. Neither of which paints them in a particularly good light.
Given there are such a huge variety of ‘blockchain’ scams its impossible to break down how each one works and explain its flaws individually. What we can do however is highlight a few ways that blockchains don’t really make sense for a lot of things and that the reasons why don’t have to be particularly complex at all…
One of the many ways blockchain affinity scams try to deceive is by claiming that because Bitcoin’s blockchain is immutable that one that they design can be as well. They will claim that this immutability is useful for organisations because it means they can bring more trust and integrity to the data they use and share with each other. They will argue that if companies use their ‘immutable’ blockchain for their transactions then they no longer run the risk of this data being manipulated, replaced, or falsified by any party or employee in the value chain.
Sounds like an attractive proposition, right?
Well, it would be. But how well do these claims of immutability stand up to scrutiny? Are these blockchains truly immutable in the way that Bitcoin’s blockchain is immutable?
The short answer is no.
Bitcoin’s blockchain is immutable because of another key component of its design; Proof of Work. In what is essentially a giant lottery, miners compete with one another to find the next block of transactions to add to Bitcoin’s blockchain. Miners expend vast amounts of energy to play this lottery because they are incentivised to do so. If they are the ones to find and process Bitcoin’s next block of transactions, then they receive a ‘block reward’ of freshly issued Bitcoin. This whole process is completely permissionless and anyone can take part.
This makes Bitcoin immutable because if you wanted to go back in time and change anything recorded in the blockchain then you would need to spend vast amounts on energy and hardware to outcompete every other miner playing this lottery. You would also need to keep up this attack for a prolonged amount of time. The size and scale of Bitcoin’s network means this is no longer plausible.
So, do permissioned enterprise blockchains offer this same level of immutability?
Of course not.
An ‘Enterprise Blockchain’ accessible to only permissioned actors is not going to offer any of the functions described above that result in true immutability. They might be able to offer a cryptographically linked chain of records in chronological order, but without ‘Proof of Work’ it cannot be claimed that these records are truly immutable. Without a truly decentralised network secured by vast amounts of compute and energy, records in an enterprise blockchain can be changed simply if the right people collude with one another. It still requires an element of trust.
This begs the question, why use a Blockchain at all then? Couldn’t you have just used a distributed database with appropriate read and write access? Well sure, but it’s easier to raise VC money and hoodwink investors if you jump on the Blockchain hype wagon.
One of the most enticing grifts we see in the world of ‘blockchain not Bitcoin’ is the idea that physical assets can be recorded and transferred via a blockchain. The proponents of this idea will claim that blockchains can revolutionise supply chains, the housing market and pretty much anything else you can think of. For example, you might hear a compelling pitch that explains how food products could be tracked on a blockchain to demonstrate their authenticity and provide transparency about their origins.
Again, this sounds like a compelling pitch. You may have heard of the scandals involving eye wateringly expensive wine turning out to be fake or barrels of famous whiskey not actually containing what they claim. Surely if we kept track of all this stuff on a blockchain we could end this type of forgery and fraud because we could trace everything?
Well, no, a blockchain can’t solve this.
Let’s say that a famous Whiskey Distillery in Scotland decides to record each of its casks on the blockchain. Every time they fill a cask, they give it a unique identifier and this information is then recorded. You could even stick a QR code on the barrel. Now whenever someone wants to verify the authenticity of its contents all that is required is to scan the QR and check the ‘immutable’ entry on the blockchain. Sounds good, what’s the problem?
Well, the problem might be a guy we will call Jock who works in the Whiskey factory. Jock and his pals are big fans of Whiskey and have a particular penchant for the finest malts. Problem is, they don’t much like paying top dollar for it. Whenever nobody is looking Jock empties a couple of bottles worth of whiskey from the cask and tops it up with a cheap blend so nobody will notice. The customer can still scan the cask’s QR code and the blockchain will still say it’s an authentic product despite Jock’s tampering. The perfect crime!
So, what exactly has the ‘blockchain’ solved in this example? A blockchain can record things digitally, it cannot however record and authenticate things that are happening in the physical world. At best all you have created is a perfect record that at some point you recorded something. Whether or not that record remains true to the reality of the physical world cannot be guaranteed or verified. The authenticity and provenance problem has not been solved.
Bitcoin doesn’t have this problem precisely because its only purpose is to record digital transactions. It’s blockchain is useful because it records transactions sent and received in Bitcoin and its records are immutable because it pays those who secure it in Bitcoin. Both Bitcoin and its blockchain must co-exist for any of this to work. Beware those who suggest otherwise.
These examples are not exhaustive but what we hope you have learned is that blockchains alone are not a solution to anything. Anyone promoting ‘blockchain technology’ to you is either misinformed or actively scamming you. Building a private blockchain when Bitcoin exists is the same mistake a lot of companies made trying to build their own private ‘intranets’ instead of just adopting the internet when it first came out.
So, if this is true and Bitcoin’s public and open blockchain is the only one of true value because of its relationship with its native currency, then where should you spend your time if you’re not trying to hunt down the ‘next big thing’?
The answer is simple. Once you understand that Bitcoin is the only game in town, you can redirect your energy and attention toward understanding it better. There is no better investment you can make right now than training yourself to become a more competent Bitcoin user
There is much to learn and there is no better time than now. Bitcoin is an incredibly powerful tool that has the power to grant you financial freedom, wealth, and self-sovereignty. But only if you learn how to use it properly. Thankfully that’s exactly what we are here to help you with.
Get in touch with us to start your journey and in no time, we will have you running your own node, transacting privately, and storing your Bitcoin securely for generations to come.
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