If the Bitcoin trust model is not the central aspect of a Blockchain implementation then the Blockchain is competing against traditional cloud-based development (software/hardware/networking) and market (Google, Apple, Intel, Bank of America) constructs that will almost certainly implement a more cost effective deployment model:
“In 1855, Karl Benz combined his profession of manufacturing internal combustion engines with his hobby of designing carriages to produce the first autonomously powered mobile carriage —the automobile. Benz introduced an engine as a solution to a specific engineering problem: to make a carriage move quickly without a horse. The engine supplanted the horse; it did not make horses faster.
In 2008, a similar engineering problem was solved by Satoshi Nakamoto. He combined cryptography and peer-to-peer networks to produce bitcoin, the first fully electronic cash. Nakamoto introduced the bitcoin blockchain as a solution to a specific engineering problem: to move money online in the same way cash is transacted in person without a trusted third party.
So despite banks’ attempts to test and use blockchain technology for their own commercial gain, it is outside the realm of possibility for the technology to serve any useful purpose for the intermediaries it was designed to replace. That is akin to burdening horses with engines in the name of technological innovation: the approach would only slow down the horse and alleviate none of its problems. Such a ridiculous notion will find no real world demand.
When two parties transact with bitcoin, the transaction is broadcast to all network computers that expend significant processing power to verify all transactions and to verify each other’s verification.
This highly complex iterative process lets the network achieve consensus on one unalterable record of transactions that are inscribed in a chain of blocks. It also rewards members with new bitcoins that are roughly in proportion to the processing power they spend. This approach is computationally intensive and an expensive method for verifying transactions. That explains why the network’s processing power today has exceeded 1 Exahash per second — dwarfing the world’s largest supercomputers — and also why it consumes enormous amounts of electricity.
There are many easier and less cumbersome ways of recording transactions, but this is the only method that eliminates the need for a trusted third party. A transaction is committed to the blockchain because many verifiers compete to verify it for profit. Yet not one of them is relied upon or trusted for the transaction to go through. Rather, fraud is immediately detected and reversed by other network members who have strong incentives to ensure the integrity of the network. In other words, bitcoin is a system built entirely on cumbersome and expensive verification so it can eliminate the need for any trust or accountability between all parties: It is 100% verification and 0% trust.
Only time will tell whether this model will supplant traditional forms of finance that utilize simpler technologies but continue to rely on trust and multiple layers of intermediation in various degrees. It is possible that bitcoin will grow to displace many financial intermediaries. It is also possible that bitcoin will stagnate or even fail and disappear. What cannot happen is bitcoin’s blockchain benefiting the intermediation that the digital currency was meant to replace.
For any trusted third party carrying out payments, trading, or recordkeeping, the blockchain is an extremely costly and inefficient technology to utilize. A non-bitcoin blockchain combines the worst of both worlds: the cumbersome structure of the blockchain with the cost and security risk of trusted third parties. It is no wonder that seven years after its invention, blockchain technology has not yet managed to break through in a successful, ready-for-market commercial application other than the one for which it was specifically designed: bitcoin.”
Overview by Tim Sloane, VP, Payments Innovation at Mercator Advisory Group