Thread by @smdiehl

Let's talk about the evergreen meme that while cryptocoins are certainly a useless speculative bubble, "the blockchain" is a revolutionary technology that will improve the financial system. (1/)🧵

You see this clain basically every Bloomberg or New York Times article. The problem with this claim is that it's short on any specific goals, details or mechanism. What exactly will it change? (2/)

It's especially common to hear this meme repeated by residents of the United States where retail banking and payments are perhaps 20 years behind the rest of developed economies. In fact many developing economies are more advanced at this point. (3/)

If you seriously inquire about any specific use case what you'll find is two dozen companies that have tried it and died or gave up on the idea. Because in every situation there is a better simpler solution. (4/)
thecorrespondent.com/655/blockchain…

However when you have a solution in search of a problem, we end up will all manor of strange post-hoc rationalisations for things that don't really work or exist only because of weird external funding reasons. (5/)

https://twitter.com/ShitUserStory/status/1405110651903692804

Important to understand that financial system is a vast constellation of services, infrastructure and legal structures. Many of which have an inherent irreducible legal and/or human-to-human component that can never be removed. (6/)

The perennial applications that people keep proposing and failing on are related to either retail banking or international remittances. And the reasons these applications keep failing aren't technical, they're cost and compliance reasons. (7/)

At face value it almost sorta makes sense to assume that you might want to pay someone in another country by settling in bitcoin. (8/)

Except trading in some hypervolatile token not backed by anything real means that the exchange rate of the token against real money will fluctuate violently. Something that shits 30-40% in a single day is a terrible medium of exchange. (9/)

On top of this you then have to move your real money at the source with some counterparty to do the exchange for you, who incurs the foreign exchange risk of holding the volatile token and the merchant cost of whatever payment method you use. (10/)

As a business they pass these costs on to you. And the same happens on the other side where your receiving party has to convert the useless token into something they can actually spend, and transfer those funds into a local bank and that's another cost. (11/)

So now we have three intermediate steps and the fluctuations of two currency pairs and the intermediate kickback transaction costs to the operators of the network. (12/)

And then on top of all that add customer service, KYC identity checks, and be a licensed money service business in both jurisdictions and that's all very expensive. As a business offering this as a service, it's just not a terribly efficient nor profitable way to do this. (13/)

The graveyard of companies that all failed for reasons having nothing to do with technology. It's because the people who tried didn't understand why the real world is actually messier than the fantasy world of libertarian money. (14/)
saveonsend.com/bitcoin-blockc…

Normal remittance services (look at Transferwise etc) simply batch up many customer transactions across a currency pair (GBP/USD), net out the differences with themselves via normal transfers and pay out their customers. No pointless intermediate conversions. (15/)

The same family of business model fallacies plague literally every proposed blockchain application (land registries, supply chain, trade finance, lending, etc). There are irreducible compliance costs, regulatory restrictions and irreducibly messy human interactions. (16/)

Businesses don't need decentralisation. They actually need big centralised and permissioned databases with reversible transactions and global mutability to manage core business transactions. The complete diametric technical opposite of crypto solutionism. (17/)

Trying to improve financial infrastructure, access to banking, and replacing legacy software absolutely is a noble calling. I've personally spent a good chunk of my career working on projects toward this end. And it's really hard to overcome legacy software stagnation. (18/)

Despite enormous amounts of time and money trying to find real applications all we have is crime, gambling and regulatory arbitrage. Arbitraging consumer financial protection like Uber did for taxis just results in inevitable sorrow that falls on innocent customers. (19/)

Articles chanting "blockchain is revolutionary tech" over and over does not make it true. There needs to be real killer commercial application not rooted in political fantasies of "government is evil and fiat money is bad".

Barring that, blockchain seems fairly useless.

/fin