US economist Roubini: “It’s high time to end the blockchain hype”

Nouriel Roubini and Preston Byrne Fellow of the British think tank Adam Smith Institute are sceptical about the blockchain hype. The scientists write in an article that Blockchain could be “one of the most highly acclaimed technologies of all time”. Roubini, who used to work for the US government, the International Monetary Fund and the World Bank, is nicknamed “Dr. Doom” because of many pessimistic forecasts, but in some cases he was right. For example, the economist warned early on of the bursting of the real estate bubble in the United States and the resulting consequences.

Roubini and Byrne hardly leave a good hair on crypto currencies and Bitcoin code

The latter are less efficient than existing databases, the latency is higher, and they need significantly more storage space and computing power than centralized applications, according to onlinebetrug. Blockchains with proof-of-stake or zero knowledge mechanisms are slowed down by the cryptographic verification of all transactions. Blockchains based on the proof-of-work method used for many crypto currencies would also require enormous amounts of energy. Bitcoin code could be useful in cases where a compromise between speed and verifiability is worthwhile. Roubini and Byrne complain, however, that the technology is rarely advertised:

“Blockchain investment proposals usually make wild promises of overthrowing entire industries, such as cloud computing, without conceding any obvious limitations to the technology.

The scientists raise the question of why banks that already use efficient systems to process millions of transactions on a daily basis should switch to noticeably slower and less efficient technologies. For the purposes of financial institutions, a single, globally distributed blockchain like Ethereum could “never be useful”.

No universal Bitcoin code

The assumption that Bitcoin code is a new, universal protocol is wrong, as TCP-IP or HTML were for the Internet. Blockchains themselves were based on basic protocols. In addition, blockchains must take into account the limitations of their users’ hardware and protect themselves from attacks. This explains why the Bitcoin client Bitcoin Core can only process five to seven transactions per second, while Visa can process 25,000 transactions per second. Roubini and Byrne consider the problem of blockchain scaling “more or less unsolved”. The scientists are also harshly going to court with the utopia of “lack of trust”, which allegedly produces the blockchain by making intermediaries superfluous. This is “absurd” for one simple reason alone:

“Every existing financial contract can either be changed or intentionally broken by contracting parties. To automate these possibilities away through a rigid ‘lack of trust’ is not economically feasible, not least because all financial contracts would then have to be secured 100% in cash, which is crazy from the perspective of capital costs”.

“Energy-inefficient dinosaur.”

“It’s high time to end the hype,” Roubini and Byrne sum it up. Bitcoin is a slow, energy-inefficient dinosaur that will never be able to process transactions as quickly or cheaply as an Excel spreadsheet. Ethereum becomes vulnerable to manipulation through plans for an insecure proof-of-stake authentication system. And the ripple technology for cross-border interbank financial transfers will soon be “left behind in the dust” by Swift. The fact that Roubini and Byrne describe Swift in their article as a “non-blockchain” consortium is not entirely correct: As BTC Echo reported, the organisation, which standardises news and transaction traffic between financial institutions around the world, is certainly concerned with distributed ledger technologies (DLT), for example for applications in securities markets or for reconciling nostro accounts.

The scientists’ conclusion: “Ultimately, block-chain use will be limited to specific, clearly defined, complex applications; transparency and security against manipulation require more than speed”. One example is communication with self-propelled cars or drones. When it comes to crypto currencies, the conclusion is even more pessimistic. “Most coins hardly differ from railway shares of the 1840s, which collapsed when the bubble – like most bubbles – burst.”