Category: Unfounded Blockchain Myths

Blockchain is open, everyone can see everything. So Bitcoin has no anonymity, it has “pseudonymity. For example, if an attacker demands a ransom for a wallet, everyone understands that the wallet belongs to the bad guy. And since anyone can monitor transactions from this wallet, the fraudster will not be able to use the bitcoins he received so easily, because if his identity is revealed somewhere, he will be immediately put in jail. Almost all exchanges require authentication for exchanging bitcoins for regular money.

That is why criminals use what is known as a “mixer”. The mixer mixes dirty money with a lot of clean money, and thus “launders” it. The perpetrator pays a large commission for this, and risks a lot, because the mixer is either anonymous itself (and can escape with the money), or is already under the control of someone influential (and can turn in the authorities).

But let’s leave the problems of criminals, why is pseudonymity bad for honest users? Here is a simple example: I transfer some bitcoins to my mother. After that she knows:

• How much total money I have at any given time.
• How much and, most importantly, exactly what I spent it on at all times. What I bought, what roulette I played, what politician I supported “anonymously.”

Or if I paid back a friend’s debt for lemonade, he now knows all about my finances. Do you think this is nonsense? How about opening up your credit card financial history for all to see? And not just the past, but all of the future.

If it’s okay for individuals (you never know, someone wants to be “transparent”), it’s fatal for companies: all of their contractors, purchases, sales, customers, volume of accounts, and in general everything and everything becomes public. The openness of finances is probably one of Bitcoin’s biggest drawbacks.

You’ve probably heard about the miners, the giant mining farms that are built next to power plants. What do they do? They waste 10 minutes burning electricity, “shaking” blocks until they become “beautiful” and can be included in the blockchain (we talked about what “beautiful” blocks are and why to “shake” them in the previous post). This is to ensure that rewriting the financial history takes as much time as writing it (assuming you have the same total power).

It uses as much electricity as a city consumes for 100,000 residents. But add to that the expensive equipment, which is only suitable for mining. The principle of mining (aka proof-of-work) is identical to the notion of burning the resources of humanity.

Blockchain optimists like to say that miners don’t just do useless work, but ensure the stability and security of the Bitcoin network. This is true, except that the problem is that miners protect Bitcoin from other miners.

If there were a thousand times fewer miners and a thousand times less electricity burned, Bitcoin would function just as well – the same block every 10 minutes, the same number of transactions, the same speed.

When it comes to blockchain solutions, there is a risk of a “51% attack. The point of the attack is that if someone controls more than half of all the mining power, he can secretly write an alternative financial story, in which he did not give his money to anyone. And then show everyone his version – and it becomes reality. In this way he has the opportunity to spend his money several times. Traditional payment systems are not subject to such an attack.

It turns out that Bitcoin has become a hostage of its own ideology. “Superfluous” miners cannot stop mining, because then the probability of one person controlling more than half of the remaining power would increase dramatically. As long as it is profitable to mine, the network is stable, but if the situation changes (for example, because electricity prices go up), the network may face massive “double spending.

Quote #3: “The combination of “blockchain technology + personal body connectome” will allow all human thoughts to be encoded and made available in a standardized compressed format. Data will be captured by cortical scans, EEG, brain-computer interfaces, cognitive nanorobots, etc. Thinking can be represented as chains of blocks, recording virtually all of a person’s subjective experience and perhaps even their consciousness. Once recorded in the blockchain, the various components of memories can be administered and transmitted – for example, to restore memory in the case of diseases accompanied by amnesia.

If every node in the network does the same thing, then obviously the bandwidth of the entire network is equal to the bandwidth of a single node in the network. And do you know what it equals exactly? Bitcoin can handle a maximum of 7 transactions per second – all of them.

In addition, Bitcoin blockchain records transactions only once every 10 minutes. And once a record appears, it is customary to wait another 50 minutes for reliability, because records regularly spontaneously roll back. Now imagine that you need to buy gum with bitcoins. It’s only an hour in a store, so it’s no big deal.

In the context of the whole world, this is ridiculous even now, when Bitcoin is used by barely one in a thousand people on Earth. And at this rate of transactions, it won’t be possible to significantly increase the number of active users. By comparison, Visa processes thousands of transactions per second, and it is easy to increase capacity if necessary, because classical banking technologies are scalable.

Even if conventional money dies out, it is clearly not because blockchain solutions will replace it.

If you haven’t been exposed to the principles of blockchain, but have only heard reviews of the technology, you might be under the impression that blockchain is a kind of distributed computer that does distributed computing, respectively. Nodes around the world, they say, are piecing together something more.

This notion is fundamentally flawed. In reality, all the nodes serving the blockchain do exactly the same thing. Millions of computers:

• Checking the same transactions against the same rules. Doing identical work.
• Writing the same thing on the blockchain (if they are lucky enough to be able to write it).
• Stores all the history for all time, the same, one for all.

No parallelization, no synergy, no mutual aid. Only duplication, and immediately a million times. We will talk below about why this is necessary, but as you can see, there is no efficiency. It’s more like the opposite.