The following post comes from a new eBook, Blockchains in the Mainstream, which features 33 of the top thinkers, entrepreneurs, and investors in the world of decentralized systems.
You can read all of the entries from the “Blockchain Dream Team” in the FREE PDF here.
Blockchain immutability is universally seen to include both irreversibility of transactions and immutability of the blockchain’s economic rules. However, I claim that while the latter drives adoption, the former hurdles it tremendously.
Blockchain allows financial systems of unprecedented economic efficiency. Efficiency arises from the fact that no matter what any one person does, the system will continue to function as promised. Consequently, the layers of (mostly human) control traditionally used to ensure that every transaction is valid and sound become entirely unnecessary. This frees up tremendous resources to be dedicated to other needs and makes possible creating small custom economic systems that were previously not viable.
However, immutability is often understood to mean that transactions are completely and irreversibly final. This is a problem for both individuals and institutions. Individual users are facing complicated and unusual software products that, unlike anything else out there, do not have an undo button. Furthermore, the state of the art in security today is such that uninitiated users are simply incapable of protecting themselves from external attacks.
On the institutional level, recovering from human errors, software bugs, and network problems is even more important, because in the context of a large organization a single transaction may affect a very large group of people.
Let’s explore three answers currently given to these problems: on the individual level: First, everyone will eventually learn to protect their private keys and correctly use blockchain software. Second, multi- signature wallets, “vaults” and other primitives will allow limited recourse without sacrificing finality and third, at the institutional level, permissioned and consortium blockchain will offer the recourse needed.
All of these approaches miss the point entirely. First, for a majority to learn to use today’s tools without mistakes will take decades, and is likely simply impossible. Second, the ability to correct transaction errors and rectify digital crimes is essential not incidental and lastly, permissioned and consortium blockchains are simply distributed databases (i.e. offer nothing new whatsoever) and will not commend the public trust any more than current centralized systems.
The end result is clear. The immutability guarantee cannot and should not apply to transaction reversibility. It can only apply to rules governing the way transaction state is agreed upon. If these rules are transparent, reasonable and democratic, then we can have both: immutability and recourse. If this happens a major adoption hurdle for the mainstream will disappear.