I dispel some myths about distributed ledgers (aka "blockchains") in an institutional context. I explain why they are hard to implement and what they are good for, in the real world.

1. Why “blockchains” are hard
What are they (actually) good for?
Sebastien Meunier

2. Fake news, fake news everywhere…

3. Those headlines feel like 2018 – Little happened in 3 years
 Sept. 24, 2014 CBW Bank and Cross River Bank announce Ripple Protocol Integration
 May 11, 2015 Nasdaq OMX embraces the blockchain
 June 9, 2015 Westpac, ANZ trial Ripple payments
 Oct. 25, 2015 ASX considers blockchain for clearing and settlement
 Dec. 31, 2015 Nasdaq Linq claims to have issued first securities over a blockchain
 Sept. 6, 2016 Ornua Completes World First Blockchain Trade Through Collaboration with Barclays
 Sept. 27, 2016 Credit Suisse, Ipreo, Symbiont, R3 Convene Proof of Concept for Syndicated Loans
 Oct. 24, 2016 Major banks mark first-ever international trade using blockchain tech
https://ripple.com/insights/ripple-labs-signs-first-two-us-banks/
https://www.finextra.com/newsarticle/27342/nasdaq-omx-embraces-the-blockchain
https://www.afr.com/business/banking-and-finance/westpac-anz-trial-ripple-payments-but-big-four-reluctant-on-bitcoin-20150605-ghhmsq
https://www.smh.com.au/business/banking-and-finance/asx-considers-blockchain-for-clearing-and-settlement-20151025-gkhs46.html
https://bravenewcoin.com/insights/nasdaq-linq-claims-to-have-issued-first-securities-over-a-blockchain
https://www.ornua.com/ornua-completes-world-first-blockchain-trade-through-collaboration-with-barclays/
https://www.credit-suisse.com/corporate/en/articles/media-releases/blockchain-demonstration-shows-potential-loan-market-improvements-201609.html
https://www.reuters.com/article/us-australia-tech-banks-idUSKCN12O0DX

4. McKinsey: from a “revolution” to “it’s very complex, a niche”
2015
“Blockchains have the potential to
dramatically reshape the capital
markets industry, with significant
impact on business models,
reductions in risk and savings of
cost and capital”
2016
How blockchains could change the world:
“why blockchains, the technology
underpinning the cryptocurrency, have
the potential to revolutionize the world
economy” (interview)
2019
Blockchain’s Occam problem: “Blockchain has yet
to become the game-changer some expected. A
key to finding the value is to apply the technology
only when it is the simplest solution available”
2018
“Blockchain beyond the hype: What is the
strategic business value? Companies can
determine whether they should invest in
blockchain by focusing on specific use
cases and their market position”
2017
The promise of blockchain: “Many have likened the
revolutionary possibilities of blockchain technology to those
of the internet, such is its perceived capacity to transform
the ways in which people and businesses cooperate”
?
?

5. The shift of the narrative about “blockchains”
2009-2014
Bitcoin is internet
money for drug dealers
2015
Blockchain not Bitcoin
2016
Blockchain will cure cancer
and save the world
2017
ICO frenzy “Let’s raise $50M with
some fancy words in a whitepaper”
2019
let’s institutionalize crypto (STO not ICO)
Let’s leverage POW public blockchains
(internet not intranet)
2018
Coins are failing (either
scams or deliver nothing)
Enterprise Blockchains
are not interesting
?
?
2017-2018
Blockchain as a Service (IBM, MS, HP, AWS, Baidu, SAP…)

6. What is really new in Bitcoin?
Peer to peer protocol
Distributed databases
Hash trees,
verifiable timestamps
Proof of Work
Immutability of the data
Champine, 1977
Johnson & Thomas 1975
Merkle, 1980
Dwork & Naor, 1992
Driscoll, Sarnak, Sleator & Tarjan, 1986
Those features are not *properties* of Bitcoin
They are *design requirements* of the system, they serve a purpose
Byzantine Fault Tolerant
protocol
Lamport, 1989
Cryptographically enabled
digital cash
Chaum, 1983
ARPANet 1969, Web 1990, Bitcoin 2009

7. Which data structure is simpler & more efficient?
You must have a very good reason to use a blockchain data structure!
1
2

8. What is a distributed ledger?
• A distributed ledger is a distributed system of records that leverages cryptography
to provide a decentralized control of the read/write access to independent
participants. Consensus between participants on the state of records is reached
algorithmically, without requiring an external third party.
• Distributed Ledgers generally use a blockchain data structure as part of their
design, though other data structures such a Directed Acyclic Graphs may be used.
• A blockchain is a data structure –
literally a chain of blocks

9. What is a distributed ledger?
(red pill version)

10. By definition, a DL is not controlled by a single entity
If a distributed system is centrally controlled, it is a traditional distributed
database system, whether it uses a blockchain data structure or not
(Rauchs, M et al. 2018)

11. 5 truths about Distributed Ledgers
Distributed Ledgers do not
get rid of intermediaries
You’re only replacing a software by another software, a fee by a fee…
Question: how decentralized is the governance of intermediaries?
Distributed Ledgers do not
remove the need for trust
Using Ethereum or Amazon.com is the same for the average user
Core is secure; clients (wallets) and exchanges are hacked
The physical world destroys
the properties of DLs
Third parties are needed to certify the data link physical<->digital
Forget about supply chains where the problem is cheating humans!
Smart contracts aren’t
contracts and aren’t smart
Not contracts in the legal sense, but simply computer programs
They execute their program as written (even the bugs)
Distributed Ledgers do not
reduce friction & costs
Data written once Vs n times; Data verified once Vs n times;
Data communicated once Vs n times, etc.

12. It’s always a question of trade-offs
There is no cheap scalable risk-free general purpose technology
to decentralize all the things (sorry)
Abadi, J., & Brunnermeier, M. (2018) Slepak, G., & Petrova, A. (2018)

13. What are distributed ledgers good for?
(conceptually)
 Distributed Ledgers enable the decentralized management of scarce digital assets in
adversarial environments
 More generally, they enable the algorithmic enforcement of software programs
without possibility of interference by a third party
 They bring two main benefits compared to traditional distributed systems:
resistance to censorship and empowerment of users, who literally own the key to
their data
 They come with disadvantages: lower performance, higher costs, and a transfer of
risks to the users

14. Practical problems
 Distributed Ledgers lose their unique properties when they are linked to external
systems (esp. the physical world), or when their governance is re-centralized
 We are still looking for some real world use cases: is there a demand?
– In controlled environments (private / permissioned) there are simpler ways to verify
transactions ordering
– When exactly do you need to circumvent trusted third parties?
– When can’t you form a third party operator?
– Who needs decentralized applications, anyway?

15. So what are distributed ledgers good for?
(practically, in an institutional context)
 For virtue signaling: everybody has to pretend doing some “blockchain”
 For education: people re-discover decades old concepts such as money, game theory,
cryptography, distributed systems and governance, like they were invented yesterday
 To generate discussions about digitalization in general and the need for cross-industry
standards
 They allow to strengthen accountability along business processes (who did what and
when). Some people call that “blockchain” or “internet of value”, when it’s really about
cryptographic assurance (digital timestamping & signatures)

16. In a nutshell
Censorship resistance
Subsidiarity of responsibilities
and risks
Limited throughput
High overhead costs
Vulnerability to censorship
Concentration of responsibilities
and risks
High throughput
Cost efficiency
Public POW Distributed ledgers Centralized Ledgers
Enterprise/Permissioned
/Private Distributed ledgers
Protection against
censorship/expropriation
Revolutionary design
but complex & costly
Only narrow use cases,
when participants
don’t trust central operators
Cryptographic assurance
(accountability)
Incremental impact
affordable but complex
Only narrow use cases,
when participants
can’t form central operators

17. Thank you!
Sebastien Meunier
@sbmeunier
linkedin.com/in/sbmeunier/