Decentralisation is one of strongest points of blockchains. Decentralised smart contracts that rest on blockchain technology tend to break fundamentals of modern society, especially that of third party trust. It seems like that we could avoid centralised institutions of trust literary overnight for almost no cost.
At almost no cost?
Low transaction costs?
One of strongest points of blockchain technology were low transaction costs. Costs of trade within community, transaction costs expressed in gas, were negligible in the very beginning. It looked like we have got free lunch at least in term of transaction costs. A gold that was coming from mother earth (in our case mother digital network) and transactions were almost free of charge. It looked like old proverb about free lunch does not pertain to crypto-world. It did not take long when first rumours about how much electricity is needed for mining. If not for free, then at least very cheap? Unfortunately, not. It will soon become clear that decentralisation is appealing but much costlier than centralised systems. Why?
As I have already pointed to some differences between gold and cryptocurrencies and their respective mining, there is one further. Cryptocurrencies are at the same time stock (capital) and transaction infrastructure. They are Moneys and banks that keep Moneys in heavily secured safes at the same time. And much more: they are at the same time whole infrastructure that allows exchange of goods on the basis of exchange of currency. Wallets, personal safe deposit boxes, keys, exchange offices, trading platforms etc., etc. Due to their digital environment, there have to exist many more features that secure blockchain operations than are needed in traditional, offline mining, trading and mincing of gold.
Let us list a few of known blockchain features that have to be maintained. Since at the moment only a negligible fraction of world population is blockchain user, we can expect many more to come.
Costs, costs, costs…
Costs of maintaining blockchains are at least:
- Not only is electricity already substantial part of all costs involved in mining, but will soon become even higher. It is not hard to envisage that the fast raise in consumption has to raise electricity price into the sky. If you believe lunatics that solar energy is going to bring us cheaper electricity, you have just committed second fallacy of free lunch.
- Manpower that fuels development of blockchain world. Sooner or later present mining that is immediately remunerated by acquired coins is going to cease. It is thus clear that more and more manpower and electricity power will have to be allocated to mere sustenance of such decentralised crypto system and paid by users directly or indirectly. For that reason, gas will go up radically. Such trend can be reversed or stopped at least only if the number of transactions grows faster than costs involved in maintaining blockchain ecosystem. If!
- All kinds of other features that either consumer or producer is going to ask for them will have to execute transactions in user friendly manner. Development of user interfaces did not even seriously begin! We are still in DOS stage of blockchain where user interfaces are so complex, that they either repel customers or force them to spend time to study them. And time is money! At the moment, opportunity costs that are going to pile around and will co-form blockchain ecosystem, are simply forgotten. With the development, they will be more and more present here or there in the blockchain value chain.
Take for instance blockchain election system. At the moment voters have no equipment to perform blockchain elections. It is like one would expect for offline elections that each voter should equip himself with extra shoes, cloths, vehicles, pens, glasses just for any particular election. In reality we use normal shoes, cloths, glasses, pens, cars and so on for each offline election, but all those tools are primarily used for other everyday purposes as well. Until blockchain elections become negligible part of all that we daily perform within blockchains, so long costs involved in performing them are going to be unreasonably high.
Lunch is going to be costly at least in near future when all tools will have to be developed but not everybody is sharing costs to participate at the lunch table.