Crypto Without Blockchains

May 20, 2022

In the increasingly centralized world of web3, are there any benefits to using a blockchain? What would crypto look like without the blockchain?

There are fundamental tradeoffs to using a blockchain architecture (see Blockchain tradeoffs). Blockchains choose transparency over privacy and decentralization over scalability. Decentralization is costly.

For example, permissionless blockchains must deal with bad actors and spammers. A centralized service like Gmail can detect and eliminate spam by analyzing data on a large scale. However, Blockchains must deal with spam by transaction fees.

Without a blockchain, some of the bottlenecks of crypto would be easily solved. Transaction throughput would significantly increase using a traditional system (see Visa/Mastercard). Privacy controls would be easier to implement. Transaction fees could be near zero—the cost: centralization and trust in a company, technology, or person.

Web3 is already more centralized than it seems. Many of the scaling solutions are centralized solutions in disguise. On-ramps to crypto, such as Coinbase, will always be centralized. Would it ever make sense to ditch the blockchain for the rest of the ecosystem?

What is web3 without a blockchain? Cryptographically signed transactions, smart contract languages, and abstractions (tokens, NFTs, etc.). I'd argue that these advancements are fundamentally new and different from our existing financial system. But are they valuable on their own? I've said before: Don't Ship an Architecture (ship a product).

The reverse argument has been tried – blockchain without crypto. This was the 2017-2018 era of private enterprise blockchains. While there are use cases for transparency logs and other Merkle trees, I don't believe the future is bright for enterprise blockchains.