CoinDesk columnist Nic Carter is a partner at Castle Island Ventures, a public blockchain-focused venture fund based in Cambridge, Mass. He is also the cofounder of Coin Metrics, a blockchain analytics startup.
In the Disney Pixar movie “WALL·E,” the eponymous robot hero trundles around an abandoned Earth, methodically compacting mounds of old garbage. The planet had become barren and sterile, covered in the residual detritus of rampant consumerism.
If we’re not careful, most public blockchains will share the fate of WALL·E’s Earth, destined to become deserted repositories of ancient garbage: not with physical garbage but junk data, irrelevant, anachronistic and disused.
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There’s a lot at stake. Blockchains that welcome the “highly available generic database” use case will suffer one of two dismal fates: either nodes become practically impossible to run long term, or node operators will discard data, weakening immutability promises.
While Bitcoin’s approach to constricted block space (and consequently higher fees) dis-incentivizes the insertion of arbitrary, non-transactional data on chain, other competitors insist on low fees, effectively subsidizing marginal usage. This has had visible effects already – and introduces long-term risks that will have to be reckoned with.
Are transactions an asset or a liability?
To understand why using blockchains for storing arbitrary data is a bad idea, let us consider them in the abstract. A blockchain manages the continuous auction of block space to the public in exchange for fees (and a subsidy). Miners can claim these fees in exchange for constructing and ordering blocks. Transactors tolerate these fees because the blockchain generates strong settlement assurances that can’t be found elsewhere.
The quality of these assurances is largely a function of security spend, which is itself constituted from fees and the subsidy. Fees arise from the interplay between a bounded quantity of block space and demand to use that block space. Lastly, remember that node operators are the ones bearing the costs of data being added to the chain. Any data added today is effectively an externality that node operators have to tolerate in perpetuity.
So is a payload of data – a transaction – an asset or a liability? It depends. I’d venture that a transaction is an asset to the blockchain if two conditions hold:
- The transaction carries a fee that is at least somewhat proportionate to the costs it imposes on the node operators
- The data is likely to be relevant to future data entries; it is current.
That transactions should contribute to security spend is obvious. That they should involve currency is not. In effect, there’s a maturity mismatch between the way people use blockchains and their long-term maintenance costs. Public blockchains are intended to store data in perpetuity; they achieve this impressive…