Bureaucracy and inefficiency are frowned upon, often rightly so. But they also have their good sides: Properly applied, they ensure reliability and legal certainty.

Blockchain disciples want to “improve” bureaucracy-ridden processes, but achieve the opposite. Two examples:

This text also appeared in German 🇩🇪 : «Ineffizienz ist gut (manchmal)»

Real estate under the rule of law

Buying a home is difficult, lengthy and riddled with fees. Here, probably a much oversimplified process:

1. Search house
2. Evaluate house (visit etc.)
3. Have house valued
4. Visit bank
5. Negotiate mortgage
6. Negotiate sales price and conditions
7. Coordinate and allocate time for notary appointment
8. Order cashier’s check from bank
9. Send contract to notary
10. Physically all arrive at the same time to the notary office
11. Have the contract read out to you aloud (again)
12. Hand sign everything several times
13. Hand over keys
14. Check house for defects
15. And pay incomprehensibly high fees at myriad places

No wonder many want to simplify this process.

Wishful thinking

How easy it would be if everything could all work at the click of a mouse! All properties would be stored as NFTs on the blockchain (as in the Metaverse) and would be traded by means of smart contracts.

Utopia

Most of these bureaucratic and expensive processes would be eliminated, a lot of time and money would be saved, and the state could be made much leaner. We would all be happier and wallow in prosperity.

Reality

Anyone only just cursorily involved in IT security will know:

• a lot of people respond to any mails or click on links without checking them more closely and
• also far too many people do not know how to handle their passwords or other important data.

These are the main reasons why criminal scams like phishing, Trojans, advance fee scams, ransomware, etc. are so lucrative. In the blockchain world, there are additional risks for users and plenty fresh “opportunities” for the bad guys.

Potential new risks:

1. Someone sends you a link that you “absolutely” have to click on because otherwise something really bad will happen or you will miss out on something really good.
2. “Elli from Windows” (real example from last week) calls you with her Indian accent and supposedly wants to “help” you solve a security problem of your computer.
3. Your computer with your blockchain credentials breaks down, gets lost, or is stolen.

In the worst case, in this efficient “brave new blockchain world”, you are rid of your home with a single wrong click. And the next day, the police come and arrest your entire family as squatters. The efficiency gain with which fraud can be conducted will exceed the efficiency gain for normal transactions.

(The list could also include a program error, a typo, an error, or a myriad of other possibilities).

There definitely are advantages to having to appear in person, to be made aware once again of what is actually happening plus the action’s consequences, and perhaps to have someone at your side to warn you if something goes awry. In the end, all parties can be certain that everyone else was aware of the implications of the transaction. This is a very important basis for the trust that a functioning society needs.

Real estate without rule of law

Another frequently heard argument from blockchain advocates: “Yes, it works without blockchain because we are privileged here and corruption is not too rampant. But now imagine being in a country where the rule of law is lacking. Banking the unbanked!”

Agreed, in certain countries it may well be possible to use incentives or threats to “persuade” the head of the land registry to briefly and unobtrusively change the owner of a property. And the victim might have to fight an uphill battle to get the misconduct reverted.

If we have an orphaned blockchain, transactions might be faked as well. We already have thousands and thousands of orphaned cryptocurrencies and countless blockchain projects that have fallen asleep, defunct or abandoned the blockchain. Which Blockchain will still be maintained and reliable in a few decades is definitely written in the stars; because it needs many players with different interests. (And the land register should continue to work reliably for quite a few decades after all).

And add to that the technical shortcomings and false promises of blockchain, NFT, and smart contract already mentioned above.

Let’s assume that in a corrupt country, I switch from the corrupt official land registry to a blockchain-based land registry. But how can I show (a) that I was really the owner before? (b) that the transfer to the blockchain is correct? (c) that nobody will continue to use the old system? But most importantly, what do I do in a country without a stable legal system if (d) someone throws me out of my house by force?

Here, too, we see that the blockchain does not solve any problem. Unlike before, it at least does not automatically create countless new problems at the same time.

For purely digital assets, blockchain-based accounting alone may be relevant. But as soon as real assets and real people are affected, trust and a stable legal system are essential. Even the blockchain does not change that.

So let’s make sure that a trustworthy and broadly supported legal system exists in as many areas of the world as possible. Without that, nothing works, neither with nor without Blockchain. And if we have that trustworthy system, then the blockchain will be unnecessary.