Are Blockchains More Efficient?
The answer is no -- and yes.
Database management systems based on decentralized consensus mechanisms are (I think) inherently inefficient relative to centralized mechanisms. But if so, then what do firms mean when they claim “blockchain is more efficient?”
I think what they mean is that public blockchains economize on institutional coordination costs, not data management costs. That is, if one was to compare a properly designed standard database system run by trusted institutions, it would almost certainly outperform blockchains.
By “proper design,” I mean a conventional payment system incorporating:
-instant final settlement,
-global interoperability,
-programmability,
-24/7 operation,
-open access,
-low-cost transfer,
-bearer-style functionality,
-and trusted neutral governance.
The problem is that no such system presently exists. Moreover, setting one up would require:
-massive upfront investment,
-agreement across jurisdictions,
-governance arrangements,
-standards coordination,
-legal harmonization,
-and trusted operators
Easy to say, difficult to do
In contrast, public blockchains already exist as open,
interoperable, global, and neutral settlement layers.
So firms use them because the infrastructure is already there, access is relatively open & no consortium-building or political coordination is required.
So, when firms say “blockchains” are more efficient, what they mean is “blockchains are the cheapest already-existing globally interoperable settlement infrastructure available to us right now.”
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