The Platform

Photo illustration by John Lyman

Many were sold on Blockchain before they even understood what it is.

When I first read about blockchain technology and the promise it had to “secure financial transactions” and streamline the process, I thought this was a great leap forward in financial technology and transactional security. Many experts in the financial industry were touting this as a much more secure environment than traditional approaches using trusted third parties, like banks and other financial institutions, to handle transactions. This was going to be a revolutionary step in the financial world where everyone should be jumping on board.

A lot of new financial terms were injected into the industry with a lot of enthusiasm by those who worshipped this new approach of decentralized financing (also known as DeFi) and its promise to streamline the industry’s processing of various transactions.

In order to bring everyone up-to-speed on some of these terms, I have added the definitions found on Deloitte’s website, because they are fairly clear and concise. Once we have these definitions, we can start to look at how “blockchain technology” has fallen short of its promise to “reduce risk,” “reduce the probability of fraud,” and “secure and verify transactions.”

Blockchain: “It’s a distributed ledger that cryptographically enables digital assets to be created, stored, transferred, and transacted in a real-time, immutable manner across a decentralized peer-to-peer network. Virtually anything of value can be tracked and traded on a blockchain network, reducing risk and cutting costs for all involved. The technology can record information about cryptocurrency transactions, NFT ownership, or DeFi smart contracts.”

Cryptocurrency: “Based on blockchain technology, cryptocurrency is a decentralized medium of exchange or store of value designed to enable online transactions without the need for a trusted third-party intermediary. Instead, it uses cryptography to secure and verify transactions, as well as to control the creation of new units of a particular digital currency.”

NFTs: “A non-fungible token (NFT) is a unique, cryptographic unit of data that exists on a distributed ledger and cannot be replicated. Individual NFTs are not mutually interchangeable, which means no two are the same. They can represent digital media or real-world, tangible items like artwork and real estate, which makes buying, selling, and trading them more efficient while reducing the probability of fraud. NFTs can also represent things like identities, property rights, or even a bundle of rights—all encoded into digital contracts or attestations.”

One of the things I am surprised about on Deloitte’s website is that they go into detail on many positive aspects of using cryptocurrency and having various strategies for engaging blockchain technology-driven applications, but nowhere do I find any warnings or concerns about encountering deceptive practices, fraud, and other criminal activity clearly found in these areas. No warnings as to the security issues to be concerned with, like phishing and routing attacks, vulnerabilities found at endpoints, and other forms of cyberattacks that will penetrate a supposed “secure” blockchain environment.

Are they so giddy about the “new technology” that they fail to see the vulnerabilities and criminal aspects surrounding it? This is not a theoretical question; the crimes and losses are clearly evident and are growing. That would tend to discredit the blockchain promise of “reducing risk and reducing the probability of fraud.”

Oh wait, I did find one report on fraud buried behind all the glossy links on the positive aspects of blockchain, digital transformation, and digital assets. Funny how that did not have the same prominence that all the positive reports had.

My impression is that they wrote a lot of reports to gain clients in this emerging area and then, as an afterthought, wrote up one to look at the vulnerability and security issues related to it. Or maybe that report on fraud was after clients got burned by different scams?

Before COVID, I went to several fintech conferences and even spoke at one in New York City on cryptocurrencies, bitcoin, and nanocrimes. By then, there was already a large amount of fraud and other schemes within the cryptocurrency market and the losses were in the amount of billions of dollars. At the time, I thought something was wrong because the promise of “blockchain technology” did little to protect the people investing in various crypto coins from fraud and deception.

The industry promise that transactions would be safer and more secure under the new “blockchain technology” seemed to ring hollow. And that was back in 2018. Many people bought off on the words they heard, “Blockchain technology is a very secure platform,” and they invested in what they thought was bullet-proof technology.

Fast forward to today, and we are looking at one of the largest collapses of a cryptocurrency platform yet, the collapse of FTX.

Much of the investments made by unsuspecting investors were based on buying off on the phrase, “Blockchain technology is a very secure platform” as well as your money will grow at phenomenal rates. It was the perfect storm of slick financial marketing phrases to entice greedy investors looking for more than an average return.

They definitely zeroed in on the Ralph Kramden crowd. The “get-rich-quick” crowd who knows all the angles. These range from Baby Boomers all the way down to Gen Z.

“Why make 10% or even 15% when you can make 80% in one year? Get with the program!”

And then, FTX crashed and burned. Say goodbye to your savings!

James Carlini is a strategist for mission critical networks, technology, and intelligent infrastructure. Since 1986, he has been president of Carlini and Associates. Besides being an author, keynote speaker, and strategic consultant on large mission critical networks including the planning and design for the Chicago 911 center, the Chicago Mercantile Exchange trading floor networks, and the international network for GLOBEX, he has served as an adjunct faculty member at Northwestern University.