Blockchain Won't Cut Out Intermediaries After All

One of the primary advantages of blockchain, the thinking goes, is that it creates trustless relationships in cryptocurrency ecosystems. Before cryptocurrencies, digital transactions between two parties required a trusted third party to act as an intermediary. Given that blockchain is a public, anonymous, immutable digital ledger, many supporters argue that it will help to usher in a new mode of conducting transactions that are not dependent on intermediaries at all. However, a report by Coinspeaker suggests that this is not likely to be the case. Below, we'll explore why blockchain doesn't eliminate third-party intermediaries and why it likely never will.

What Bitcoin Achieves

Before exploring the need for intermediaries, it's worth noting what a network like bitcoin does achieve in its efforts to do away with third parties. Bitcoin is a financial network with no privilege levels, meaning that all changes to the ledger are managed mutually by all users. The benefit for the bitcoin user is that they don't have to trust anyone outside of the ecosystem to validate transactions taking place within it because every participant is also a validator. This means that bitcoin users take on some additional risk themselves: for instance, if an investor loses a private key to a wallet, there is no third party to whom that investor can petition for a new password.

What Remains for Intermediaries to Accomplish

Blockchain is able to do away with intermediaries within the bitcoin ecosystem as illustrated above. So long as users are transacting only in bitcoin and only within the given ecosystem, there is no need for external validation of operations. However, what blockchain does not do is allow for integration with the external world. As the report suggests, "with or without blockchain, national registries will always require intermediaries that put the data in … with or without blockchain, the digital ownership platform will always require middlemen that would verify your identity." To put it another way, when a blockchain network needs to interact with other databases, with other aspects of the external world, it typically requires a go-between of some kind.

Blockchain can help to make the process of intermediation more efficient. It can even help to minimize the trust required of ecosystem participants of these intermediaries in any number of ways. However, it's unlikely that intermediaries will ever disappear completely.

Automatization

What blockchain technology does help to facilitate, though, is automation. This technology allows for data reconciliation between independent parties who, in many cases, don't even need to trust each other. In this way, and because blockchain can synchronize data across an unlimited number of servers in real-time, many of the processes from auditing to database management can potentially be made vastly more efficient. Processes like inspections and data transfers will be able to take place automatically and efficiently.

Take the process of auditing as an example. Blockchain can help to synchronize data, inspect database updates, and so on. What it will not be able to do, though, and why an intermediary will still be required, is to address issues relating to identity. Auditors must still make sure that their clients are "actual people with reasonable intentions that come to their office to have some activities certified," according to the report.

Permissionless blockchain ecosystems like bitcoin do indeed exclude intermediaries within those systems. However, there are many areas (national registries, voting systems, trading platforms, and so on) that will likely continue to require third parties. Blockchain can help reduce the role of these intermediaries and to alter the trust relationships previously required, but it is unlikely to ever do away with them entirely.