Blockchain is undoubtedly one of the biggest buzzwords of today and many believe that it is set to revolutionise the way that we do everything from finance, to healthcare. The fact that it is decentralised, immutable, and secure means that it has significant advantages over other types of technology.
Use cases that have been presented so far cover industries from law to real estate and it seems that this new technology could remove the need to paper trails and outdated legacy technology. The problem is that slow transactions speeds and regulatory issues are putting something of a dampener on the sector and are threatening to stunt blockchain’s growth.
What are the five main hurdles that blockchain technology has to overcome in order to see widespread adoption?
Blockchain works like an accounting ledger except it has the ability to record transactions across a vast network, is completely decentralised, and requires no authority to supervise it. This makes it particularly suited to tracking financial transactions and other kinds of data, but there is a problem.
Blockchain can be slow and as it grows in popularity transaction speeds are set to get even slower. Some legacy transaction systems are capable of processing tens of thousands of transactions every second, whereas Bitcoin can only handle between 3-7 in the same amount of time. Because of this relatively low performance, at the moment blockchain lacks the scalability that is needed for it to be viable for large-scale applications.
The solution is to create “proof-of-stake” systems where a crypto-miner is required to have a certain stake in the asset in order to participate in it. It is hoped that this will speed up transaction times by weeding out those who are not full-time users.
With more and more stakeholders partaking in an ever-expanding industry, some people are concerned that such a number of different networks will result in a situation where no standard exists that will allow them to interact.
This level of standardisation is called ‘interoperability’ within the industry, and the lack of it means that blockchain coders and developers have freedom, but IT departments get headaches. Discovering that two platforms are unable to communicate means a lot of additional coding and behind-the-scenes work that may or may not produce a result.
On GitHub alone, there are more than 6500 active blockchain projects that use a range of different platforms, languages, protocols, and consensus measures. Whilst this level of innovation is good, some level of standardisation needs to be developed that will facilitate interconnectivity, cross-blockchain transactions and of course, standardisation.
One of the other main concerns about the Bitcoin blockchain network is the fact that it requires huge amounts of intensive computing power and electricity to run. In order to mine, miners must use enormous, highly complex rigs with many servers just to keep the network ticking over – this does not come cheap.
Several studies have put the price of mining just one Bitcoin at over $26,000 which is more than one Bitcoin is currently valued at. Whilst miners do get paid for their efforts, having that amount of capital available up front could be problematic for some. To be able to be truly accessible to all, transaction and mining costs need to be lower.
Firms such as Amazon, IBM and Microsoft are currently working on ways of improving the cost and complexity that is involved in blockchain technology by using the cloud. It is hoped that these could lower the barriers to developing and operating blockchain networks as well as automating the set up of basic blockchain structures.
Supportive, not restrictive regulation
As the price of cryptocurrency rocketed towards the end of 2017, regulators became uneasy and concerned about the speculative nature of this new market. With the popularity of the ICO came strict bans in South Korea and China, as well as the SEC in the US is taking legal action against individuals for fraudulent behaviour.
But it is not just the ICO that suffers from a lack of regulatory clarity, smart contracts are also shrouded in uncertainty which could inhibit investment in technology that uses them.
However this does appear to be changing as a total of 17 US States have made legislatures that either mull over, or pass bills regarding blockchain adoption. Furthermore, the island of Malta introduced three new acts that came into force in November to provide legal and regulatory certainty for ICOs, blockchain, and cryptocurrency related businesses.
Last but not least, firms in the sector need to work together more so that the technology can promote both education and development within the sphere. Several groups have been formed that seeks to increase collaboration and standardization, and these include R3, RiskBlock Alliance, the Enterprise Ethereum Alliance, and Hyperledger.
Whilst not all of these consortiums are building applications, they are at least beginning to work together for the good of the industry as a whole.