If you haven’t heard of blockchain, then you must have been living under a rock for the past year. Don’t worry though, even those in the know, often don’t know much about the technology behind it.
Most people simply associate blockchain with cryptocurrencies such as Bitcoin and Ether. These digital currencies and the networks they run on form a peer-to-peer payment system that allows users to transact with each other without using a middleman such as a central bank. Transactions are verified by network participants and recorded on a public distributed ledger — the blockchain.
The point is, peer-to-peer payments with digital currencies are just one use of the blockchain technology.
Blockchain technology and its applications will most likely have an impact on every business on the planet and on our social lives. Central banks, governments and businesses have been experimenting with blockchain technology for years and there are endless use cases and ongoing projects. Those cases are set up to demonstrate how the technology can bring efficiencies and cost savings to an organisation.
There is so much hype around blockchain that it becomes difficult to stay focused and understand what it means for businesses and our lives today. To be clear, blockchain is not a disruptive technology — so don’t panic. I know that many might disagree with that notion.
I am convinced that blockchain is a great technology that will, in the future, have an enormous impact on our economic and social lives. However, rather than being disruptive, it is in fact a foundational technology with massive potential. It is in its early stages as a technology that still needs to build a proper infrastructure, agree on standards and find widespread acceptance.
Adoption is steady, not sudden. I estimate it will take at least 10-15 years to unfold its full potential and be part of our everyday lives. Case in point: TCP/IP which forms the foundation of internet and emailing took 30 years to become an agreed upon, working protocol.
The current excitement around blockchain in general and the cryptocurrencies specifically has to be put in context. Most of the decentralised applications (DAPPS) that are supposed to run on blockchain are in the very early stages, often only ideas that exist in a White Paper.
For them to become applications that solve real business and social problems will take years ... and in many cases never materialise. Initial coin offerings (ICOs) through which many companies are nowadays trying to raise funds, should be approached with caution as there is a lot of fraud in the market. There are almost 1,500 coins listed on coinmarketcap.com out of which over 30 per cent have a market cap of 0.
The hype around those currencies however is helpful for blockchain as a technology as it draws the attention of large corporations (e.g., Microsoft, IBM), governments and institutional investors to this exciting technology. This is needed to develop use cases and applications that solve real business problems.
There are many technical obstacles that blockchain needs to overcome. The number one issue is the scalability of the technology itself. Due to the mining process of validating transactions (proof of work concept) Bitcoin needs approximately 10 minutes for each block to be added to the chain. And it consumes immense amounts of electricity which makes it an expensive process to run.
Today, Bitcoin processes about three transactions per second while the peak capacity of the network is theoretically 7 (practically only 4). Ethereum processes about 6 transactions per second with a peak capacity of 15. When comparing this to Uber that has 12 rides a second, or PayPal with hundreds of payments per second, or Visa with several thousand transactions and a peak capacity of over 50,000, then the scalability problem of blockchain becomes obvious.
The necessity to move to more efficient validation and operating processes is a clear focus for the blockchain developers. “Casper”, “Sharding” and “Plasma” are a few catchwords that define the current work of the Ethereum developers aiming to achieve scalability where transactions are less energy consuming, cheaper and can be processed much faster.
There is still a lot of work to be done to see blockchain technology having its breakthrough.
The writer is a UAE based tech and media industry consultant.