Over the last decade, numerous blockchain platforms including Ethereum, Ripple, Hyperledger, R3 Corda, IBM Blockchain and Bigchain have gained prominence for developing unique and various use-cases despite the challenges involved. With Facebook’s Libra coming up on the horizon, and countries including India and China considering their own fiat cryptocurrencies, what’s the future of blockchain going to like?
In an interview with Nasdaq, Celsius CEO and inventor of VOIP Alex Mashinsky estimates that the blockchain systems will be 1000 times the size of today’s internet. He explains the analogy by comparing the telephones in the 90s and the transition to the internet, which was just an application on voice network.
“Working on voicemail, I could sense that the internet will be so huge that voice will be just an application on the internet.”
Mashinsky firmly believes that blockchain today is just a fraction of what it can be.
“Blockchain and cryptocurrencies are the future of everything. This means that network is gonna be 1000x bigger and more powerful than the internet because it requires much more processing power. Also, the largest network always wins.”
Challenges And Limitations For Blockchain
While Mashinsky is talking about the future, in the present day, despite so many protocols, consortiums to back it, blockchain use cases are available and adopted only in a limited manner. Mostly due to lack of awareness, infrastructure, skill to its existing complexity and numerous other factors.
So what are the major factors that limit blockchain potential?
- Complexity Of Blockchain
- The 51% Attack
- High Energy Consumption
- Lack Of Skilled Tech Workers
Let’s take a deeper look!
Complexity Of Blockchain
The beauty of blockchain lies in the complexity of the network. The higher the number of parties associated with a transaction, the better it is for the applicability of the blockchain. In the beginning, many of the PoCs were not at all practical, in terms of operationality and cost-efficiency, as they had very few nodes running the blockchain.
Further, most of the companies, banks are currently adopting blockchain in parts. Instead of going fully centralised or decentralised, entities have taken a hybrid approach. This increases complexity by huge margins. Further companies have to deploy dedicated blockchain experts, even if their existing applications are small.
Secondly, one blockchain application cannot be easily duplicated across operations and use-cases. Each application requires a deeper understanding of the business needs and blockchain can be drastically different for applications such as insurance contracts and for land records.
The 51% Attack
Do you remember the Ethereum Classic’s 51% attack in January this year? On January 5, Coinbase had detected a deep chain reorganisation of the Ethereum Classic blockchain and as a result it immediately paused interactions with the ETC blockchain.
Back in 2016 too, the Decentralised Autonomous Organisation (DAO) that was managing Ethereum was attacked. This led to the loss of $50 Mn i.e. over one-third of its funds. As a result, the Ethereum community then decided to go for a hard-fork or break in the blockchain to create a new blockchain. The new hard-forked cryptocurrency became Ethereum (ETH) with the theft reversedBlockchain, and the original continued as Ethereum Classic.
So what is the 51% attack? Satoshi Nakamoto, the inventor of Bitcoin had defined honesty in terms of the largest CPU mining network. In the case of a public blockchain, a 51% attack is a malicious miner or a group of miners taking control of more than 50% of a network’s mining power or hash rate. The miner (or most likely a group of miners) having control of over 50% of the network’s hash can block the history produced by the rest of the network and can even define a new canonical transaction history.
However, in today’s times, precautionary protocols have been written by miners and developers to avoid such attacks.
High Energy Consumption
Bitcoin is one of the most popular applications of the blockchain and indeed the first one. The Bitcoin Core needs around 200 GB storage space in every node that is part of the blockchain network. Among other requirements are 5 GB upload and 500 MB download everyday. While India is still struggling to implement Bharatmala Broadband project and 4G having limited availability and capacity across states, blockchain implementation certainly needs a massive infrastructure upgrade.
In the case of Bitcoin blockchain, energy consumption remains one of the biggest issues with miners. Researchers at the University of Cambridge have estimated that Bitcoin consumes more energy than the entire nation of Switzerland. The energy is mainly fed to keep the entire network alive all the time. That’s just one blockchain, imagine the case if we have many more such networks.
Scalability is another likely issue and a hurdle for many blockchain applications. For instance, let’s compare the largest centralised payments system i.e. Visa and the largest crypto payments system i.e Bitcoin. If Visa can process 65,000 transactions per second, Bitcoin’s maximum speed is 7 transactions per second. In the case of centralised architecture, it’s the controlling authority which decides the flow, it does not unnecessarily notify about a transaction to other peers. This saves time and speed.
In the case of blockchain architecture, the validation takes several minutes because a majority of nodes has to authorise the transaction.
Bitcoin works on Proof-of-Work model which is secure but slow at the same time. There is an alternative in the form of Proof-of-Stake, which is faster in validating entries, but is not regarded as an ideal option for distributed consensus protocol.
Brain-Drain for Blockchain
According to various surveys and reports, more than 80% of the blockchain developers in India are moving abroad in search of better opportunities. Developers cite the brain drain happening due to lack of “robust regulatory framework” in the country on blockchain technology.
The report suggests that blockchain developers are moving to Singapore, UAE, Estonia and Switzerland which offer tax breaks and e-residency for startups. The significantly improved digital infrastructure in these countries is also better suited for applications under blockchain.
The Indian government recently announced that it is indeed working on a National Blockchain Framework which will soon be released. However, such promises have been made in the past as well. The government had earlier asked the NITI Aayog to prepare a roadmap for largest blockchain-based egovernance project called IndiaChain.
However, it’s been two years since the announcement, there have been very few updates in this regard. This has only discouraged blockchain developers further.
Will These Block Blockchain?
It must be noted that storage, high energy consumption, scalability and many other issues are momentary issues. As blockchain is still evolving, many of the existing issues have either already been sorted out in different protocols or are in progress of being managed. Hence, despite these existing flows, it’s the blockchain’s advantages that score heavily and it heavily outweighs the limitations.
Also, many of the issues can be resolved based on how it gets implemented. Today, private and permissioned blockchain are being integrated at the top, or a hybrid of various blockchain protocols are adopted to achieve what’s needed. This also nullifies many of the above-mentioned limitations.