Blockchain: a question of time and agreements

If blockchain aspires to become the technological support behind hundreds of thousands of digital interactions, the barriers standing in the way of widespread adoption cannot be ignored.

Technical challenges

Public blockchains (based on Ethereum, Bitcoin), private blockchains and hybrid blockchains share certain technological standards, although they are not fully compatible. Some are in experimentation phase, and do not even use the same criteria to reach consensus. This lack of unified standards plays against interoperability, which is essential for certain chains to ‘speak’ to others. To this end, technological compatibility is not as necessary as the ability to establish links between platforms.

Efforts to reach standardization must be made, where the private interests of conflicting interests (institutions, banks, business and payment methods) yield to awareness of the common good. Some company and institutional consortiums are seeking out this common good. For example, Enterprise Ethereum Alliance includes over 30 members, from banks such as JP Morgan, Santander, Credit Suisse, BBVA and ING, to technological companies Intel and Microsoft and startups ConsenSys and BlockApps. Its work is focused on improving privacy, security and scalability for Ethereum blockchains, optimizing them for company applications.

Under its current state of development, blockchain does not allow to manage huge volumes of data. For this reason, although data-based industries (for example, healthcare or finance) believe they will be benefited by features such as identity verification or the redistribution, immutability and transparency of records, blockchain’s efficiency may be called into question when used as a platform to process enormous amounts of data.

Scalability is the ultimate challenge for blockchain. A public, totally scalable blockchain (consensus blockchains do not need to be scalable, because they operate with a reduced number of nodes, like strictly private blockchains hosted at just one company) would reshape the Internet. It would break into a new age of secure communications, in a disintermediated setting, where no one would have to trust anyone (although they would have to trust mathematics) to exchange values and messages in a reliable fashion. For example, this structure would support instantaneous micropayments, as well as the Internet of Things.

The good news is that blockchain is quickly evolving toward total scalability, and it should not take long to reach. Different technologies already provide for complete scalability in private blockchains, executed with very short waiting times while certifying data on a chain. Yet in many cases, nodes that vote are predefined and must reveal their identity, which means that they are not an alternative in settings where censure or distrust are key factors.

Structural challenges

One of the essential requirements for this growth is to establish a regulatory framework for action. A European Parliament motion dated May 3rd, 2016, acknowledges the potential of cryptocurrencies and DLTs to contribute to citizens’ wellbeing and economic development, mainly by decreasing operational costs for transactions and by cutting costs to access the financial system. However, it warns of the risks and uncertainty inherent to these applications, which require a legal framework in step with innovation.

The spread of blockchain also carries an ideological paradox. Despite the idealized values of decentralization and disintermediation, many projects, especially in civil society (e.g. the aforementioned votes) will not be able to move forward if a ‘traditional institution’ does not make the decision to implement the technology and take responsibility for its maintenance and correct operation. In a certain way, this reaffirms that institution’s authoritarian role, although it may evolve into the softer role of a mediator.

Parallel reasoning is applicable to the private sector. Implementing blockchain protocols in different economic sectors is justified by its measurable benefits and improvements, disregarding the underlying ideological baggage or values. Of course, all this without sacrificing, to a greater or lesser extent, transparency, power distribution, reliability and agility.

Even transparency can cease to be a virtue and become a problem; to what extent does open access to data for all parties entail conflict? Could competitors or parties with conflicting interests share the same blockchain?

When all this works

The consulting firm Grand View Research estimates the global blockchain market (including private, public and hybrid) will be valued at 7.7 billion dollars by 2024. As the technology spreads, blockchain will open the door not only to the development of new methodologies and modes of organization, but also to business models we have yet to imagine, that are more direct and simplified. They will cut down on friction and costs, and intermediaries will grow obsolete.

Blockchain’s impact will not only be visible in the business world. Its waves will be felt in different social spheres, seeping into routine, everyday processes, from smart-contract regulation for salaries to blockchain-based voting projects. In fact, several well-known public figures, including the British former British Prime Minister David Cameron, support using blockchain to control corruption in politics.

At the end of day, Blockchain will not make us better people, nor will it improve our ethical standards; whoever wants to cheat will keep trying to do so, with or without blockchain. However, it will redesign experiences, eliminating some of the worries or concerns that assail our everyday life by reducing stress factors such as uncertainty or distrust. Ultimately, any physical or digital element that holds value can be registered on blockchain, and the client/citizen will hold the key to control what belongs to him or her.

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For more about blockchain, read the study “Blockchain: building trust” from Rebel Thinking, and on June 14th you’ll be able to enjoy a roundtable about blockchain that will be moderated by our very own Carlos Corredor.