Remember when the price of Bitcoin peaked just shy of $20,000 in December 2017? Or how about when Microsoft announced their blockchain-based ID system that may one day replace social security numbers and provide a secure, open-source decentralized identification system for billions of people across the globe?
If 2018 has shown us anything, it’s that we’ve come a long way from the days where the blockchain was a niche technology known only to tech enthusiasts mining Bitcoin in their basements. But while the technology has finally hit mainstream in the media, how far away are we from mass adoption of the blockchain? As 2018 draws to a close and we get ready to usher in a new year, it’s worth taking a look at the current state of blockchain technology as a whole, and see if we can’t chart a roadmap to mass adoption. Blockchain, where are we now?
Before we can chart a roadmap, it helps if we first identify what the blockchain is and what we mean by mass adoption. The blockchainis an immutable anddistributed ledger system that uses cryptography to offer a unique combination of transparency and security. It’s a versatile technology that’s not only disrupting finance, but also starting to make waves in health, insurance, and really any industry that uses big data. When we talk about blockchain mass adoption, we don’t just mean everyday people paying for goods and services with cryptocurrencies, we’re also talking about the use of the blockchain technology in any industry that could take advantage of an immutable, cryptographically secure, distributed digital ledger.Let’s take a look at the big three use-cases and how they’re already being used today:CryptocurrenciesThe blockchain was first implemented as a public transaction ledger for Bitcoin, and is the core technology upon which all cryptocurrencies are built. Ethereum, Litecoin, Ripple, and all the other cryptocurrencies operate on protocols that rely on the basic principles of the blockchain. Transactions are recorded in blocks which are stored across distributed a network of nodes that each maintain a copy of the blockchain. Since it takes a significant amount of computational work to listen to transactions and add a new block to the blockchain, the longest chain is the most valid. Supply ChainsThe blockchain isn’t just for financial transactions, it turns out that supply chains also benefit from the anti-fraud properties of a distributed, transparent ledger. A single product in today’s global supply chains could pass through hundreds of stages, QA checkpoints, and distributors across multiple geographic locations. Maintaining traceability across a global supply chain is proving to be a monumental task for today’s businesses. The blockchain promises to organize all that complexity into a distributed, permanent transcript of an item’s transactions. Amazon, Alibaba, and Walmart are among some of the largest companies taking advantage of the blockchain in their supply chains. Amazon even offers developer resources for people looking to build their own blockchain-powered supply chains on top of AWS. Smart ContractsImagine a world where contracts enforce themselves, eliminating the need for middlemen and greatly increasing the efficiency of legal transactions. Blockchain powered smart contracts may one day turn that world into a reality. The smart contract works by providing software that automatically enforces the contract once the prerequisite conditions are met. The main idea is to attach a digital asset’s release (e.g. an escrow account) to the fulfillment of a binding contract. French airline AXA offers Fizzy, an app that automatically reimburses your account for flight delays. Slock.It aims to automate rental contracts with their blockchain powered Universal Sharing Network. While the concept of smart contracts is nothing new, the blockchain provides the perfect platform for offering security, transparency, and permanence. Navigating the complexities of blockchain adoptionNow that you’ve seen what the blockchain can do, let’s take a look at the complexities and obstacles currently standing in the way of the path to mass adoption. Ease of use
Perhaps the biggest obstacle to mainstream adoption continues to be ease of use. People want the benefits of blockchain without having to understand the complexities of the underlying technology. You don’t need to know how cryptocurrencies work in order to use them, but the fragmented ecosystem and uncertain regulatory environment add considerable complexity to adoption of crypto on a large scale. There is a need for common standards in financial reporting in the blockchain. Exchanges now report in a variety of ways and often limit the amount of transaction data that you can pull. This makes performance analysis and financial reporting very difficult. The solution? A combination of customer service and automation. Investors and traders need help from expert advisors in navigating the complex waters of Crypto Taxes and Accounting and regulations. ZenLedger seeks to make things much easier for an individual investor or CPA in several ways. First, we provide lots of time saving automation to ingest transaction histories from many exchanges and wallets and then clean up that data for easy analysis. Next, our tax software automates the process of calculating gains and income taxes on those transactions. From generating profit and loss statements to auto-filling tax forms like 8948 and Schedule D, ZenLedger is one example of how automation and customer service can help mitigate the legal complexities of working with cryptocurrencies. Updating older blockchain technologiesIt’s no secret that the proof-of-work consensus algorithm behind the blockchain needs a lot of work. It takes a lot of energy for mining machines to compute the cryptographic hash functions that add new blocks to the blockchain. The original Bitcoin blockchain is projected to consume 44.7 TWh in 2018. If it wasn’t for the Bitcoin market crash in November, that estimate would have been as high as 73.1 TWh. The high cost per transaction remains a key barrier to mass adoption of the blockchain. It limits the ability to scale and makes cryptocurrencies less desirable for facilitating the exchange of goods and services. And that’s not even mentioning the impact on the environment.Fortunately, the industry has had plenty of time to take strides to address this problem. Newer blockchain protocols incorporate more energy efficient consensus algorithms. For example, proof-of-stake provides an alternative to proof-of-work that consumes negligible energy. Instead of accepting the first miner to complete a valid new block, proof-of-stake validates transactions based on the proportion of coins held by a miner.Finding balance between transparency vs. privacyTransparency is one of the blockchain’s biggest selling points. It’s the combination of cryptography and a publicly available, distributed, ledger that makes it computationally infeasible to commit fraudulent acts such as falsifying transaction history or double spending a currency. On a larger level, transparency and decentralization prevent any one party from having too much control over the flow of information, mitigating the influence of corrupted institutions. Unfortunately that transparency comes at a price: since every transaction is technically recorded and visible to the public, privacy is not guaranteed. Extra measures must be taken in order to ensure certain details are kept private and anonymity is maintained. Let’s take a look at how this tension between transparency and privacy plays out in different industries and use-cases.
- In finance, people want to get rid of banks and other middlemen. People want to be able to verify the identity of a counterparty in a transaction while remaining anonymous to third parties. People want a transparent government, but don’t necessarily want the IRS to see all their assets. People want to prevent scams but at the same time don’t want to give the SEC and other regulatory bodies too much power.
- In supply chains, some want total transparency for improved traceability so that we can track defects and recall bad batches. Measurement is the key to improvement, and transparency makes it easier to pull data, identify trends, and streamline supply lines. At the same time, others don’t want to expose their supply chains to competitors or draw untoward attention to their markups.
- In smart contracts, its especially important to respect people’s privacy. Nodes need to both verify a contract has been made between two parties while remaining blind as to who those two parties are and the contents of the contract.
In each of these cases, the solution to resolving conflicts between transparency and privacy lies in what you choose to encrypt. It’s something that has to be handled on a case-by-case basis.Consider the privacy coin Monero’s RingCT technology, which allows users to sign outgoing transactions as an anonymous member of a group. While the algorithm still verifies the correct amount of a transaction under the hood, these details are hidden from the public ledger. Only the verification that a given transaction was valid is visible. To further protect anonymity of someone on the receiving end of a transaction, one-time addresses derived from their public key ensure incoming transactions are unlinkable so that it’s impossible for a third party to view their full transaction history with their public address. Illuminating the path to mass adoptionThe road to mass adoption can best be summed up as an improvement in three key areas:
- Ease of use: Difficulties from using cryptocurrency in real-world transactions stem from an uncertain tax and regulatory environment. The bureaucracy of working with cryptocurrencies can be mitigated through a combination of customer support and software automation.
- Technology: There’s a real need for higher speed protocols, improved transactional efficiency, and more scalable technologies. The energy cost per transaction can be reduced by using alternate consensus algorithms and newer protocols.
- Transparency vs. Privacy: The tension between transparency and confidentiality needs to be addressed on an industry-specific basis. The trick is to understand what you choose to reveal when validating a transaction (e.g. ring transactions in privacy coins).
Beyond overcoming these obstacles it’s important to keep the public focused on the benefits of solving problems only the blockchain can solve. The advantages of decentralized currencies may not be so clear to the layperson in the United States, but to those who have experienced the aftermath of failing banks and hyperinflation, crypto’s benefits could not be more apparent.