The world looks very different under the blockchain revolution. In some aspects, they sound too good to be true. If this new future is a great leap-up from our current reality, — especially in terms of economic inclusion of billions of unbanked and excluded population from prosperity, of distributed database that clears rooms for concentrated third party’s compromise of users’ private data for commercial profit, of recorded truth such as personal property rights or artistic copyrights protected by the technology, and of transparent and efficient cross-border payments be they remittance or humanitarian aid, — where does the technology have to meet it? Is the technology proven and ripe for full scale implementation and mass adoption?
Unfortunately, the answer seems ‘no‘ to reach this promising future yet. In the ending chapters of the book, the authors discuss about promise and perils of the technology. Promise if roadblocks are successfully cleared, and perils if we don’t handle well through stakeholders’ collaborations.
Ten big roadblocks are discussed as below. For your reference, these roadblocks are mainly in terms of the bitcoin blockchain but it’s a good starting point for understanding the blockchain technology ecosystem (i.e. the Digital Ledger Technology space).
Apparently, the technology has numerous challenges within the network community as well as technology itself. To see a clearer picture, I have categorized overall challenges into ‘Internal’ versus ‘External’. External challenges are quite straightforward, so I will elaborate a bit more on internal issues in this summary.
- The technology is not ready for prime time
- The energy consumed is unsustainable
- The incentives are inadequate for distributed mass collaboration
- Governing the protocols is like herding cats
- Governments will stifle or twist it
- Powerful incumbents of the old paradigm will usurp it
- The blockchain is a job killer
- Distributed autonomous agents will form Skynet
- Big Brothers is (still) watching you
- Criminals will use it
■ Internal Challenges
I have listed eleven internal challenges as below. They are mostly technical issues.
First, “The future is here. But the infrastructure simply is not there.” The author notes the infrastructure is unevenly distributed.
Second, the system lacks the transactional capacity to on-board ten million people — which is a ten-fold increase of user base — and it falls short of security controls for a massive usage bump with such problems as possible system failures, unanticipated bugs and the huge disappointment of technically unsophisticated users.
Third, its inaccessibility to the average person especially in terms of wallet support and user-unfriendly feature with alphanumeric code and geekspeak.
Fourth, bitcoin’s finite supply of 21 million, mined at a diminishing rate will cause long term illiquidity. This anti-inflationary monetary policy within the system cause bitcoin’s value appreciate, — the more number of users, the higher the value — and this causes holders to hoard rather than use as a medium of exchange.
Countering this, the bitcoin advocates argue that bitcoins are divisible to eight decimal place (the smallest denomination called Satoshi) and, if tweaked, even into trillions (the denomination called picopayment) so that the coin can buy more.
Fifth, compared to the traditional system, the process of clearing and settling transactions are dramatically reduced to about ten minutes. But this still is simply too long for the IoT. Also, ten minutes is too long for financial transactions such as trade, where timing matters. There have been fork and new launch of entirely reengineered blockchain platforms such as Litecoin, Ripple, and Ethereum with fast speed of seconds, not minutes.
Sixth, if the private key is lost, there’s nobody to help to regain the passwords nor your bitcoin holdings in your wallets. If consumers who can’t manage and backup the private key passwords, they can rely on the third party storage providers.
Seventh, money being a social construct, for the new digital currency protocol to be accepted as money, there needs to be a societal change.
Eighth, irrevocable transactions and unavoidable smart contracts programmed and executed by high degree of mathematical certainty is unprecedented. But as a downside, there’s lack of legal recourse. There’s no human elements.
Ninth, the combined processing power of the bitcoin network, and hence the required energy, is greater than the aggregate output of the world’s top five hundred supercomputers. The proof-of-work economics works in a way strong processing power(the hash rate) used solving complex math problem, ‘proves,’ thus ‘wins’ and ‘adds’ verified new blocks and ‘gets’ new bitcoin out of competition with other miners, and consumes energy both for mining and for cooling. Due to increased competition for mining new bitcoins, the hash rate has been increasing considerably and the trend will stay as Bitcoin’s market value considerably increases.
Tenth, given the important role miners play as the distributed power and as distributed mass collaboration sustaining the bitcoin network, — either validating transactions or deciding which transactions to include in each block, or minting coins, or voting on the truth — the incentives for miners can be inadequate in case any design change has to happen.
Eleventh, unlike the Internet, the bitcoin community does not yet have formal oversight bodies such as ICANN or the World Wide Web Consortium to anticipate development needs and guide their resolution. The authors state the community prefers it that way.
Illustrating the case of Bitcoin XT launch in 2015 — a blockchain hard fork to increase the block size from 1 to 8 megabyte to accommodate increased transaction flows — as an example of compromise of the network integrity, the authors argue, without leadership or governance, the movement could collapse on itself.
■ External Challenges
Out of six external challenges, I see two issues as the most critical.
First, purely distributed and stateless nature of the bitcoin blockchain plus authorities’ lack of understanding of the new technology may cause governments to stifle innovation with heavy regulations by attempting to prevent the unforeseeable and by overreacting to worst cases such as crimes that involve tax evasion, drug trade and human trafficking.
What will legislators, regulators, and adjudicators around the world make of blockchain technologies is the biggest unknown, the authors claim.
Second, as the case of Silk Road, the dark web marketplace for illegal drugs, illustrates, criminals would exploit this decentralized, lightening quick, and peer-to-peer technology.
However, the authors believe Bitcoin and blockchain technology could discourage criminal use, firstly because all their bitcoin transactions in the blockchain is published and secondly, law enforcement can track payments more easily than cash. Also, the authors argue the fact that criminals use bitcoin speaks more to the lack of strong governance, regulation, advocacy, and education than to its underlying virtues, hence the need to work on them.
MOVING FORWARD: BLOCKCHAIN GOVERNANCE
The distributed technology thrived, because stakeholders’ incentives are aligned via coded principles of distributed power, networked integrity and rights and inclusiveness.
The authors, however, note this decentralized blockchain ecosystem shows signs of strain due to the very decentralized nature without the leadership. There are competing views in the blockchain ecosystem. Even the core blockchain contingent has split into different cryptocamps, each advocating a separate agenda.
The authors consider this as a signal to establish a multistakeholder governance system, based on transparency, merit, and collaboration. They suggest all the stakeholders in the network come together and address mission-critical issues.
The multistakeholders involve:
⇒ Blockchain Industry Pioneers
⇒ Venture Capitalists
⇒ Banks and Financial Services
⇒ Government, Regulators, and Law Enforcement
⇒ Nongovernment Organizations
⇒ Women Leaders in Blockchain
The authors regard the Internet governance model as a good template. They believe, for a growing list of global challenges, self-organizing collaborations can both achieve global cooperation, governance, and problem solving and make faster, stronger progress than traditional state-based institutions.
(End of Part 3. To be continued in the next article)
Original article on leadingbyreading.org : https://leadingbyreading.org/2018/04/03/blockchain-revolution-how-the-technology-behind-bitcoin-is-changing-money-business-and-the-world-part-3/