Blockchain: What it is, What it isn’t, and Why You Should Care — Part 4
Should you use a Blockchain?
It’s easy to get sucked into the excitement surrounding blockchain and start viewing everything as a nail for your blockchain hammer. Decentralized, trustless consensus systems, such as blockchains, are game-changing tools for a wide assortment of socially significant applications. eVoting, eCommerce, auditing, supply chain management, international transfers of value, proof of ownership, user authentication, decentralized autonomous organizations (DAO’s), the Internet of Things (IoT), and many other industries are all ripe for disruption using this technology. However, blockchain has some glaring limitations currently, and there is no guarantee that these hard problems will be solved in the near term future. As such, we must consider the current state of blockchain with pragmatic eyes, and utilize it in ways that take advantage of its strengths while minimizing the impact of its limitations on end users.
Global consensus and the scaling debate: Whenever you make a transaction, the entire global network of nodes must achieve consensus regarding the new state of the ledger using the consensus protocol of that network (ie, proof of work, proof of stake, and many others). If every node must process every transaction, and each block can only hold a certain number of transactions, you have yourself a major transactional bottleneck which has spurred many fiery debates on Reddit regarding scalability and the right way to solve it. At the time of this writing, the Bitcoin network maxes out at a processing capacity between 3.3 and 7 transactions per second. Ethereum’s processing capacity of roughly 15 to 20 transactions per second is really not that much better when you consider the fact that Visa has the ability to process roughly 45,000 transactions per second in order to keep up with user demand. Therefore, if blockchain tech is to become a viable option as the world’s distributed supercomputer and the internet of value, we need to overcome some significant obstacles.
In Bitcoin, the most widely accepted solution is currently called segwit , which leads the way to second layer solutions like the lightning network. There is also Bitcoin Cash, which is one of the bigger forks of the original Bitcoin blockchain that aimed to solve the scaling issue by increasing the block size from the original 1 megabyte limit to between 2 and 8 megabytes of transaction data per block. This allows for more transactions (between 2 and 8 times as many) to fit into a single block, ensuring that transactions are confirmed in a reasonable time frame, even with higher than usual demand placed on the network. This change comes with its own set of issues and engineering trade-offs, primarily related to the storage capacity expectations placed on nodes, but could be effective as a short-term solution.
In Ethereum, proposed scaling and layer two solutions you’ll hear about frequently are off-chain solutions similar to Bitcoin’s lightning network called the Raiden Network, the plasma network being implemented by the OmiseGo team, application specific sidechains like the DappChains being offered by companies such as the Loom Network, splitting the workload of consensus and computation into interconnected collections of nodes using a technique called sharding, and changing the underlying consensus protocol of Ethereum from proof of work over to proof of stake in what is being referred to as the Casper protocol.
Energy consumption. This is a major concern for proof of work systems in particular, because proof of work expends a lot of electricity, running expensive hardware around the world to reach agreement. Ethereum also currently relies on proof of work, and is making efforts to reduce its environmental footprint by switching to the Casper proof of stake protocol, which, if successfully implemented, would drastically reduce its energy consumption and usher in a new era of distributed computing.
It’s important to be clear that none of these proposed solutions are ready yet for mass adoption and are extremely experimental — an oft-omitted fact by the more fanatical blockchain proponents out there. If you, like myself, are one of these blockchain optimists, just be sure to remind yourself in the euphoria of the hype that blockchain is not a religion, but rather a tool.
While clearly limited in its current state, blockchain technology still has the ability to disrupt a number of industries whose viability requirements are not as affected by those present limitations. In the next article of this series, we will discuss the FITS model, which will help us to identify those industries that are ripe for disruption by blockchain so that we can be well-positioned to take advantage of the upcoming wave of innovation. See you then!
For more information on Sabio’s Blockchain class check out:https://sabio.la/training/blockchain
To Read Part 1 of this article click here.
To Read Part 2 of this article click here.
To Read Part 3 of this article click here.
To Read Part 5 of this article click here.
