Blockchain Problems explained in a simple way

In today’s topic, we are trying to explain in a simple way what is it that makes people so excited about Blockchain and what everyone — even person who knows few about new technology — like grandmas, should be aware of to avoid the pitfall, scams and elaborate cons that they might come across nowadays.

The rise in blockchain’s popularity is causing unscrupulous business owners to take advantage of the trend.

Did you know that blockchain is one of the most disruptive technologies in the world? It has been called by many names you might not understand: a “trust-less” system of value, “digital gold”, the “new internet”.

Regardless of what you call it, many people think blockchain is the future. This is because of 2 fundamental features of the technology: Decentralization — or the end of arbitrary decisions by a central authority — and tokenization — or the ability to set a tangible reward on activities that add value but are not captured by a transaction.

· Decentralization increases competition between stakeholders and facilitates access to new comers (like service providers) which in turn increases the utility of what you are trying to build

· Tokenization enables ecosystem building and is the strongest tool to incentivize good behaviors and deters malevolent intentions

It is important to measure how powerful these two are when combined: the value that can be created is several times bigger than each of these two factors taken separately. The distributed ledger technology is really not valuable without tokenization if you want to fundamentally change behaviors, markets and people’s lives

However, despite promising potential applications in different sectors, some challenges are preventing Blockchain’s widespread adoption.

A Mixed Approach — Centralization and Decentralization

There are always pros and cons of every system. This is no different when it comes to centralization and decentralization in computer networks.

In the blockchain platforms, there are stakeholders that can somehow outvote the creators of the Blockchain, as has happened (partly) with Bitcoin and Ethereum. But this only works if the blockchain community is alert and aware of the potential problems that could emerge from a rogue inventor or an inconvenient design.

That’s why the blockchain community is starting to wake up to the need for a mixed approach that combines the best of centralization and decentralization to harness the best of both.

Increased Regulations

A few years ago, the blockchain world was mostly unsupervised by regulators. This allowed blockchain businesses to innovate and develop tons of blockchain solutions.

Come 2017, things started changing. Governments introduced new regulations and policies to control the blockchain environment.

A few months ago, some of these have made it easy in countries such as Japan to make cryptocurrencies part of their legal tender. Malta, Gibraltar and Singapore are following closely in building a regulatory framework that will deter malevolent behaviors and increase transparency.

That being said, most of the countries have made it hard for blockchain businesses to thrive in the ever-changing environment.

Privacy Issues

The reason why most people are using blockchain is that it allows storage of transaction details (as in how much John Doe transfers to Jane Dow) on a publicly accessible ledger. This helps increase transparency and trustworthiness.

However, storing transactions on a public ledger also means less privacy. The privacy issues have made it hard to introduce blockchain technology in industries that value privacy: Jane might not agree to have everyone on the globe become able to know that her “cryptocurrency address” received that amount of cryptocurrency, simply because it can be tied to her later through other transactions where she might identify herself by name.

Some companies have tried to solve this problem by introducing private blockchain networks but this does not address all the privacy issues and the loss of transparency defeats the objective of Blockchain.

Misinformation

There are a lot of misconceptions going around about the blockchain world. These misconceptions are hurting blockchain businesses and making it hard for potential users to trust anything related to that. For your Mom/Grandma, a vivid parallel was web companies in 1998, which were listed in a totally unregulated way called “Pink Sheet” a.k.a “Penny Shares”, the whole thing collapsed in 1999, 1 year before the DotCom crash. Good early-stage startups which had a product with high utility disappeared completely trough illiquidity.

In the current ICO & Crypto currency age, there is a lot of misinformation at all levels (business information, ICO campaign, exchange volume, etc).

Misinformation is a serious problem and could bring the blockchain world to its knees. Blockchain firms should take it seriously and come up with strategies to fight it, not least because it’s the main tool scams and con artists use to operate, hence ruin the reputation of the sector for all the good companies trying to make a difference.

Scalability

This is another buzz word you might have heard touted a lot. The major problem that is facing blockchain technology is that it has not currently has a solution to take its operations into the very big numbers. Payment systems require the ability to process more than a billion transaction per day per payment system. No Blockchain today is even close to one thousandth of that (1/1000). The scalability problem saw Bitcoin split into two derivative coins (Bitcoin Cash (BCH) and Bitcoin Classic (BTC)) as an attempt, with no avail.

This challenge makes it difficult for blockchain to compete with other technologies but is so high in everybody’s agenda that a solution might come earlier than expected (3 years instead of 5).

Competition for attention and hype

Although ICOs are very new, they have become the largest topic in the blockchain community. Many view these projects as unregulated securities. They fear that they allow founders to raise vast amounts of capital with little to no governance or oversight.

Others argue that it’s an innovation in comparison to the traditional model. Either way, it’s still new territory and vastly unregulated.

Thousands of companies have flooded the blockchain world, and more are likely to crop up in future. This has led to increased competition, and it’s expected to grow even more. But because all of this is in the early days, the competition happens more on the communication and marketing side, rather than tangible development progress: this is best seen in the Airdrop/Bounty campaign, where ICO campaigners reward people for activities not related to the business (no surveys, no App downloads, no referrals) but completely focused on running the social networks numbers: memberships, likes, retweets etc.

This increased hype is hindering the development of blockchain businesses and the overall community needs to do more to steer towards more mature, more self-governed practices.

Wrapping Up

With all those hurdles and negative signals, your grandma might think: why bother, why would anyone take the risk, with so much moral hazard?

The first answer is that there was just as much moral hazard in the beginning of the web economy, the oil-economy before it and the steam/railway economy before it. The risks are only worth taking if the potential reward is high enough, and the potential reward of Blockchain as a technology definitely fit the description.

The more elaborate answer is that these high-risk high-reward endeavors are even more valuable when the application impacts the majority of people: the emerging world. For example improving e-commerce in the US will not be noteworthy because it’s already a very efficient, highly competitive market. Improving e-commerce in Asia or Africa, on the other hand, will change people’s lives, unlock billions of dollars of value creation and open an entirely new segment in international trade.

Amine Chabbi is CEO of NeoPlace.io — a Blockchain startup that is transforming cross-border e-commerce.

You can find their latest podcast here: https://www.linkedin.com/pulse/why-how-neoplace-amine-chabbi/

And their latest interview here: https://en.decentral.news/tag/neoplace/