Laying the groundwork: Blockchain Infrastructure
What needs to be done now for a thriving future
Although the cryptosphere has been a little more active lately due to slight price increases in bitcoin and such, the current level of hype is a far cry from the days of Q4 2017 when everyone was buying crypto in hopes of cashing in on a boom. A correction shortly followed, leaving only the strongest of believers to focus on “buildl” as opposed to “hodl” — taking active measures to create projects rather than focus on playing the crypto markets in hopes of striking it rich.
Essentially, the death of the hype train surrounding cryptocurrencies came from overpromising and under-delivering. Blockchain technology was pumped up by Twitter influencers, traditional news outlets, and marketers advertising projects with no real product. In response, human nature, in a hope to catch a get-rich-quickly scheme, rode the waves but many wiped out (buying at the all-time-high and panic selling).
We can clearly see what blockchain technology is capable of related to decentralization, immutability, and traceability; however, it is not the end-all-be-all, just as big data was not the cure to everything a few years back. This new technology, essentially a shared spreadsheet, is a mess in terms of the speed of transactions, security, and ease of use. The needed infrastructure spans across a variety of fields; the ones I’ll focus on are governance, price stability, and access.
Having been there to witness the rapid changes in how we use the internet, I can draw many parallels between what happened then and what needs to happen now for widespread adoption:
- internet speeds dramatically improved from dial-up to fiber-optic → greatly enhanced user experience and increased access
- mobile data speeds went from technology even slower than 2G/EDGE to 4G LTE, with 5G coming soon → further improvements in data transmission throughput, enabling more activities such as livestreaming
- the capacitive touchscreen was invented → think of touchscreens before the iPhone, where you had to use a stylus. Not so good of a way to interact with your phone right?
And now see what needs to be addressed regarding blockchain:
Governance
Arjun Balaji makes the point in his article titled “Centralize, then Decentralize” that blockchain companies should operate like a traditional startup with a strong team, growing community, and a slowly shifting focus to decentralization after technical maturity.
Such an approach runs counter to current governance models such as those of Ethereum and Bitcoin, where decentralization lead to forks such as Ethereum Classic and Bitcoin Cash because those working behind the projects didn’t come to consensus. And the mechanism of the fork was done to allow for decentralization — if there was no agreement, miners and programmers could work on their own project; however, talent and resources are wasted as one project breaks into two.
The two ways of governance each carry with them pros and cons. More straightforwardly, the “centralize to decentralize” model sounds ideal, but can be clouded by human nature. After achieving technological maturity, would the team even be incentivized to decentralize? Take for example Ripple, which is centralized. It would be hard to imagine them caring about decentralization after securing contracts working with the largest financial institutions in the world. What about Hedera Hashgraph?
Price Stability
Another question comes from the volatility of cryptocurrencies. As these currencies are freely traded, with little means of formal valuation, prices fluctuate greatly. Consequently, various merchants have stopped accepting them, citing difficulties related to accounting and the risks of holding the cryptocurrencies. In addition, the token velocity problem fuels hype in the token. Instead of using the cryptocurrencies as intended to use the services provided by the network, speculators hold onto the tokens in hopes of value appreciation, yet unfortunately the network value declines due to inactivity.
Stablecoins try to address this problem, to create a cryptocurrency with minimal volatility, and hence stability. They come in various forms such as ones backed by fiat (tether), other cryptos (MakerDao), or unbacked (Carbon). Each have different mechanisms in place to ensure price stability, along with controversies such as when Tether was subpoenaed.
The question becomes then, wouldn’t prices eventually stabilize through arbitrage? If there are enough opportunities to profit off of crypto volatility, then people acting in their own self-interest will keep exploiting them until market forces move everything towards an equilibrium. We’ll see what happens.
Access
Coming after how to run a project and how to keep it funded, having an easy-to-use product is crucial for a blockchain project to succeed. The following components of the web 3.0 stack all require improvements in ease-of-use. Fortunately, several projects work on addressing this topic:
Tokens — the ICO craze of 2017 aside, buying tokens can often be a great inconvenience. Imagine having to provide ID documents for KYC (know-your-customer) processes for every single token you want to buy. Not having much liquidity except privately before the tokens get listed on exchanges. Having to go through the manual steps of sending Eth to an address in order to get tokens. Token Foundry is working on a platform to help users purchase new tokens.
Storage — it becomes a hassle to have to store your cryptocurrency in multiple wallets, each having their own logins. It also becomes a matter of security when there is a breach, as seen in Ian Balina’s hack. Current solutions such as MyEtherWallet are not easily accessible to the mass majority (some people even think that buying crypto is complicated, and thus come projects such as Balance in building a better wallet.
Smart Contract Auditing — will lawyers eventually have to read code, or will programmers become lawyers? That’s the question to ask as code is moving to become law. Smart contracts execute automatically once deployed, and cannot be edited. As long as the conditions are met, the contract will execute, and good luck if there is malicious code in it!
Hence the importance of checking the integrity of your smart contract code. Quantstamp is a protocol that secures your smart contracts.
It is the focus on building the foundation of governance, stability, and access that enable the prevalence of dapps in the future. Sure, it’s great to dream big and envision a world with the capacity to do what blockchain is capable of in decentralizing and eliminating intermediaries, but to make the dream into a reality, certain work must be put in now to allow for these applications to exist. Instagram stories wouldn’t be fun with a 2G internet connection. Touchscreen phones won out over the Blackberries with physical keyboards for a reason. Crytokitties is not the killer app of Ethereum, and I’m excited for what’s to come.
