Blockchain beyond the hype: Challenges to Adoption

This article of our series Blockchain beyond the hype is about the challenges distributed ledger technologies (DLT) like Blockchain are facing on their way to adoption. By now, it should be obvious to everybody that DLT could not only make the global economy more secure/efficient and (maybe) transparent in the long term, but already solve some of the biggest IT problems right away — foremost guaranteed authenticity in times of deep fakes and circumventing the security arms race by avoiding a single point of attack.

So how come that even though DLT have this amazing potential and Blockchain (in the form of Bitcoin) is around now for ten years, they nevertheless are still not broadly adopted?

Well, for one, the potential of a secure distributed database beyond the apparent cryptocurrency use case has not been recognized for a long time. That only changed with the advent of Ethereum about three years ago. Ethereum was the first platform that had it all: A Turing complete virtual machine enabling automated transactions via smart contracts, easy read/write access to the database and the implementation of the wildly successful token. It lead to a huge boost in the Adoption of DLT.

But apart from that comparatively little boost, DLT adoption is still on low levels, mainly because the adoption of DLT means to shift, or even to outsource trust and to change business processes — sometimes even to replace classic structures to the core.

Current limitations

To feel safe adopting these technologies with all the consequences, we need to be aware about the limitations DLT have right now. The following crucial problems need to be addressed: usability, scalability, interoperability and regulations.

Usability

Because of the complexity of the technologies involved, Blockchain and DLT have been accessible almost exclusively to what most people would call “nerds” for a long time. Right now we are on the brink of DLT getting mainstream accessible user interfaces. The next step will be integrating the technology in a way that nobody has to deal with the underlying protocol, so that it will just work; like nobody has to think about protocols when using the internet or email.

Scalability

While DLT could be the solution to scale security, storage and computing power among others (see the last article of our series), scaling DLT itself is one of the biggest frontiers to adoption. Currently most people benchmark the performance of DLT in transactions per second (TPS). That number is often cited in comparison to VISA which supposedly handles 45.000 TPS to show that DLT are far from being ready for mass adoption. Ethereum for example handles about three magnitudes less because of its hard-coded limit on computation per block and because currently all nodes within the network have to confirm each transaction.

But there are approaches that will help to scale the throughput massively. All of the current approaches to scaling DLT can be classified by their tradeoff strategies:

• Sacrificing decentralization for scalability like dividing the networks in smaller parts that confirm the transactions (e.g. sharding) or reducing the number of nodes by making the network nodes private or consortium controlled.
• Sacrificing security for scalability e.g. reducing the number of confirmations needed like IOTA does, or second Layer solutions like nested or parallel chains with reduced security e.g. Plasma for Ethereum or Bitcoins Lightning Network.

It is safe to assume that there is no general solution for scaling DLT. But(!) there will be solutions for every specific group of use cases. I would like to quote Andreas Antonopoulos on this: „Every year we will fail to scale for the next application and succeed to scale for the previous ones.“

Interoperability

Because of the afore-mentioned limitations of DLT, there will always be specific distributed ledger technologies for different applications necessary: There will, for example, be slow and secure networks like bitcoin to handle transactions with a big monetary value, there will be fast and thus less secure networks to handle microtransactions or machine 2 machine communication like IOTA, etc.

Interfacing these platforms could form a whole new class of ecosystems between different public, private and consortium application specific DLTs, overcoming the limited economic and social interaction we have in the web right now by allowing safe identities, (access) rights and transactions across different platforms. There are different approaches to harmonize data between different DLT, so called Hyper- or Interchains, one of the most promising projects being the South Korean ICON Project.

Regulations

Last but not least we need a regulatory safe ground for using these technologies that are not limited to national borders and often interfere with local banking laws. The first step to regulate DLT is already taken, with most local governments limiting anonymous access to exchanges. A somewhat smart move, even though it put a halt to the massive success of cryptocurrencies (see our first article in this series). Fortunately, this has helped to draw a clear line between illegal and legal use cases of DLT.

Many countries like Gibraltar and Seoul have further specified the regulatory environment for the use of DLT since then, making it safe for use in business applications. In Germany the Berlin Organisation Bundesblock is on the forefront of lobbying for a safe legal environment for DLT to thrive.

How to force adoption

What can we do to support this development that most of us so dearly want to succeed?

First of all, we obviously should try and use DLT apps ourselves, possibly even substituting the services we use regularly with DLT based services (e.g. Graphite Docs, which is essentially a DLT based Google Docs, although with the little caveat that it does not work on mobile yet). Secondly we need to be aware of these limitations of DLT. And last but not least we need to address them! If you want to discuss more leave a comment and join us at the Revision Summit in Berlin.