The Five-Year Evolution Of Blockchain
By Nichola Cooper on ALTCOIN MAGAZINE
This is part of a high-level overview of the forecast evolution of DLT over the short-medium term submitted to a research university in London. It’s short and sweet, it’s sweetness determined by their word count 😃
Distributed ledger and blockchain technology, two terms often used interchangeably in the general blockchain literature, have enjoyed immense fame thanks to the volatility of the cryptocurrency markets. Arguably, Bitcoin’s market capitalization peaking at over US$280 billion dollars [1] had something to do with raising the profile of both cryptocurrency and blockchain technology. Yet, notwithstanding blockchain’s potential to radically redesign market operating structures, there have been two discernible trends over the past several years. Firstly, there has been a lot of energy in the start-up space, with entrepreneurs designing custom blockchain solutions in agricultural and land rights, climate and the environment, digital identity, financial inclusion, governance and democracy and health. [2] Secondly, there has been a rising interest in enterprise (or private/permissioned) blockchains and distributed ledgers. These two distinct trends have largely occurred because of the inability to resolve public blockchains’ inherent trilemma regarding decentralization, scalability, and security, which has determined its application and rate of adoption. Despite this quandary, organizations continue to recognize the value in distributed ledger technology (DLT) and have therefore been continuous, albeit cautiously, investing in research and development and testing proof of concepts as the technology matures. [3]
The distinction between a distributed ledger and a blockchain lies in the organization of the data. A distributed ledger is a database spread across several locations, eliminating the need for a single authority to process or authenticate transactions. All files in the distributed ledger are timestamped and given a unique cryptographic signature, providing an auditable log of all history on the ledger. A blockchain, by contrast, is a type of distributed ledger but organizes its data into blocks that are hashed with a cryptographic signature and linked together in a chain. Distributed ledgers do not require a chain or a proof-of-work algorithm that permits greater scaling options.
Resolving the blockchain trilemma will be fundamental to how DLT evolves over the coming years, for security is predicated on maximal decentralization and scalability is predicated on minimal. This is forcing DLT research into base layer protocol development and second-layer solutions to support scaling, interoperability and privacy. Without which, industry interest will continue to be muted. As industry adoption is critical to the survival of DLT, developers are coming around to industry’s viewpoint; that is, sacrificing some amount of decentralization for efficiency is a reasonable trade-off. Accordingly, we are seeing greater numbers of proof of concepts using Hyperledger and Corda, and other permissioned blockchains. Noteworthy 2018 examples include the UK Land Registry using Corda to improve the home-buying process, [4] SWIFT testing Hyperledger Fabric for Nostros clearing [5] and US behemoth retailer Walmart using Fabric for food traceability trials. [6]
While developers work on scaling solutions and forthcoming projects like Chainlink, Polkadot, Ark and Quant are tested for interoperability and resolving the trilemma, DLTs use-cases determine its future — they tend to fall into four categories; securing an exchange of value, tokenization, enabling storage and asset exchange. As public thinking begins to divorce itself from blockchain = Bitcoin, investment in DLT is expected to grow [7], with a host of new institutional infrastructure and products expected and wider awareness of lesser-known blockchains for general social use (outside of fintech), for the sheer purpose of avoiding practices that centralized platforms like to use. (Any guesses who and what, anyone?🤷♀️) . We are likely to see simplified user interfaces, wallets, an expanded range of futures and options markets and trading platforms like Bakkt, increasing numbers of government-issued digital fiat (potentially eventually replacing stablecoins), state channels and new services engaging smart contracts as their core value proposition.
Their utility at scale will be determined by regulatory action and governance standards, however. Regulators face numerous challenges in approaching DLT, chiefly, the decentralization of the financial system and the ability to manage economic stability and protect consumer interests in the event of this occurrence. While cryptocurrencies as a store of value are not likely to go anywhere soon, their utility as a functional currency is low and we will continue to see them treated as an investment. Therefore, a variety of responses is noted in response to DeFi. Some countries have encouraged innovation through regulatory sandboxes, some have introduced blanket bans on cryptocurrencies, and some are developing their own. While the forthcoming 2021 ISO/TC 307 Blockchain Standards from Standards Australia are eagerly awaited regarding setting international standards for blockchain they are likely to be fast outdated by the pace developers are setting. Cautious regulatory efforts are expected to continue.
Likewise, fringe innovation is expected to continue to pace national regulation and adoption will continue to be determined by industry. Notwithstanding iterative developments to national regulation, a final sticking point regarding blockchains for industry remains: cross-border issues of jurisdiction and territoriality for smart contracts. Distributed ledgers have no specific location; each network node may be subject to different legal requirements and there may be no party ultimately responsible for the ledger and the information therein. Couple that with whether signatories to the contract are subject to different laws under their respective jurisdictions and the obvious possibility that the contract is flawed, one of DLT’s primary use-cases for industry might be undermined.
In summary, the future of DLT will be marked, hopefully, by continued development on the technology’s limitations at scale, a closer relationship with regulators and standards-setters to build a cohesive operating environment and greater industry research and development.
References
[1] Blockchain.com. (2019). Market capitalization. Retrieved from https://www.blockchain.com/en/charts/market-cap?timespan=all
[2] Galen, D., Abdualiyev, A., Chong, W., Iyer, S., Kim, R., Ma., J., Mann, D., Owen, E., Park, J., Portelance, G., Seideman, O., Thakur, N. (2019). Blockchain for social impact. Stanford Graduate School of Business. Retrieved from https://www.gsb.stanford.edu/sites/gsb/files/publication-pdf/csi-report-2019-blockchain-social-impact.pdf
[3] Deloitte Insights. (2019). Deloitte’s 2019 global blockchain survey. Retrieved from https://www2.deloitte.com/content/dam/Deloitte/se/Documents/risk/DI_2019-global-blockchain-survey.pdf
[4] Ledger Insights. (2018). UK Land Registry selects Corda for blockchain. Retrieved from https://www.ledgerinsights.com/uk-land-registry-corda-blockchain-property/
[5] PAYMENTS. (2018). SWIFT completes landmark DLT PoC. Retrieved from https://www.swift.com/news-events/press-releases/swift-completes-landmark-dlt-poc
[6] Miller, R. (2018). Walmart is betting on the blockchain to improve food safety. Retrieved from https://techcrunch.com/2018/09/24/walmart-is-betting-on-the-blockchain-to-improve-food-safety/
[7] Business Wire. (2019). Global blockchain funding and investment analysis report 2019. Retrieved from https://www.businesswire.com/news/home/20191007005726/en/Global-Blockchain-Funding-Investment-Analysis-Report-2019
