2017 was the year of blockchain hype.
Cryptocurrencies entered mainstream consciousness, as Bitcoin hit $19,900, and Ethereum hit highs of $870 in mid-December after starting the year at $960 and $8 respectively. Bitcoin’s peak market cap of $320 billion exceeded that of companies such as Walmart and even the total value of all UK currency notes in circulation. Initial Coin Offerings (ICOs), previously unheard of, attracted $5 billion in investment by year’s end. Technology legends like Steve Wozniak and Jack Dorsey endorsed BTC, saying it should be a world currency. Business organizations such as McKinsey, Forbes, and Goldman Sachs all predicted that blockchains would change the world. Even renown skeptics like Jamie Dimon relented. “We actually use it…You can have crypto dollars and yen and [other currencies],” said the highly influential JP Morgan Chase CEO, after calling Bitcoin a “fraud” earlier that year. “God bless the blockchain,” he added.
The community ballooned in size, and veterans have been inundated with promises and claims that blockchains are revolutionizing major industries, from finance to supply chain management, to identity management and voting. As explained by Cornell Computer Science professors and IC3 founders Rafael Pass and Elaine Shi, “financial firms have announced intentions of using the blockchain to lower transactions costs, remove geopolitical barriers to transferring assets, and reconcile differences between systems.”
But the harsh truth is that blockchains haven’t achieved these things yet. They don’t yet work.
One day they will, but because of their scalability failures, they cannot in their current form. Try to send even small sums of money with Bitcoin, and you could run into confirmation latencies of over an hour, and transaction fees over $20. Bitcoin is practically unusable for its original purpose. How can this be ready to become the world’s currency?
It’s not just “digital gold” that has these problems. Even Ethereum, the groundbreaking smart contracting platform with the potential to change the world, is not without flaws. At the moment, however, Ethereum’s main draw to the public has been to trade smol catz.
Cryptokitties, touted as a demonstration of Ethereum ’s viability, actually illustrated its failure. The application’s just 14,000 daily users were enough to double gas prices, contribute to a 6x increase in transaction latencies, and slow the network to a halt. Due to network issues, simple actions like creating (“breeding”) a new cat increased from an already high $1 to an astounding $8. (This fee doesn’t even include the siring fee charged by Axiom Zen — it was only the fee paid to Ethereum miners). Can you imagine the cost for more complex games and applications?
Why have all these killer apps, genius ideas, and viable business strategies so far failed? Why are the top 50 Ethereum DApp lists littered with bunk ICOs and ponzi schemes?
Because blockchains don’t yet scale.
To fulfill their promise as large-scale transaction networks, blockchains must actually be able to handle a large-scale of transactions. Today’s blockchains pale in comparison to comparable transaction networks outside of the cryptocurrency sphere.
Bitcoin, designed to be the currency of the internet, is limited to 7 transactions per second. Ethereum manages fewer than 50 transactions per second. Now compare these to Visa’s 24,000 tx/s.
What does that mean for real world performance? Due to a lack of fast, intuitive supporting technology, something as simple as making a payment is a long, arduous path for anyone but the most advanced computer users.
Blockchains were supposed to be the answer to fundamental large-scale human questions. They were supposed to foster a new era of democracy by allowing for decentralized, trustless, and fault tolerant voting. Many of the most exciting applications of blockchain technology are simply infeasible at the moment.
What if a real election were to be held today on chain? Take everybody’s favorite election, the 2016 US Presidential Election, as an example. With 129 million voters participating, assuming every vote used the same amount of gas as a money transfer, Ethereum’s daily throughput of 75,000 transactions would mean this election would take 173 days to be held on Ethereum. That’s nearly 6 months for the election to even take place!
As a result, very few applications are seeing mass adoption. According to Dapp Insight Ethereum has just 8,000 daily active users (DAU) and all but 2 applications (both exchanges) have more than 1,000 DAUs. This is because it’s not possible for blockchains to scale to public demand. As long as blockchains cannot massively scale, their revolutionary potential remain a distant dream.
That is why 2018 is the year of blockchain scaling.
It is out of necessity that scalability solutions have become a paramount topic for blockchain researchers, developers, and entrepreneurs. As a result, much progress is being made in terms of blockchain scalability research. Plasma, state channels, sharding, alternative consensus, DAGs, asynchronous fast paths — these are becoming more and more real every day.
There are valiant and vital efforts to enhance the technology in other ways. zCash and Monero prove that privacy-focused chains can excel, employing the most advanced cryptographic techniques to build chains and ecosystems that are thriving.
Cryptoeconomics research will usher in a new era of optimal incentive designs underlying blockchains, bringing further security and resilience against collusion. Chain-based governance research will provide a forum by which individuals can settle philosophical disputes about the function and details of chains they use. Interoperability research will allow a number of different chains, each with different uses, to coexist, creating a decentralized internet. Smart contract research will allow for safer and more precise contracts that people can use in their daily life.
These research areas are extremely important if blockchains are to fulfill the promises envisioned, and we fully support research efforts in these areas.. However, they still do not address the fundamental challenge of scalability.
Until blockchains can handle the scale that large-scale decentralization entails, then, by definition, they can’t work for everybody. Solving the scalability problems of today’s blockchains is the key to bringing about a transparent, fair, and secure internet of the future.
Thunder: A Storm is Brewing. Stay tuned.
Acknowledgements: This post was made with love and help from Annie Zhang, Greg Swan, Bauer Wann, Aparna Krishnan, Alexis Gauba, and Professor Elaine Shi.