You’ll be hard-pressed to find a sentence about blockchain that doesn’t also include the word “potential.” Although blockchain inspires widespread enthusiasm, problems of scale have prohibited mass adoption to date.
Research continues to overcome these obstacles, however. Let’s look at some of the existing barriers to widespread adoption, and how technologists are overcoming each.
Problem: Blockchain is slow. Banks use technology that can process tens of thousands of transactions per second. Deloitte reports that most blockchain is currently clocked in at between 7 and 15 transactions per second. (1)
Solution: To combat speed problems, researchers are developing new consensus mechanisms – the method by which participants in a blockchain network agree that the recorded transactions are valid. One type of emerging consensus mechanisms may reduce the time and energy used in mining, and reduce the number of nodes that must validate a transaction. In the pipeline, there are also new mechanisms such as proof of burn, proof of capacity and proof of elapsed time under development.
Problem: Blockchain platforms exist in multiple coding languages, protocols and consensus mechanisms. A lack of standards creates problems of interoperability.
Solution: Standards are emerging with the creation of various Alliances and Foundations comprised of members that are often part of an open-source collaborative effort to advance cross-industry blockchain symmetries. These groups educate, conduct research, and provide advice to their members. There is the Enterprise Ethereum Alliance with 600 members and the Hyperledger Foundation with 250 member organizations. The Decentralized Identity Foundation is comprised of 60 organizations so far. Deloitte estimates a jump from 28 consortia in 2017, to more than 605 in 2018. (2)
Problem: Legal regulations create barriers of adoption. For instance, smart contracts and cryptographic signatures still require widespread regulatory acceptance due to issues around data privacy, intellectual property, and enforceability of contracts.
Solution: Here’s some regulatory good news: state legislatures have accepted dozens of blockchain -related bills this year. At least 8 states have passed laws related to blockchain, and the legal and regulatory issues around cryptographic signatures and smart contracts are slowly being fleshed out in various bills. According to the Brookings Institute, Delaware, Illinois, Arizona and Wyoming are some of the states that have introduced or passed regulations ranging from making signatures, transactions, and contracts on a blockchain legally valid, to allowing residents to pay their income tax in cryptocurrencies, and approving the use of block chain in various government departments. (3)
Blockchain might not have reached its full potential in 2018, but we’re optimistic for the year ahead!