Acceleration determines dynamics
What is blockchain in a nutshell?
In short, this is a chain of information blocks about transactions or other operations. In this chain, each new block is associated with the previous one, relies on it, contains information about it. So it is almost impossible to replace any block in the chain after the fact: for this you need to get huge computing power in a distributed network.
Blockchain is the technology at the heart of Bitcoin and other cryptocurrencies. But it can be used in more interesting ways.
Three or four years ago, the news that an apartment was sold using the blockchain network deserved a place in news feeds. But since then, it seems that the introduction of blockchain into the daily digital life of people has not advanced further than such single breakthrough news.
In the wake of the popularity of Bitcoin, they started talking about other ways to use blockchain technology. In particular, it was seen as the key to the operation of smart contracts — written in computer language and algorithms for the terms of transactions for the exchange of assets: currency, real estate, stocks, services, goods, and so on. Until one party fulfills the terms of the transaction, its payment is not made.
At the same time, the conditions themselves are checked automatically, without the participation of intermediaries, controllers or people in principle. It’s just that the two parties agree on a deal, which closes automatically after the conditions are met, without wasting time and the influence of the human factor.
Smart contracts have been tested. The Maltese insurance company Atlas has launched a pilot project to implement blockchain and smart contracts into a flight delay insurance product based on Ethereum. The smart contract was connected to the global air traffic database.
However, due to problems with the GDPR (European law in the field of user data privacy) and the uncertain status of cryptocurrencies in the European Union, the experiment had to be curtailed — both because of the volatility of the cryptocurrency itself, and because of the ensuing EU ban on the use of crypto by insurers.
A similar experiment based on Ethereum was carried out by a large insurer AXA. However, in 2019, it was abandoned with the official wording “due to insufficient demand and inconsistency with commercial goals.” This pilot project has long been a symbol of the wider use of smart contracts in the real world.
Reasons affecting the speed of implementation
The above examples are not the only ones. In the bowels of Nokia, in 2017, a startup Datapace was born, which was engaged in the sale of data streams using automated smart contracts on the blockchain.
The latest tweet from Datapace dates back to 2019, when interest in blockchain and cryptocurrencies waned. And this tweet was about 10 main problems on the path of blockchain implementation before its mass adoption becomes possible.
One of them is the scalability of such systems — their ability to process an increasing amount of information per unit of time.
Bitcoin does not scale well. The consensus of the entire network depends on the bandwidth, the speed of propagation of the truthful blocks of the chain, latency, and the level of decentralization.
As the number of network users increases, processing takes longer, and the commission to miners who service transactions increases. Sometimes it comes to the point that transactions in the bitcoin network were delayed for several days, and it was already impossible to cancel them, since they are irreversible.
The second big problem with blockchain is high power consumption.
According to the bitcoin energy consumption index according to Digiconomist resource, one bitcoin transaction can consume an average of 1,752.79 kWh of electricity to complete it. This is equivalent to the amount of energy consumed by 1.2 million Visa transactions. And if now $ 91 billion of transactions are underway in the bitcoin blockchain, then it seems too costly to scale these volumes to $ 411 trillion of the global economy.
Blockchain may use other block verification methods that are not tied to the gluttonous work of mining farms. However, these methods have their drawbacks, which so far hinder their large-scale implementation.
Another problem is that blockchain and privacy don’t go well together. Public blockchains provide transparency for transactions and transactions. But not every organization will agree to operate without confidentiality. Customers trust such organizations with sensitive information, trade secrets, which they would not like to reveal to the whole world.
By its nature, blockchain is a decentralized distributed ledger. But most of today’s enterprise blockchains are private ledgers that only trusted parties can access and modify.
Change is near
For businesses, blockchain has promised two key benefits: optimized performance and cost savings. But in a corporate environment, technology has failed to provide this.
Low ability to balance transparency and privacy, high cost of infrastructure development, lack of interoperability and inability of most blockchains to scale today are the main problems hindering widespread adoption of the technology.
In August 2021, in an interview with Fortune, the head of the Nasdaq stock exchange Adena Friedman made it clear that in the current environment this technology has limitations in terms of existing infrastructure and lacks the potential for scaling: “Today, cryptocurrency trading technology is simply not able to maintain that level of trading activity. which we see in the stock and options markets. We process 3 million messages per second, 62 billion messages in eight hours.”
It will take at least a decade to figure out how to make markets more efficient and efficient using blockchain, she said.
What appeared to be a disruptive technology turned out to be a thing that will be introduced into digital products and penetrate into the real world gradually and confidently. The main thing is that the revolution of awareness and acceptance of the blockchain has already taken place.
Keep for updates.