Challenge 1 : The technology is not ready for prime time
Greek citizens wouldn’t have known how to locate a Bitcoin exchange or ATM. Or how to transfer their drachmas into Bitcoin to escape the troubled currency. Strong infrastructure matters. It can’t be limited during crises. Unfortunately for Greece, its blockchain infrastructure was lacking at the time of this crisis.
- The system lacks the transactional capacity for mass usage.
- Inaccessibility to the average person is our third concern. There’s not enough wallet support and a lot of interfaces aren’t yet user-friendly.
- The fourth concern is liquidity, or rather, the long term lack thereof. (Hoarders and lost bitcoin for isntance).
- The fifth concern is high latency. It takes on average 10 minutes to clear and settle transactions on the Bitcoin blockchain network.
- The sixth concern is the behavioral change required well beyond net etiquette.
- The seventh point is societal change.
- The possible lack of legal choices in a world of transaction finality and unstoppable smart contracts.
Problem with scalability :
The biggest names in the business, Bitcoin and Ethereum, use blocks to process transactions. However, in the early days of their development, the maximum size of these blocks was limited — in Bitcoin’s case, to just 1MB.
Although this mechanism was designed to make Bitcoin more secure, it hasn’t helped the network become future-proof. With each transaction comes data, and with a maximum size of 1MB per block, there’s only so many payments that can be processed at once.
A good example comes with Bitcoin, where there have been active discussions to change its block size over the years. Here was the problem: While some were content with doubling it to 2MB, others wanted to be bolder and go to 8MB or even 32MB, with no proposal gaining enough traction to be adopted.
In May 2018, Bitcoin Cash (BCH) successfully activated an upgrade which quadrupled its block size to 32MB.
the Lightning Network is a secondary layer which operates on top of a blockchain. In theory, it can process an unlimited number of transactions — payments which are not publicly recorded in the blockchain. Final balances are only added to the ledger when every transaction has been completed. Although there has been hope that this will solve Bitcoin’s scaling issues, there are downsides — mainly concerning security.
Off-chain scaling solutions would ensure that certain transactions are completed without miners, allowing only essential information to be synchronized. Of course, there are downsides. Off-chain transactions would be harder for the public to verify, and it could also create compliance issues. Users could also be disillusioned if they aren’t given a say in these updates.
Unless action is taken, it’s likely that transactions will take longer and longer to process. In a digital economy where fiat payments can be sent and received instantly, blockchain platforms need to offer the same if they are going to be regarded as a viable alternative
Challenge 2 : The energy consumed is Unsustainable
Proof of work is way to demanding in energy. SHA-256 borns a lot of electricity.
Proof of work :
Nakamoto set up a competition, the object of which is to be the first to determine a very specific signature based on three inputs: the signature of the preceding block, the list of new transactions, and a random third number. Since miners don’t know the third number, they must generate signatures repeatedly until one guesses correctly. This expends an immense amount of energy, signaling to the rest of the network that a miner’s accounting can be trusted.
Need to find new consensus algorithms if we want to scale.
Consensus mechanisms must :
- keep the network secure
- Distribute decision making power to the most appropriate decentralized economic set
The founder of the Ethereum project, Vitalik Buterin, has already proposed a new direction for the well-known blockchain-based platform that’s given rise to so many new tokens in recent years. Though currently operating on a Proof-of-Work (PoW) consensus mechanism like Bitcoin, the Ethereum network is slated to eventually make the switch to a new Proof-of-Stake (PoS) hybrid method of mining that will reduce energy consumption in the crypto mining industry while still maintaining the integrity of the network.
Challenge 3 : Governments will stifle or twist it
We need a stable approach to regulation, legislation, and international negotiation. We need investors to remain confident and continue to support the technology’s global development.
The common law isn’t affecting technology law. The common law is technology law.
It governments transfer identity to the blockchain, where information is fixed, we actually end up with a technological construct not at all like the social construct of identity.
IT’s not what we do with the code. It’s what we don’t realize we’re doing with it – the unintended consequences.
Regulation is still quite blurry. No template. Difficult for small companies to get trust from banks and being able to open accounts, getting licenses etc.
Challenge 4 : Powerful Incumbents of the Old Paradigm Will Usurp it
One of the biggest fear : Private corporations have often not been good stewarts of public trust. They capture most of the technology and fortify their private empire. Internet is quite a good example. Propriary stores, search engines and marketing interupting our experience with adds all the time, how our private data is handled ?
The banking industry : Oldest secret keepers.
What’s to prevent huge corporations or powerful nation-states from capturing blockchain technologies for their own narrow interests?
Any tool of consensus can be targeted by powerful corporations or governments. In now way the blockchain should be twisted.
51% hashrate treshold can in theory be attacked for private interests by dictators, thiefs, corporations..
Litigate rather than innovate : Incumbents can lobby for regulations that will kill the case, kill startups etc..
Throw money at all systems or try to innovate ?
Power tends to corrupt and absolute power corrupts absolutely
Excellent article : Blockchain Disrupting Banks
Takeaways :
Payments
- Blockchain technology offers a high-security, low-cost way of sending payments that cuts down on the need for verification from third parties and beats processing times for traditional bank transfers
- 90% of members of the European Payments Council believe blockchain technology will fundamentally change the industry by 2025
Clearance and Settlements Systems
- Distributed ledger technology could allow transactions to be settled directly, and can keep track of transactions better than existing protocols, like SWIFT
- Ripple and R3, among others, are working with traditional banks to bring greater efficiency to the sector
Fundraising
- In initial coin offerings (ICOs), entrepreneurs raise money by selling tokens or coins, allowing them to fundraise without a traditional investor or VC firm (and the due diligence that accompanies an investment from one)
- Blockchain company EOS raised over $4B in its year-long ICO ending in 2018.
Securities
- Blockchain removes the middleman in asset rights transfers, lowering asset exchange fees, giving access to wider global markets, and reducing the instability of the traditional securities market
- Moving securities on blockchain could save $17B to $24B per year in global trade processing costs
Loans and Credit
- Blockchain-enabled lending offers a more secure way of offering personal loans to a larger pool of consumers and would make the loan process cheaper, more efficient, and more secure
- The first live securities lending took place in 2018 with a $30.48M transaction between Credit Suisse and ING
Trade Finance
- The use of blockchain and distributed ledger technology (DLT) can support cross-border trade transactions that would otherwise be uneconomical because of costs related to trade and documentation processes. It would also shorten delivery times and reduce paper use.
- With approximately 80 to 90% of world trade relying on trade finance, the influence of blockchain on the market would be felt globally throughout all industries that use cross-border trading
Challenge 5 : The incentives are Inadequate
What miners do is preserve the distribution of power. This is then power to decide which transactions to include in each block, the power to mint coins, and the power to vote on the truth.
What will happen when if the price drops so much that it becomes not financially viable to mine bitcoins for isntance ? How do we stop mining from stoping to mine ? Well a solution could be transaction fees.
Transaction fees reflect the marginal cost of verifying a transaction. If hash rate drops, network security declines, without security the trust into blockchain is gone.
This leads to mining alliances being more and more powerful and can in theory alter the chain by itself.
However there could be a reason to subsidise the cost of mining if Bitcoin continues to be a valuable asset because, simply, they own a lot of Bitcoin and so they are willing to lose money on mining to maintain a secure network.
Challenge 6 : Blockchain is a Job Killer
Can be a good platform for radical automation. Blockchain would be able to replace quite a lot of jobs in auditing, finance etc..
Will blockchain lead to a lot of job loss ? What if it can also create job ?
What matters is not whether new capabilities exist; what matters is the extent to which we turn these capabilities into social benefit.
Challenge 7 : Governing the protocols
How this evolving technology should be governed ?
Governance involves setting standards, advocating and adopting sensible policies, developing knowledge about the technology’s potential, watching out for bad actors, and actually building out the global infrastructure.
One of the big discussions lately was wether to increase the size of the blocks, this resulted in an hard fork and creation of bitcoin cash. They advocated that bitcoin was a payment system and as such they should increase the number of transactions in each block.
But too quick or too large a change on the system is a costly risk.
Lightning protocol built on top of bitcoin. Participants build peer to peer payment, building transactions and then confirming them on the blockchain.
We’re not talking about regulating blockchain, but about stewarding blockchain technology for viability and success.
Challenge 8 : Distributed Autonomous Agents
Singularity and IA can be nocive to humans.
Challenge 9 : Privacy
What happens to privacy when the physical world starts collecting and communicating our data ?
We are not comfortable with the state of privacy nowadays, especially concerning the social networks.
None of these privacy challenges are showstoppers if we focus on design. Pivacy need to be a priority.
It’s time for leaders to prevent rather than react to violations of our privacy. It’s time to design transparency into all corporate and government operations. It’s time to flip the model : Black boxes for individual data managed by individuals, glass houses for organizational data, viewable by all stakeholders.
We must focus on designing privacy into the stack !
Let’s face it: any centralized system is vulnerable to attack. There is no reason for corporations or governments to store, let alone own or control, our personal information.
“Decentralization is important,” says Joseph Weinberg, a Toronto-based entrepreneur and chair of the Shyft Network, which is building a data transport protocol to give citizens more control over personal information. “If you get hacked, there’s a lot less to steal.”
Challenge 10 : Criminals will use it
When the FBI seized the Silk Road, the price of bitcoin plummeted. Digital currencies became synonymous with crime, even though today only a tiny fraction of crimes take place in cryptocurrencies, and the vast majority of cryptocurrencies are used for entirely legitimate purposes.
Opportunities for crime have scaled with technology. If humas beings want to exploit other human beings, they will use the latest means to do it.
Technologies does not promote crime, when a bank gets robbed we don’t blame the money. The fact that criminals use bitcoin rather put the emphasis on the governance, education and economic opportunities.
Check silk road story.
