Lately, there has been a lot of interest in the markets around the cryptocurrency valuation and a spike in prices. You hear big banks getting involved; you hear the block chain for this or for that. But the question is- What does all this mean to us and the way we do business? My journey to answer these questions and to find a use case that block chain only can solve started just a year ago. On my journey, I met people who were in a similar search of truth, people who were learning it to stay relevant in an ever-changing information technology field and visionaries who wanted to question the status quo and change the existing order. I go back and forth between understanding the importance of block chain and at the same time confused whether the same use case could be implemented by using simpler and less costly technologies.
This article is not about “what is block chain.” We have plenty of good resources; TED talks on the internet and even an excellent course on Coursera that can teach you about what a Blockchain is. My aim to translate the technology for the business folks and to understand what it can and cannot do – Blockchain for Business.
The Dark Net
The dark net is the encrypted part of the internet. It uses encryption to hide the source and location of the user in the network. The anonymity gave the users of the network with a large sense of anonymity. Thus, the dark net, which was active long time before the World Wide Web itself, became an open, borderless world, the center of innovation and open discussions but also breeding grounds for trolls, and every sort of illegal businesses known to humanity.
It reminded me of Hindu Mythology of “Samudra Mathanam” or churning of the Ocean. The Gods and Demons (who were also Gods by the way) decided to churn the Pacific Ocean (seems like!) using the largest mountain of their times as the churning wheel and a very large celestial snake as the rope that controls the wheel. The aim was to bring all the good stuff that was hidden under the Pacific Ocean, including the elixir of life. During the churning, along with the elixir, some toxic gases also came out of the ocean.
Dark Web is such an ocean of hidden wonders. It gave the world POP Email encryption (it was made public to foil the government control, read about it!) which mail email transfers secure, but also gave the world a breeding ground for hackers, hate groups and drug dealers, all in response to external “churning” events. Many features that we see on e-commerce websites now, such as user ratings, reviews were implemented well before time on similar portals on Dark Web such as Silk Road. The white paper for Bitcoin was presented to the world by an anonymous person or a group of people that go by the name Satoshi in response to the 2008 financial turmoil, just as the churning mountain and snake in the mythology.
The bitcoin was an answer to every problem that a real life physical money had ever posed, and digital currency had ever raised. It was also created in an age of frustration and mistrust in the Investment Banks and Governments. It also went back to what seems to be the “Gold Standard” that was long ago replaced by Dollar standard.
Satoshi built his/her/its/their castle on the strong foundations of cryptography, creating the world that is completely trustless, with no need of intermediaries, completely transparent and consensus driven, which what we call now as the blockchain technology. The concepts used in the program were nothing new to the computing, scientific and mathematical community, but the beauty is how all the pieces fit into each other almost perfectly (controversial topic!) to resolve the problems. The code was open to all and had some silly coding mistakes in it, which I think was deliberately put so that no proud developer would identify themselves to be Satoshi.
To understand how Bitcoin better, let’s examine some properties of Bitcoin.
- Network Effects: A currency is only as good as the number of users who accept it, and the network effects build the underlying value. The Metcalfe’s Law This explains this relationship through a mathematical equation (Karnjanaprakorn, 2017). The Dark Net market places widely accept Bitcoin. Recently, it started appearing on major websites as well – g., on the Microsoft online store!
- Scarcity Model: Network effect brings us to the classic economic models of demand and supply. Too many users and too little supply of money could increase the underlying value of the currency. Too little demand and too much money can result in inflation. The central bank uses tools such as printing money or absorbing the excess supply to control the money supply in the rotation. Implying that rather than the market effects, a central authority can play an upper hand in controlling the value of assets that you have earned.
On the other hand, the number of Bitcoins that can be created in the network is limited to 21 million BTC (approx.) by an algorithm. The Bitcoins are created through mining in the network and is paid as a reward for the mining activity. The ease of mining is limited by mathematical problem solving and by the cost of mining. Bitcoin follows a scarcity model, which means that the supply is limited and known, and retains its value regardless. Limited and predictable supply, the absence of a central authority to monitor the supply and low inflation makes Bitcoin behave like the Gold Standard that existed before the current dollar based system (Weber, 2015).
- Ease of Identification and Transparency: Blockchain enables Bitcoin to maintain a decentralized ledger with the details of the transactions from the beginning of time (since the time Bitcoin blockchain came into existence). This level of transparency ensures that any coin can be traced backed to a previous transaction to the extent that we can see when it was originally minted. It also helps us validate that when Alice pays Bob 10 BTC, Alice has 10 BTC to pay Bob. So, a valid transaction must be created in a previous transaction.
- Immutability and Data Integrity: The contents of each block in a blockchain are immutable as the contents of one block are linked to a previous block and possibly the next block through cryptography. Any attempt to add a block or change a block would inevitably affect all the blocks after the chain. The network can thus invalidate the fraudulent block.
- Transfer of Ownership: Double spending is a problem that made the creation of digital currency very unlikely for a very long time. When you send an email to someone, both the sender and the receiver retain a copy of the email. Imagine the havoc it would cause if someone could do that with currencies! Blockchain Ledger being transparent to all users helps prevent such kinds of frauds. It also means that the first time in the digital world, we can transfer assets and transfer ownerships.
- Distributed Consensus: A transaction is added to the blockchain ledger only if there is a consensus on the transaction. When I say my 10 BTC, there is a consensus in the Bitcoin Network that I own 10 BTC. If the consensus decides otherwise, then I own no value on the network.
- Proof of Work (POW) and Economics of Mining: To implement distributed consensus and transparency is a very costly affair. As there is no centralized entity, there should be some entity which adds the blocks to the chain. The blocks are in addition to the chain by the miners after solving a mathematical problem. As you can see in figure 2 and 3, the processing power required to solve this mathematical problem has increased over the years. So have the miner revenues.
The miner’s cost consists of a fixed machine cost for the CPU and a variable electricity bill. The miner can choose what block to add and what not to, and it completely depends on the reward – cost, giving miners too much power. The reward they get is a sum of block reward (which is 25 BTC now) plus a transactional fee. The transactional fees are based on the size of the block (Sathoshis per byte). The blocks that were not added because they were too small to compensate for the cost of electricity used by the CPUs to mine the blocks will be left as orphans. If your block gets kicked off by a miner, you can try a duplicate transaction, with the expectation that it would get added. Also, larger the miner pool, small the proportion you get and vice versa. There is also the general notion of the community that big mining corporations who can manage to run powerful CPUs or miners such as in China, USA have an undue advantage. In a nutshell, the miner economics has created kind of two-tier system in the Bitcoin community. The system that was built for everyone has become more restricted to affluent people.
- Bootstrapping: As pointed out by Professor Arvind Narayanan in his Coursera course(Narayanan), the security of the network is the result of having a healthy mining community. If by any means, a selfish entity was to own 51% of the total nodes (also known as the 51% attack), then, in theory, this entity will have control over the network consensus and hence might be able to control the blocks that are added to the chain. The honest miners compete to solve and mine the problems quickly, increasing the complexity of the mining (as explained earlier, the complexity of the mining keeps increasing as the mathematical problem that needs to be solved will also get more and more complex) and thus prevent the 51% attack scenario.
Now, to make the mining faster, the miners need more computing power and electricity. The incentives for mining should be high enough to cover the costs. However, as the reward is constant, the exchange rate between the bitcoins and the dollars should be high enough. Thus, the value of the Bitcoin and network effects play an important role in mining. Suppose, if someone can pull out a 51% attack, the honest 49% would ideally notice the discrepancy, triggering an instant devaluation of the Bitcoin. It will no longer become profitable for anyone, including the entity that made the 51% attack, to mine or hold any Bitcoins. In other words, the value of the Bitcoin reinforces the security aspect of the Bitcoin network. Moreover, larger the network, for difficult it becomes for a single entity to keep a majority. Such bootstrapping is the most important consequence of blockchain in Bitcoin network.
Programmability and Ethereum
One of the main challenges with Bitcoin was it was not meant to do everything! Bitcoin has limited programming capabilities inherently like If and then condition or check if a particular number of signatories have signed off on a transaction or wait for ten blocks and executed a transaction. The community was hell bent on not changing Bitcoin’s underlying laws. Its reluctance to change shows that its governance is strong, but also makes the system inflexible.
The need for flexibility led to the birth of Ethereum. Ethereum has a Turing complete programming support, which meant that you could do complex programming on it. It creates smart Contract or self-executing contract combined with most of the properties that we observed for Bitcoin. At first, I wondered how it would be of interest to businesses. The business processes don’t change every day. E.g., Alice should pay Bob on 30th of every month. The amount might vary, but the contact between Alice and Bob is the same ones. This problem is only a piece of cake for programmers using legacy technology.
“I thought [those in the Bitcoin community] weren’t approaching the problem in the right way. I thought they were going after individual applications; they were trying to explicitly support each [use case] in a sort of Swiss Army knife protocol.” Vitalik Buterin, inventor of Ethereum (what is ethereum, n.d.)
Ethereum contracts are different in the terms that it brings transparency, consensus, security and eliminates intermediaries. A common example is Uber without Uber in between the driver and the rider. The rider and driver directly get into a contract (you mean like how we used to travel before Uber?). Ethereum also facilitates the development of Decentralized Applications or Dapps on Ethereum Virtual Machines or EVMs. Dapps are to EVM what Android Apps are to Android. It means that you don’t have to build a blockchain from scratch if you want to build an app. Instead, use EVM and build and run Dapps on it. Another flexibility that Ethereum provides is the ability to link different contracts together, which could drastically increase the complexity of the network.
The developers and users pay for the network expenses through tokens called “Ether.” As the contracts can have complex operations, the cost of executing a contract is limited and controlled by what they call as “Gas” like what we use in our cars. When your contract executes, the Gas gets consumed, and once the Gas limit has reached, the contract fails to execute. It is a mechanism to prevent hackers from using DoS (Denial of Service) attacks.
To err is human. Complex programs introduce complex bugs and serious problems. As mentioned earlier, one of the notable features of Ethereum was its ability to interlink contracts. However, it is up to the developers to program in a way that there is no reentrancy, i.e., a contract A calling another contract B which calls back contract C. As the system gets complex, it becomes more and more difficult to detect and anticipate such recursive contracts. Decentralized Autonomous Organization or DAO was a very ambitious project that just wanted to create an autonomous organization with no leadership. The controls existed through smart contracts. During fundraising stage, a hacker took advantage of a flaw in the code to a recursive contract and emptied around 3.6m Ether. A code fix that was granted to prevent it introduced DoS attacks. The development community quickly intervened and stopped further damage (Castillo, 2017).
The inherent programming environment Solidity had a lot of problems by design. For example, any function declared as “public” by default unless specified as “public’ explicitly. For a wallet developed on Ethereum, the function to access the wallet was set as public. A black hat hacker took advantage of this loophole and withdrew a large amount of a personal account before too late, a group of white hat hackers noticed this and emptied the wallet to safety before the hacker returned for more.
Such incidents are understandable as the system is still to reach a stable state. However, it asked for an unprecedented consequence.
As always, one’s greatest strength could be one’s greatest weakness. Consensus and Transparency are two major pillars of the blockchain. The network is formed based on the trust on the underlying laws driven by the core code and the fact that the historical transactions are always available for common reference.
When the DOA attached threatened the integrity of Ethereum, the community quickly came together to decide on further actions. The majority proposed what is called as “forking” of the chain- To remove the transaction that granted the hacker with the Ether that he/she/they tried to steal. The argument was that such an action would help regain the confidence of the investors and potential customers and discourage hackers from trying similar attacks that go unchecked.
However, a minority suggested not to take any action as any changes to the underlying code threatened the very foundation of the blockchain. If the community can do this for one contract, what prevents them from doing the same to another contract in the future. Changes in code require applying changes to the entire chain. Considering the complex nature and dependencies of Ethereum blockchain, it is a nightmare for any developer. The minority group was also concerned about the value of Ether going down, which would make it uneconomical for miners to mine.
The consensus won and the Ethereum network forked off to create a new Ethereum Classic (What is Ethereum Classic, 2017) chain was born so did a new kind of problem. The creation of two chains would mean that the same contract could be executed in both the chains and earn double the transaction. QuadrigaCX, a cryptocurrency exchange, lost money on such transactions. The community was quick to follow it closely and stop further damage.
Similarly, the Bitcoin blockchain also forked off to create a new Bitcoin Cash blockchain, which was meant to increase the block size to 8 MB (Hertig, 2017). The various chains fight for acceptance and network effects to substantiate the value of their currencies.
In any case, all these events raised the question of whether the consensus system is worth it? The network has grown up huge that it has become very difficult to reach any decision unanimously. How can more effective decisions be made without compromising decentralization?
What does this mean for businesses?
For many of us into business, technology is such a complex thing to understand. However, in this time and age where exponential organizations rule the market, knowing technology is important for any business. Some of the terms mentioned earlier in this article might have been a bit too “techy” for you. But after going through this section, you will realize how all this could affect you.
From a business standpoint, centralized control is of great importance. Any existing corporate structures use centralization in some form. Even from a technology standpoint, any system that is distributed and decentralized is such a nightmare. Not to mention the cost associated with maintaining such a facility. Remember that the same data must be stored in every node attached to the network. So, storage and processing costs would ideally be the cost of the centralized database times number of nodes. Then why should businesses care about this? Well, more than Bitcoin as a currency, block chain as a technology is what makes the buzz so special. Let see how.
First, although blockchain is about decentralizing, it doesn’t mean that the nodes involved in it must be. Also, the nodes still must have a front end and validations to ensure the quality of data. These nodes could be centralized. Block chain is used as a backend storage and network,
- When we have multiple stakeholders who all need to access the same set of transactions and make value exchanges.
- When a consensus is required amongst the members whenever was a new transaction is added to the database.
- When the stakeholders inherently don’t trust each other, but still must do business with each other.
The advantage of such a setup is that we can eliminate intermediaries and complex confirmation mechanisms, commissions and transaction cost and reduce the disputes between business partners. It is particularly applicable when the market is highly competitive and making your processes leaner has a direct consequence on the bottom line. If your core business is to serve as middleware, then block chain would most probably threaten you soon.
The disadvantage is that the business data are transparent to all members and cost sharing would be problematic. Also, imagine the difficulty of implementing a project with a common interface to multiple systems that follow different standards and have different priorities.
Second, most of the business intelligence processes rely on consolidating data into a table or a list. The effectiveness of the list is dependent on the accuracy, depth, and speed at which the first is prepared. Blockchain ensures security and can prepare the entire history of the transaction, which could make report generation processes redundant. Imagine how much your company can save on accounting and regulatory reporting.
From the looks of it, block chain can disrupt the financial services sector because it could drastically make the processes leaner. The figures below show an excellent example that shows to what extent the blockchain can change the back-office services (Philip Evans, 2016).
If you notice, the functionalities such as Proof of Work may not make any sense in such a network, not to mention inefficient. It could be used to assess the proportion of total cost that should be paid by each member. The inadequacy of Proof of Work mechanism has resulted in the evolution of new models such as Proof of Stake, where the node creating the block should demonstrate sufficient ownership of the asset (Philip Evans, 2016). Members raise collaterals to vouch for the block they add. The chain with the highest collateral would be the most valid one (Naumoff, 2017). Then there is the upcoming Proof of Authority, which I couldn’t understand. In any terms, the algorithm could be tailored to suit your application but could compromise some of the founding principles of blockchain and lead to a single party having more advantage over the others.
Ultimately, blockchain is about collaboration rather than competition (Philip Evans, 2016). Like with any other disruptive technology, the banks first showed disgust, then showed fear and now loves to have blockchain! Formation of consortiums of financial institutions such as R3 by David Rutter, HyperLedger by Linux Foundation and IBM, Ethereum Enterprise Alliance (EEA) backed by Ethereum shows that banks have taken blockchain seriously (Williams-Grut, 2017). Such collaborations could lead to creating oligopolies, which could make competition too fierce and barriers higher for small players. Meanwhile, payment processing veterans like SWIFT and VISA have also considered blockchain. SWIFT is planning to use blockchain for Nostro reconciliation, which could save financial institutions lot of money and time (SWIFT explores blockchain as part of its global payments innovation initiative, 2017) and fire some middle office executives that they won’t need anymore.
Such alliances can be seen either as a response to disruption or a strategic defense against open innovation – the creation of a new “android” in financial services could bring the barrier low, giving access to more players and destroying the bank’s monopoly. However, ROI from the technology may not be that impressive, at least at this point. Moreover, the technology is still evolving. The key is to have an agile mindset, constantly experimenting to create a minimum viable product.
Blockchain has shown applications in Identity management, where you own your identity, not any government entity, decentralized and shared Computational power and storage, censorship free social media, rights management (Xie, 2017), and finally raising capitals, which brings us to ICOs.
Initial Coin Offerings
An ICO is a novel way of raising money. In ICO, the tokens for a proposed new blockchain network is pre-sold to raise money to develop the network. The coins are bought by potential users of the networks (and some speculators as well) with the hope of higher return when the network is finally functional. The speculators could artificially reduce the demand of the coin and could force a devaluation. But other than that, users hardly have any equity based control or guarantee on returns. This flaw has paved the way to many scams, which pushed SEC to think about regulating such processes in the US. How did it all start?
The business of technology solutions has become overcrowded with giants like such as Google, IBM, Facebook, etc. New technology startups face a hard time surviving the competition and price war with these companies. Recent incidents such as with SnapChat have shown that IPOs have become skewed, not to mention expensive. Other crowdfunding and VC mechanisms turn out to put too much pressure on free innovation. Enter ICOs.
- The ICOs created a new asset class for innovation. Propagators of ICO and Token sales envision it as a tool to economically align a group of people to work together to build a different thing. More than raising funds, they envision ICOs as a way of collecting advance for work that will be made in the future and as empowering innovation.
- The ICO is brilliant that one might consider. It is like buying Amazon stock to buy goods from Amazon later. How does it give meaning economically? During the Dot Com boom, certain banks purchased shares in software companies. One might consider it just an obvious choice at that time. More than that, the growth rate of these investments was so high that if these banks availed the services from these companies, they were getting the services for free! Yes, this is exactly like buying Amazon stocks to buy its products at a lower price later! The ultimate vision is used by the tokens as an enabler of innovation and make economic sense out of it once the innovation bears fruits.
- The initial issue ensured the investors that the coins they hold were exclusive to them. Moreover, the digital coins are easy to move around and transfer ownership.
- ICOs also indirectly ensure that once the network is up, there will be some activity to ensure building network effects and creation of a market for the coins to the network developers.
- Coins also serve as a profit sharing mechanism between investors and developers. g., suppose if you watch an advertisement on an app in the network you get a coin, and you could use the same coin to buy a product on the network. In a way, you are sharing the revenue that the network is getting from the advertisement. Also, with the network effects kicking in, the valuation of the coins will also go up.
- ICO also helps in global innovation. If a country blocks ICOs, then the company moves to countries such as Switzerland or Singapore, who are open to ICOs. Regulatory bodies are thus in a dilemma – too much pressure could lead to loss of talent and opportunity, too little could lead to unchecked scams and monetary loss.
- They also claim that as the inability of existing blockchains to scale and transform calls for new blockchains and therefore new coins.
To be fair, fraudulent activities are present even in the most highly regulated industries as well. ICOs have the same effect as IPOs had in raising capital and maximizing wealth. So, companies who have become stable with ICOs should take the lead and help regulators from rules that don’t restrict growth but prevents fraud.
The investors also should be aware of how the tokens are going to be issued, how many can be issued, who has the power to issue s recall, what is the innovation that the tokens would empower, and how does it ensure future cash flow, will it create enough networking effects, etc. The key to ensuring accountability is transparency. It is quite like the research one does before making any investment.
On comparison with venture capitalists, ICOs are less controlling. However, too little control could also be bad. In ICOs, the company gets the entire fund beforehand. The basic human tendency is to be become lethargic and show a lack of motivation until the time is up. VCs usually provide funds stage by stage, based on the deliverables and hence ensures that developers stay on track.
Bitcoin combined the ability to be anonymous and yet make an exchange of value through a trustless network. Remember how people could support the protesters in Kiev during the Ukraine revolution, just by pointing their mobile phones at the QR code in a photo! People could support their causes without being afraid of being judged or held by government organizations with the funds and transactions completely transparent to the entire world. It could also tell how the funds were spent as we can see the transactions in the wallet.
Some believe that Bitcoin could build a parallel state quasi-state where all is right and just where the world governments and evil corporations have no control. Let me break their bubbles. No state can exist in this world is independent of what is happening outside its borders. Not anymore. For a closed nation to exist, it should have all the adequate supplies of the state itself – food, raw materials, services, all constituting a circular economy.
No man is an island
In the real world, we need to trade with other nations in exchange for currencies. The value of the currencies affects the buying power. As we examined earlier, although all the exchanges in the Bitcoin world can be made through BTC, electricity, salaries of IT professionals, cost of computational power and storage, all these continue to be made in local currency. As two currencies are involved in running the operations, it leads to a dependency on exchange rates.
From last hundred years of currency wars, we have learned that trades and foreign exchanges expose a currency to market volatility and exchange rate manipulation attacks from foreign governments. In the case of Bitcoin, potentially all the governments in the world would wish to manipulate and control it. Moreover, as there is not any centralized entity to control inflation through monetary policies through tools such as printing money, Bitcoin is highly exposed to market forces. Hence the analogous quasi-state may never become true.
Governments, central banks, and other regulatory agencies will oppose decentralization because they are scared of losing centralized control.
“If Bitcoin came anywhere near to supplanting conventional currencies, central bankers would almost certainly intervene to stop it.” – Jamie Dimon, CEO, JP Morgan (Jamie Dimon: You’re Wasting Your Time with Bitcoin, 2015) (Philip Evans, 2016)
The blockchain community did act as a nation when they stood together during the difficult times and multiple hacking attacks. Even during the attack, white hat hackers fly down from heaven on their flying horses and delivered justice. The community managed the crisis well for a decentralized community. This could be a beginning of an era of decentralized controls. Order in chaos.
Finally, decentralization is inherently inefficient. It causes wastage of energy and materials due to the level of duplicity involved. It is just cost effective when the cost of energy and CPU is less. What we are deliberately ignoring is the environmental impact. As per a model by an environmental researcher, Bitcoin alone could consume as much electricity as Denmark by 2020 (Deetman, 2016). The electricity comes from the carbon intensive non-renewable source. The CPU is built on rare earth materials and toxic chemical substances that bore large holes in developing nations. So, it is now a stressful battle between technology, economics, environment, and politics.
Cryptocurrencies have been behaving like bullion lately. When the price of gold goes up, silver goes up as well. This is because traders think that when the price of gold goes up, the cheaper alternative (which is silver in this case) will also gain demand. Similarly, when the price of Bitcoin goes up, the price of other altcoins goes up as well. This explains part of the recent phenomenon of spikes in currency valuations.
However, like most of the things connected to money, the switching cost for hard currency users is high and therefore adoption rate of crypto currencies is low. The recent spike in price and demand doesn’t prove that the adoption of cryptocurrencies has increased. The buyers of the currency are mostly market speculators who are interested only in making short term profits. They are not visionaries of a borderless world or propagators of a quasi-state. The bitcoins usage is commonly associated with activities in “dark net” which most people don’t want to be associated. A mass adoption is possible only once this stigma has been broken.
Market Speculations and Greed
Unlike the Bitcoin production, Ether production is not capped. It thus turns programmers into speculators. They will just try to push their currency to increase the value of their earnings. This is just like the divide between developers and miners in Bitcoin community. Developers like to add more blocks and functionalities whereas miners can get more demanding trying to control the supply.
Another point of concern was that around 60 Million in Ether tokens were pre-sold even before the network was open. It is the proof of work concept which lay the foundations of crypto currency. The recipients of these token will get an advantage over the late starters. In any case, Ether might eventually take over Bitcoin in the market capitalization as people build more useful Apps on it.
The general lack of talent and deficiency in block chain literacy is major problems faced by the community. After years of development, JPMorgan made its blockchain project open for innovation (Quorum, n.d.). If a highly competitive firm such as JP Morgan is making their project open, then it could only mean that the project was not effective and the use case failed. The focus should be on use cases that could ultimately realize the benefits of blockchain rather than the market speculations. Rising prices of Ether might discourage development of Dapps (Decentralized Applications) on Ethereum network, whereas help encourages Bitcoin by helping in compensating the increasingly expensive Bitcoin mining.
One fundamental limitation of blockchain is that Bitcoin, the first ever functional blockchain, was created as an alternative value exchange system, alternative to centralized currency. Therefore, the design of blockchain itself was in a way to suit a currency. In my opinion, cloning blockchain to other industries may not be possible. But designing a new blockchain to fit the industry, without tarnishing the beauty of the original design may be possible.
The other limitation is that the blockchain can only ensure the authenticity and uniqueness of coins and properties digitally. It still cannot guarantee where an actual physical interface is required. A person can fool the system while creating an identity document. A bar of gold can have a digital token, but the bar itself could be of inferior quality. In other words, physical quality control still needs to be present at the terminals.
Development of Quantum computers also arises as a threat to the underlying cryptography that supports blockchain (public key/private key). When it comes, it will make a lot of changes in the digital encryption field.
Future of Blockchain
Even the strongest critics of Bitcoin appreciate the underlying technology, i.e., blockchain and its implications for us. I am not sure if it would create a world government or a new internet. But what blockchain did be essentially solved the problem of distributive consensus that has been pondering the computing community for a very long time. That and the fact that blockchain essentially encodes state changes makes it important to the business community as well.
As we said earlier, decentralization comes with a cost. Well, it is mainly cost! The focus should be in finding the means to make the network respond faster and to cut down carbon emissions. E.g., there is a move to prevent broadcasting the message to all the nodes in the network. Instead, only the intended end party hears it first, routed through a limited number of nodes. Shifting from Proof of Work to Proof of Stake could reduce the mining efforts. This would improve the speed but could compromise some other aspect of the blockchain.
An upcoming application is a decentralized prediction market, where the wisdom of a crowd is utilized to make a prediction (Wisdom of the crowd, n.d.). The members will make bets on a prediction which compensates them for making a bet if the prediction is shown to be true.
In the quest to churn out the elixir, who knows what other gifts and threats the Dark Net can give the humanity. In blockchain and cryptocurrency, I see an opportunity to create a new kind of economy, which somehow balances the human selfishness (Capitalism) and equality (libertarian socialism), the two opposing ideas. The ultimate blockchain is Time itself, and time will tell.
Thanks to Nitesh for reviewing the article.
Cover Image Source: https://darknetmarkets.co/
Based on the conservations with various members from the blockchain community
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