We keep hearing that governments will kill cryptocurrencies or at least regulate them to death. They fear what they cannot control (or tax). I tend to keep a more open mind.
But according to my colleague Sara Pavan, Blockchain currently has other pressing challenges:
Scalability is a major concern: most existing blockchains (Bitcoin, Ethereum, etc.) have significant scalability challenges. For example, the Bitcoin network can only process about 7 [transactions] per second. In comparison, Amadeus processes 100,000 end-user transactions per second in peak times.
Transaction cost will be another issue to consider. Blockchains typically require a lot of computing resources given that data is held multiple times and there is significant cryptographic computation to be undertaken.
In systems like Bitcoin and Ethereum, this means there is often a prohibitive fee associated with each transaction, which can represent several percentages of the value being exchanged, making them inappropriate for many use cases.
Finally, integration with existing systems will be another major hurdle. Today it is hard to make blockchain interoperable with existing IT systems.
If a hotel booking is made on a blockchain system, how will it integrate with a system that isn’t on blockchain?
Even if Blockchain technology could eventually be faster and less expensive, one of Blockchain’s key raisons d’être – to squeeze out the middleman – may have its own challenge. From what Sara says intermediation isn’t going anywhere and will continue to be central to the value chain in a Blockchain world. Beside needing someone to establish and evolve a Blockchain’s governance and drive critical mass, you will always need someone to build interfaces and applications, and support, maintain and enhance them. It’s like the Internet. We love it, not because it has value in and of itself, but because of the Facebooks, Amazons, and millions of other intermediaries that deliver content, products and services to our screens (or with Siri, Alexa etc to our ears).
And what happens when Blockchain’s other key selling point of secure and trusted transactions is blown to smithereens by faster encryption-busting technologies? What if what we are hearing about quantum computing is true?
. . . the advent of quantum computing will jeopardize the security of all existing cryptographic encryption methods, including RSA tokens. Quantum computers will affect the security of the entire finance and banking industry, not just the blockchain.
Even so, I’m surprised that security is not a more common conversation throughout the blockchain community. For a group deeply rooted in futurism, this seems shockingly shortsighted. It feels as if we’re building the blockchain for the next 50 years, but what if we only get to the next five or 10? What can be done to ensure that blockchain is dynamic enough to outlive quantum computing?
I tend to be an optimistic skeptic, meaning that I don’t trust the hype but trust that there is always a solution to every problem. As a lawyer, though, the solution is usually an imperfect negotiated one.