Blockchain’s 5 Biggest Scalability Challenges

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On Monday October 1st, Deloitte released an interesting study Blockchain and the five vectors of progress. It’s a good overview of where we stand in 2018 for both blockchain and crypto’s mass-adoption challenges. It’s pretty intuitive what the challenges are and it could take a number of years to fully correct itself.

Like AI or voice-assistants, for most enterprises, the value proposition of blockchain is still more theory than practice. Blockchain, however, has multiple value propositions for a wide variety of brands and businesses all across industries. For mass adoption to take place, however,  there are several areas of immaturity in the sector. Deloitte’s study highlights these well, and whether you consider them barriers to adoption or simply the immaturity of the tech, in 2019 and 2020 these issues will certainly be at the foreground for the future of blockchain.

Analysts forecast enterprise spending on blockchain to double year over year, to US$2.1 billion in 2018. If public blockchains solve issues of scalability and IBM and Alibaba keep innovating in the sector, blockchain adoption certainly has a good prognosis for the next ten years. The culprits to adoption are pretty obvious however in 2018.

We can break down Deloitte’s conclusion into a pretty salient overview and here we are quoting Deloitte’s study directly and summarizing their conclusions:

1) Increasing throughput and performance

  • As a means of processing transactions, blockchain-based systems are comparatively slow.
  • In contrast to some legacy transaction processing systems able to process tens of thousands of transactions per second, the bitcoin blockchain can handle only three to seven transactions per second; the corresponding figure for Ethereum blockchain is as low as 15 transactions per second.
  • Because of its relatively poor performance, many observers do not consider blockchain technology to be viable for large-scale applications.

2) Enhancing standards and interoperability

  • A lack of standards and interoperability between various blockchain platforms and solutions is another challenge.
  • Unless blockchain technology can be readily connected to existing enterprise systems, it will be of little utility in large programs and initiatives.
  • A lack of standards grants blockchain coders and developers freedom and can give IT departments headaches as they discover that platforms can’t communicate without translation help.

3) Reducing complexity and cost

  • Businesses are constrained by blockchain’s technical complexity, which limits the feasibility of implementing distributed ledger systems.
  • Standardization could help enterprises collaborate on application development, validate proofs of concept, and share blockchain solutions as well as make it easier to integrate with existing systems.
  • Nearly a dozen big technology vendors — including Amazon, IBM, and Microsoft — now provide cloud-based blockchain technology as a service.
  • In some cases, the industry is working toward interoperability simply by adopting existing standards in the context of new blockchain applications.
  • Cloud providers are releasing blockchain templates intended to automate the setup of basic blockchain infrastructure; vendors claim this can reduce application development from months to days.

4) Regulatory support

  • Legal and regulatory concerns around data privacy, intellectual property, enforceability of contracts, and choice of jurisdiction are inhibiting the technology’s adoption.
  • In 2018 so far, 17 US state legislatures have considered and passed dozens of bills pertaining to the adoption of blockchain technology.
  • Regulators such as the US Financial Stability Oversight Council, a government body that assesses financial system risks, and the US Federal Trade Commission have formed working groups to examine blockchain technology and a coordinated regulatory framework that creates clarity for developers.

5) Multiplying consortia

  • Enterprise Ethereum Alliance
  • Hyperledger Foundation
  • Interledger protocol
  • Decentralized Identity Foundation

It’s somewhat inevitable that what we are seeing in 2018 is a maturation of blockchain technology being introduced to the business world with multiple parallel developments with cryptocurrencies, ICOs, new kinds of crypto hedge funds, crypto exchanges, public blockchains and huge blockchain trials involving enterprises and banking consortiums.

Blockchain’s five scalability challenges are indeed consolidating and clarifying themselves at a remarkable speed and rate of adoption. This is also in part due to the sheer volume of blockchain startups in existence globally, as well as maturing sectors that are fueling innovation, new projects and new levels of collaboration.

In 2018 we are seeing a lot of innovation, collaboration and consolidation taking place. The push for scalability and regulation has reached an almost feverish pitch. Cloud offerings of blockchain-as-a-service have never been so prominent. Crypto hedge funds and the maturation of cryptocurrency exchanges have never been growing so fast.

The future of blockchain is decidedly optimistic, as is the future of digital assets and use cases of cryptocurrencies themselves pending regulatory scrutiny and safety measures for investors and the general public. In the next five years, I expect to see mature public blockchains that are scalable and solve many of these barriers that today feel nearly insurmountable. The speed of innovation and convergence in blockchain, crypto and digital assets is gaining momentum, instead of slowing down.

While Deloitte’s study cautiously states that regulatory understanding of the technology is still nascent, firms are collaborating more with lawmakers and policymakers to create a solid regulatory framework that is pushing mainstream adoption and fast-tracking the value proposition of dozens of use cases of blockchain globally. In addition, tardy regulation means some countries will lose out in the race to blockchain adoption — where, just as with AI, there’s a race to blockchain and digital asset adoption that’s highly lucrative to the future of technology and business.

Both financial service talent and software developers are increasingly getting interested and pivoting into the space, whether blockchain or crypto or digital asset related. Mergers and acquisitions are starting to increase as well as possible signs of less price volatility and more stability in the crypto space itself. Silicon Valley and China are building more public blockchains with an emphasis on solving the scalability throughput barrier that will push current leaders such as Ethereum forward.

Consensus mechanisms are evolving and there’s no doubt that firms in the industry such as Hyperledger, Stellar, Ripple, Cardano, Dfinity and many others are heading in interesting directions. Blockchain-as-a-service will only increase as well as the future valuation of digital assets as a whole. Sharding, practical byzantine fault tolerance, federated byzantine agreement, and delegated (POS) proof of stake and other mechanisms continue to evolve and be implemented.

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