Is blockchain the land of milk and honey? 9 experts share their concerns
Is the blockchain just a hype? Can it offer an exponential benefit above other existing technologies? In the second part of our interview series, our nine experts talk about their concerns, the advantages of this technology, the obstacles to experimenting with it and the industries that cannot be disrupted by the blockchain.
Looking beyond the blockchain hype
Blockchain comes in handy if you don’t want to put your trust in a specific third party. It is great if you want the transactions made in the system to be unchangeable but it also adds inefficiency compared to regular databases. It can be slow, cumbersome and it has scaling problems. Blockchain is not perfect.
Henry Brade, CEO of Prasos
Can blockchain transform the world? It is already doing that and, according to Chitra Ragavan, the Chief Communications Officer at Gem, a Los Angeles-based blockchain startup and one of our influencers, “blockchain technology has the potential to be transformative not only in the EU but throughout the world in coming years.” What does that mean for us?
We invited nine influencers to weigh in on the facets of the blockchain and explain why the industries that make the world go round see tremendous potential in this technology. This series consists of four parts that dissect the purposes and benefits of the blockchain and shed some light on the main concerns and obstacles.
In the first part of this interview series, we invited our blockchain influencers to talk about the blockchain’s impact on our lives and to weigh in on the importance of the legal factor in the blockchain’s healthy development.
Now it’s time to ask them about their concerns, the advantages of this technology, the obstacles to experimenting with it and the industries that cannot be disrupted by the blockchain.
9 answers: What are your concerns with regard to the blockchain?
Meet the Influencers
Chitra Ragavan: Obviously, the reputational impact of some of the bitcoin scandals (Mt. Gox, etc.,) have left a black mark on the underlying technology. It’s like a parent being blamed for all the ills of the child. And every new scandal, like the recent ransomware attacks, brings back the dark clouds, even if briefly. It’s something blockchain companies are acutely aware of and trying to mitigate. So, educating consumers, customers, investors, regulators, lawmakers, and the press, about the fact that blockchain technology is a force unto itself and highlighting its enormous benefits will be crucial in coming years to hasten its adoption.
The Hype Cycle around blockchains is at fever pitch and it’s often bandied about as a panacea for all data ills.
The second issue is simply that it is nascent technology. The Hype Cycle around blockchains is at fever pitch and it’s often bandied about as a panacea for all data ills. But the rubber hits the road only when we can find defined use cases where blockchain solutions can clearly be proven to offer an exponential benefit above other existing technologies, assuring healthy annual returns on investment will there be real progress. So, communicating not just the vision but proving out the core value proposition and converting it into customer wins, particularly monetary wins, is the big challenge.
Kathryn Harrison: My main concern is that too many people associate blockchain with bitcoin and all the attendant challenges with that narrow view. In reality, the underlying technology opens up incredible possibilities that we are only beginning to understand.
In addition, because of the current hype around blockchain, people tend to see it as a silver bullet and that’s not always the case. There are still a lot of scenarios where other technology solutions can address the challenge better and faster. It’s critical that enterprises decouple their understanding of blockchain from bitcoin and other cryptocurrencies and think critically about the business challenges where blockchain can add significant value.
Conor Svensson: It’s a tricky technology for the average person to get their head around. For mass adoption interaction for non-technical users needs to be more accessible. Otherwise, you end up with middlemen providing the access layer, which arguably isn’t that different from the way things are now.
Stephen DeMeulenaere: My concerns around blockchain technologies are that it reaches only a portion of the general population. Much more work in simplifying the interface and education of the users is needed. In terms of currency issuance, blockchain currencies are issued as an incentive to defend the network and thus are valued in terms of fiat currencies. I believe we need to move beyond this narrow form of value, to include user-issued parallel currencies, usually referred to as Mutual Credit, as well as Time Banks and other forms of currency.
Marta Piekarska: My greatest concerns about blockchain technology focus on the speed in which we develop solutions and the extent to which we do or don’t understand the consequences of what we use it for. While I do believe that it is one of the most amazing inventions of modern computing, it comes with costs we cannot yet fully predict. We are playing and experimenting with it, which is amazing, but we need to be careful when moving to actual deployment and real world. What happens when we use personal data? What happens when the implementations we modify turns out to be modified in just a slightly wrong way?
The second thing that I would improve in the blockchain world was better collaboration. I love what we do in Hyperledger, but it is unique: very rarely do we see interoperability in this field, yet the strength and one of the main advantages of public blockchains comes from its size and decentralization. Having parties collaborating and putting heads together can only be beneficial. I would be happy to see more companies working on Open Source implementation of blockchain-based solutions rather than their own private incompatible standards.
There are still a lot of scenarios where other technology solutions can address the challenge better and faster.
Eoin Woods: I have a lot of concerns about it being used for totally unsuitable applications just because people want to be seen to use it. We’re seeing this already across a number of industries. Technically, I have concerns about whether the technical communities around the major public blockchains like Bitcoin and Ethereum can respond quickly enough to the technical problems that are bound to emerge. That said, both communities have responded effectively to challenges including the Ethereum DAO breach and the Bitcoin scalability concerns.
Dawn Newton: I am concerned that there is a rush to make announcements about partnerships and that blockchain technology is considered magic pixie dust. Rather blockchains are a new tool that needs to be evaluated for its best attributes as it relates to where the business/markets are currently. Strategic analysis should be done to determine what is the right blockchain, the right project, the right team and the right partners to ensure that the chosen endeavor successfully goes to market. We have seen a flurry of announcements about what people intend to do, frequently before they have fully thought through the problem and solution. As the market matures, the conversations must shift to what has been achieved rather than what has been conceived.
Perianne Boring: The one issue that keeps me up at night is how the US is treating this technology. The US has likely the most complicated regulatory environment in the world. We have the Congress, comprising 535 members; we have a whole host of regulators governing financial services, from the SEC and CFTC; federal banking regulators, including the OCC, the Fed and the FDIC; three consumer regulators – the FTC, CFPB, and the FCC; intelligence agencies and departments; FinCEN and OFAC; state banking departments; and, finally, an array of law enforcement bodies. There are a lot of different stakeholders in the regulatory compliance and policy game, just in the US alone. For a start-up, a young company with a limited amount of capital, it’s very hard to get a business off the ground in this country. The barriers to entry are very high. We’re already seeing companies leave the US or decline to offer their products and services to people in the US because they either can’t get the licenses needed to operate or because it’s simply too complicated a regulatory environment for a small company to navigate.
The lack of a framework in the US that supports FinTech innovation could be an opportunity for the EU – a number of countries have already said that they want to be a global FinTech hub. Given the much more consolidated financial regulatory regime, they have a real opportunity to leapfrog the US in that regard.
Paolo Tasca: The major concern with regard to blockchain is the security issue. As well known, blockchain has originally been designed as a “trust machine” with the capacity to prevent record manipulation and data tempering. Blockchains function under the principle of non-repudiation and irreversibility of records. The blockchain is a shared, tamper-proof replicated ledger where records are irreversible and cannot be forged thanks to one-way cryptographic hash functions and community consensus. Immutability eliminates the need for reconciliations providing a historical, unique reconciliated version of the truth. Non-repudiation, non-forgeability and immutability of the records generate trust in the historic transaction flow. History is thus recorded in perpetuity. Indeed, it becomes very difficult for an individual or any group of individuals to tamper with the ledger unless these individuals control the majority of “voters”.
While I do believe that [blockchain] is one of the most amazing inventions of modern computing, it comes with costs we cannot yet fully predict.
However, blockchains cannot be 100% attack -free. A good example is the DAO attack which took place in 2016. The resulting misconception and concerns about blockchain eventually led to a lack of trust in the blockchain. Also, while quantum computing is advancing by leaps and bounds, its enormous computing power enables it to decrypt the encryption by brute force, which in turn exacerbates the “trust crisis” on the blockchain.
What is this technology’s main advantage? Could you name some of the obstacles?
Chitra Ragavan: The main advantages are transparency and auditability. The challenges are scalability, speed, and performance with real data. Much of blockchain’s use cases currently are done with dummy data in Proof of Concept (POC) environments. The real proof is in the pudding — when we try to execute in the real world, with real data, under real time pressures, with real cost and space constraints.
The fundamental promise and hence, also the obstacle for blockchain adoption is as follows: Blockchains distributed ledger technology is ideal for sharing of data between multiple organizations, less so within single entities or organizations. The strongest adoption, therefore, will be in areas where people don’t feel the need to hide or hoard data for competitive reasons, instead, can see the promise of a collaborative economy in which data is shared between parties with common goals and interests for mutual social and financial gain.
As the market matures, the conversations must shift to what has been achieved rather than what has been conceived.
Fear of competition will be blockchain’s biggest obstacle. The herd mentality is moving the world towards this technology because no one wants to miss out on something this life-changing. The hoard mentality could prevent companies and organizations from fully embracing it or even actively resisting it because of the potential bottom-line implications and prospect for eliminating all kinds of middle men and counter parties.
Kathryn Harrison: The technology’s main advantage is that it provides an immutable and trusted record that allows disparate parties to share the same source of data and therefore establish a common truth. For many industries and business networks where participants do not inherently trust one another, this allows for them to come together to collaborate and innovate.
Conor Svensson: The provision of a single source of truth for data, as opposed to multiple copies existing in different locations across multiple companies or locations.
Right now, you have a number of different competing platforms emerging — both public blockchains and private. Interoperability between the different platforms, as well as between public and private chains is going to be important. The more fragmented this space becomes, the less incentive there will be for wider adoption.
Stephen DeMeulenaere: Blockchain’s main advantage is in the distribution of data across a large number of computers, which is one essential part of securing data. The main obstacles are the need for users to secure their Private Keys, and securing other points of attack by those who seek to damage the system.
Marta Piekarska: What blockchain technology brings is the fact that it has revolutionized the way we think about trust. Until the technology was introduced on a large scale in IT, the concept of trust was enforced on parties that usually had absolutely no reason to have confidence each other. Using blockchain removes the requirement for the trusted third party, introduces decentralization, clear auditability and immutability.
The hoard mentality could prevent companies and organizations from fully embracing it or even actively resisting it because of the potential bottom-line implications and prospect for eliminating all kinds of middle men and counter parties.
Eoin Woods: The key feature that blockchain brings to an application is the ability to share a verifiable database reliably between an arbitrary number of parties who don’t trust each other. This is a pretty unique feature. Its fault tolerance is another very attractive feature when the number of nodes gets large. Some of the challenges are the potential latencies in getting updates applied and agreed and the inherent complexity of operating and developing against the platforms. The relative immaturity of the technology is another short-term challenge.
Dawn Newton: The biggest advantage is that it removes the need for trusted intermediaries no matter what the application. Trusted intermediaries can indeed be useful; however, blockchain technology makes them an option rather than a necessity. There are several obstacles but they are the same ones that occur any time a significant, transformational technology is conceived.
Usability: We need to focus on making the user interface so simple that our parents can use it. Even better? Our grandparents!
Reputation: We need to work at changing the public’s perception of bitcoin and blockchains as a whole. Today, almost everyone on the planet sees the Internet as a critical component of their everyday lives. It is how we work, how we socialize, how we learn, and how we play. People love the Internet! However, that was not always the case. When I first started working on the Internet my parents had no idea what I was doing. Imagine their surprise when the July 1995 cover of Time magazine showed a child’s face aglow in computer screen light with a headline about the Internet being all about porn ;) Back in 1995, the Internet had a horrible reputation and now it is used around the globe. Public awareness will increase, public understanding will follow, and then public use.
Regulation: Around the globe, countries are deciding what regulations need to be around blockchain technology. Governments are always slow to regulate a new technology and that is a good thing. The bad thing is that the governance can be onerous and stifle technology unless the innovators are educating the regulators. That is being done by several organizations in the space: CoinCenter, Digital Currency Chamber of Commerce, and the Blockchain Alliance. They are focusing on regulations at both the state and federal level as well as working with law enforcement.
Perianne Boring: The blockchain is a decentralized, distributed ledger, with no central point of failure. This obviates the need for intermediaries and makes the network security-rich and incredibly resilient. This offers a paradigm shift for cyber security techniques and what I consider a type of “silver bullet” to address cyber attacks, which is a trillion dollar drain on our economy.
One of the biggest challenges facing the blockchain today is throughput capacity. Currently, the bitcoin network can only handle a few hundred thousand transactions per day. However, the industry is passionately working on scaling solutions.
In addition, public misperception over the regulatory landscape governing this technology continues to be a challenge. Even today, the press describes the blockchain and bitcoin as unregulated. While completely untrue, this type of misinformation presents significant challenges when regulators and legislators consider the need for statutory or regulatory adjustments. We continue to deal with these issues on an almost daily basis.
Paolo Tasca: In my view, the most competitive advantage of blockchain is decentralization and irreversibility. The distributed nature of the network requires untrusted participants to reach a consensus. In blockchain, consensus can be on “rules” (that determine e.g., which transactions are allowed and which are not, the number of bitcoins included in the block reward, the mining difficulty, etc.) or on the history of “transactions” (that allows to determine who own what). The decentralised consensus on transactions governs the update of the ledger by transferring the responsibilities to local nodes which independently verify the transactions and add them to the most cumulative computation throughput (longest chain rule). There is no integration point or central authority required to approve transactions and set rules. No single point of trust and no single point of failure. The irreversibility of the transactions guarantees that the data stored on blockchain cannot unilaterally be altered ex-post.
The combination of decentralisation and irreversibility is able to resolve lots of thorny problems all the time faced by the financial industry, such as KYC and AML in the most straightforward manner. On of the major obstacles to blockchain development —at this stage— is the inability to scale and the tradeoff between performance and decentralisation. When bitcoin blockchain is used as an underlying layer, it normally processes 7 transactions per second and it takes 10 minutes to generate a block, which is far from the market demand. Some other blockchains attempt to improve the number of transactions per second but at the cost of security vulnerabilities or less decentralisation.
Which industries cannot be disrupted by the blockchain? Why?
Governments are always slow to regulate a new technology and that is a good thing.
Chitra Ragavan: Industries where you don’t need multiple parties to execute complex transactions using smart contracts across open networks. Simple 1:1 transactions between just a few players in closed networks are not an ideal use case for blockchains.
Kathryn Harrison: Any industry where there are regulations, which rely on identity to facilitate the exchange of assets (ie goods and services) between organizations can potentially benefit from blockchain in the long run. That said, there are certain industries where we are likely to see the benefits much faster — like supply chain and financial services, among others.
Conor Svensson: Who knows. No-one predicted the disruption the Internet brought to traditional service industries, it’s likely that blockchain will have further reaching ramifications then originally thought as the technology matures.
Stephen DeMeulenaere: All industries can potentially be improved by implementing blockchain technologies. More research into the benefits for companies and industries to introduce them is being done now.
Eoin Woods: That’s a good question. While blockchain can potentially disrupt many situations, most of them are cases where intermediaries are providing little more than record keeping and dispute resolution. There are many situations where this isn’t the problem and so blockchain isn’t going to change anything – providing legal advice might be one example.
I view blockchain as the second coming of the internet and part of the Fourth Industrial Revolution.
Dawn Newton: Given that the Internet has disrupted dating and driving, I have a hard time guessing what industries we wouldn’t disrupt.
Perianne Boring: Any industry that was not impacted by the internet. I view blockchain as the second coming of the internet and part of the Fourth Industrial Revolution. Blockchain is the “internet of value”. Similar to how the internet is a platform to share information (think email), blockchain is a platform to share, record, or transfer anything of value (currency, stocks, bonds, digital assets, etc.)
Paolo Tasca: Few industries will not be involved in the revolutionary waves of blockchain, and we may also call it the fourth industrial revolution in which blockchain is designed to realize value transfer. If there must be some exceptions, I presume the industry can be those that have already achieved decentralization to a high degree or those that have no demand at all for value transfer. A good example of such kind of rare exceptions is the Military industry. Although security encryption is of great importance to military industry, it still insists on highly centralized networks primarily for the sake of national sovereignty. Hardly could you find two countries who mutually exchange their military secrets in real life.
In the third part of the interview series, our blockchain influencers talk about the [possible] elimination of the middleman, the world’s obsession with blockchain and the connection between this technology and security in the wake of the countless cyberattacks.
If you’d like to know more about the blockchain and meet the top movers and shakers in the global blockchain scene, join us in London in October.