What Are Other Examples of How Blockchain Is Positively Impacting the World?
There are many ways that blockchain is poised to improve aspects of our daily lives and the world around us. For example, blockchain is helping to improve transparency in the insurance industry, monitor carbon offset trading, complete real estate deals, to verify the authenticity of diamonds and rid the market of conflict diamonds, protect endangered species and reduce poaching, and the list continues.
What Are Some Challenges Facing Blockchain Technology?
While some media outlets portray blockchain as a massive opportunity with unlimited upside, it’s still an emerging technology with major challenges to overcome. As with most transformative technologies, a key hurdle will be legislative, with regulators struggling to keep up with the far-ranging implications of blockchain. There several blockchain challenges to note.
Speed of computation at scale
Each device on a blockchain network is called a “node.” Because every blockchain node must have a copy of the distributed ledger to validate transactions through consensus, it takes much longer to process a transaction than with a centralized system. Bitcoin, for example, can process roughly seven transactions per second, whereas Visa can handle up to as many as 50,000 transactions per second.
Blockchains typically use what is called “proof of work” to add a block to a blockchain. This process requires one of the nodes on the network to solve a complex mathematical puzzle or computation. Whoever solves the puzzle first is able to add the block to the chain, and as a reward for validating the block, the person who solved the computation receives a token such as a Bitcoin.
As you can imagine, when each Bitcoin was worth nearly $20,000, many bitcoin “miners” lured by the prospect of great wealth began vying to solve these puzzles. But these computations require high-end graphical processing units, and the larger the blockchain, the more difficult the proof-of-work computations. The use of blockchain to process bitcoin transactions consumes a great deal of energy—enough to power the nation of Switzerland, or 5,854,904 U.S. households according to digiconomist.net.
Initial coin offerings (ICOs) and scams
Unfortunately, as with the wild-west beginnings of Bitcoin, scammers often used the promise of blockchain in attempts to cheat investors. Some would simply put together a white paper and website with exaggerated claims on how their new blockchain innovation would create vast wealth for early investors. The problem was so widespread that more than 80% of 2017 ICOs were scams, according Cointelegraph.
Rigidity in smart contracts
There is something to be said for appreciating human nuance and real-world circumstances in business transactions. In some cases, it would be difficult to design the conditions of a smart contract that anticipates any possible transaction problems and unintended consequences. Although smart contracts are often touted as eliminating the need for third-party involvement, it is unlikely that smart contract disputes will be resolved solely by software solutions in the future.
What Are Some Leading Blockchain Trends?
There are numerous trends driving adoption and implementation of blockchain technologies. We’ll discuss a few of the more prominent trends here.
Blockchain and Internet of Things
The Internet of Things (IoT) refers to the billions of smart devices connected to the internet using embedded sensors to collect, manage, and analyze data. The versatility of IoT is impressive, and so is the growing number of global IoT-connected devices, which are expected to top 75 billion by 2025.
But this massive global data exchange also presents new vulnerabilities. Imagine if hackers were to target IoT applications supporting life-saving medical devices or autonomous vehicles. Because blockchain technology leverages a secure, distributed ledger to transfer data between parties, it may help to create a safer IoT for mission-critical applications.
And since blockchain is a decentralized, distributed network, anyone attempting to hack into an IoT application would need to hack every node on the network in order to make significant changes. In one use case, the Hyundai Digital Asset Company is applying blockchain technology to address IoT challenges in storage, data authentication, and identity management.
Security token offering (STOs)
STOs were created to help rebuild some of the public trust that vanished in the midst of so many cryptocurrency scams. Here are the basic differences between ICOs and STOs:
|An ICO happens when organizations create a token offering to raise capital to fund their business or a project. ICOs are mostly unregulated and their tokens are not backed by actual financial securities. ICOs are subject to fraud and pose significant risks for investors.
||STOs are used to raise funds in a way that’s similar to ICOS, but STOs are subject to regulation and backed by real assets, such as a company’s revenue. STOs offer a much more transparent transaction that can benefit offering organizations, investors, and government regulators.
Unlike ICOs, any mismanagement of your STO investment is subject to legal repercussions, and US-based STOs are subject to Securities and Exchange Commission (SEC) regulations that guide the fundraising process and protect the rights of investors. Because STO tokens are tied to external sources and assets, they act as ownership records of a real-world investment.
Blockchains are usually thought of as being either private or public, but a third option that combines the two models into a what’s called a hybrid blockchain seems to offer a viable approach. The hybrid approach appears promising because it combines blockchain’s benefits, including security, reliability, and trust, while addressing some of its limitations.
Hybrid blockchains are a customizable way to meet the needs of an organization or even several organizations working together, while avoiding some of the risks of public blockchains. For example, supply chain systems that involve multiple entities could benefit from the secure and immutable exchange of information on a hybrid blockchain.
Two of the biggest problems in blockchain are its limited throughput and scalability. One of the most promising solutions to emerge is called sharding, a technique originally used in standard databases that divides large data sets into smaller subsets called “shards” for speed and efficiency.
By sharding a blockchain, it’s possible to spread out the computation and storage so that each node in the network isn’t required to process the entire blockchain’s transactional data. While this would allow for parallel processing and certainly improve the speed of blockchains, there are still potential security issues that have kept this approach from being integrated into most blockchains.