The hype that Blockchain technology will largely disrupt the way industries are operating today is touching new heights with each passing day. The belief is strengthened by the fact that the market size of Bitcoin, which is the first and most famous use case of blockchain technology, reached $200 billion from $20 billion in 2017, though it also came crashing down to previous highs within the same year.
These events mark both the speculation and fear in our minds about the adoption of this technology. Per Gartner, though 66% CIOs of large enterprises believe they would invest in blockchain technology, only 20% of them have any firm action plan. The Gartner hype cycle report says that blockchain will pass through the trough of disillusionment by 2024 before reaching the plateau of productivity in 2025. The trough of disillusionment is the phase in the hype cycle which represents disappointment after the inflated expectations.
In simple terms, it means that we are still five-six years before we see mainstream adoption of blockchain. But then, there are always those early movers who think ahead of others, disrupt the way business will be done, and capture the early pole position in the long race. It is the thought which is pushing big organizations to earmark a large chunk of their innovation fund to discover the potential of blockchain technology for their industry.
If we put to rest all our fears and risks and see the more optimistic picture, blockchain has the potential to create the second generation of the internet – the internet of values. And its evolution would be like how our very own internet of information was born. There were many insecurities when the internet was born and opened to the public.
But this decentralized system of free exchange of information has evolved over the time and today we see any governmental control as a stab on our fundamental rights. Similarly, with the rise of blockchain, time is not far when we will begin to question why do I need government or a central administrative body if I want to exchange my money or asset with somebody.
Blockchain is enabling us to achieve a system of decentralization where we don’t want any single body to be controlling everything about us. It breaks the unwanted procedures and barriers to the system of free flow of goods and values and promotes efficiency in business operations.
We need the government as it creates a trusted environment under which we can deal with each other fearlessly. The system of blockchain has been created with trust as one of its fundamental principles. The following are some of the uncertainties answered by blockchain development:
- Identities management - Whom are we dealing with? Has there been a criminal case against him? Do I know ratings given to this supplier?
- Asset - What we are buying? Do we know the entire history of this? Is this diamond coming from an organization that sponsors anti-national activities? Is this egg coming from a poultry farm where some disease is spread?
- Enforcement of rules - What if something goes wrong and we need to renege on deals? Do we have a smart contract in place which triggers automatic reimbursement of funds if so and so conditions are not met?
Apart from transparency, blockchain technology runs on the principle of immutability and trust. There are thousands or millions of nodes distributed across the world maintaining the common ledger which keep updating with the creation of every new block. Each of these nodes uses cryptography to secure themselves. There is no one database which can be hacked and forged. New blocks are adopted and added only after the proof of work shared by a certain minimum number of validating nodes. There are enough checks and balances in a place like the longest chain rules to sort out the issues of conflicting transactions.
The longest chain rule means that if two participants are claiming to have done the same transaction then the one which has the longest chain of blocks added afterward will get accepted and the system moves on. None of the existing blocks can be modified as to do so the hacker must change all the databases across the world which is unrealistic given the bandwidth limits and tracing individual security passwords.
This looks even more secure than current government setup where power may be rested in the hands of a few corrupt executives who could issue a large amount of funds to the few powerful businessmen stealthily. Also, think of countries where citizens’ database and voting records have been fudged repeatedly to elect the same corrupt president again and again. These are a few examples where transparency and integrity of records through blockchain development could bring about more efficient system and governance.
There are hundreds of use cases identified for blockchain specific to different industries. We can divide these into two sections:
- Static records - For example, public records of citizens, voting database, or smart contracts
- Dynamic records - For transactions based systems like Supply chain, Financial transactions etc.
Now, some industries are more suitable and well placed to apply blockchain in business because their current operating mechanisms are well in line with basic principles and standards of blockchain security, and it is very easy to digitize the assets in those industries.
For example, the Finance industry, where it is easy to create a block on assets like money, loans, debentures etc and record transactions as they exchange hands across the system. Bitcoin itself was aimed at the currency market, so it is a natural fit to blockchain. These are the industries where blockchain will get mainstream before others where some modifications would be needed. However, the impact of blockchain security could be far more pervasive in those industries even though the adoption might be slow.
But there are still a few outstanding questions which challenge the long-term viability of blockchain. The biggest among all is the scalability of the system as it grows wider and larger. As the number of participants increases and so do the frequency and size of transactions blocks, it becomes tedious to validate the nodes across the chain. The size of the block in Bitcoin is limited to 1 MB, for example, and there are already concerns that how it would work when that limit is breached.
Changing the code is not as simple as it must be updated for all the nodes across the chain. Validation of those large blocks also requires huge energy and bandwidth. So, there are concerns that how the validations nodes shall be reimbursed for the free services they are doing for others. Apart from the platform sustainability, there are other environmental factors like governmental regulations and noncooperation between the market players. Without these, it is difficult to build trust among the business enterprises and hence, difficult to create a sustainable ecosystem.
Albeit all these challenges, the business opportunities and their transformative impacts are too good to be missed. Many organizations have already planned their investments toward it but they too are walking ahead with caution. As a result, it appears that the initial use cases of a blockchain platform would be led by cost-effectiveness and short-term ROI.
For enterprises, the primary aim of leveraging a blockchain platform shall not just be decentralization and a permission-less system. The small consortium of public and private authorities could come along and share a common ledger to root out hidden inefficiencies. Per a study, currently in the shipping industry, the time taken to ship a container is nearly equal to the time taken to get all the necessary approvals. That’s where the opportunity lies to cut down the lengthy approvals and make the whole ecosystem more efficient through strategic cooperation.
Governments in many small countries are not averse to the idea of using blockchain for cryptocurrencies or other public services. They probably believe that it would be easy to contain the epidemic if it does not go as planned. But big countries like the US and India would still wait to see a few positive results and foolproof executions. The government role is paramount to its success as historically people have looked up to the government for both successful initiatives and bailing out the economy out of the mess. So, the government would not easily buy the idea of complete decentralization and lose its hegemony.
With all the contexts shared above, it is evident that the current hype over this subject would continue to prevail for a few months or maybe years. But remember, time is the best teacher and patience is the best lesson. Currently, it might seem like a choice to stand clear and see others succeeding or losing. But with time and experience, the day is not far when it would be the key to the sustainability of every business and industry in the true digital world.