It has been said that “necessity is the mother of innovation.” We needed a smoke-free light, we got the light bulb; we needed to travel across countries in few hours, we got airplanes. Now that we need to eliminate expensive and high-risk third parties, we got blockchain.
This innovative technology has made it possible for two persons to conduct trustless transactions without the need for intermediaries. Interestingly, we are yet to scratch the surface of the potentials blockchain affords in daily life, work, health and governance. This is because, like any new innovation, it has met with countless obstacles. In light of this Huobi Pro has prepared a Global Blockchain Report. As I was fortunate enough to have a sneak preview of the report, I’ll be discussing the parts of the report that cover blockchain overview and prospects.
Fortunately, we are at that stage where a majority of these obstacles are already being overcome, as we draw closer to achieving a decentralized, distributed ecosystem. As noted by Xiao Feng, vice president of Wanxiang Holdings, initiator of Wanxiang Blockchain Labs and General Partner at Fenbushi Capital, blockchain will go through three stages of development. We will briefly touch on these stages in this article.
First stage, which is the bottom layer, is blockchain as a distributed network, solving peer-2-peer communications and transactions. For such network to be successful, consistency is key. Consistency here means, reaching an agreement, which gives verified inputs and outputs, using a consensus protocol. When described this way, one could say blockchain is not necessarily a new innovation, as before its discovery by Satoshi Nakamoto, peer-2-peer transmission networks were already in existence. Example is the popular “BitTorrent”. An earlier version is one called “Napster,” developed by Shawn, a college student. Napster was able to convert a computer running the application into a micro server which offers upload and download services.
Every definition of blockchain, always includes the words “distributed ledger.” This is the second layer of blockchain technology. Fundamentally, blockchain is just a ledger where transactions are recorded. What sets it apart is that everyone and anyone can have access to this ledger. That is why it is distributed and also why it is deemed transparent.
Third level and layer of blockchain is that it is decentralized and an open economic ecosystem. Blockchain is decentralized in that no single entity has total control of the system, also, to ensure every participant is of good behavior, the system has some incentives/rewards in place. For instance, the bitcoin blockchain rewards miners for creating blocks, confirming transactions and mining bitcoins, through transaction fees and miner fees. At the moment, miner fees is at 25 bitcoins, an amount which halves every four years.
A closer study of the above blockchain layers would help appreciate the obstacles and bottlenecks hindering mass adoption. Some of these obstacles include scalability, lack of privacy and interoperability. Fortunately, positive progress is being made with respect to solving these issues. Let’s consider some of those steps.
On the issue of scalability, blockchain is notorious for being difficult to scale as more users adopt the network. Centralized systems, however, still scale faster and better, when you consider the 24,000 TPS of Visa and the just 7 TPS of bitcoin blockchain. To address this issue, new consensus algorithms were introduced. They include Cardano’s Proof of Stake (PoS), EOS Delegated Proof of Stake (DPoS) and HyperLedger’s Practical Byzantine Fault Tolerant (PBFT). Also, some scalable solutions have been introduced to help improve transaction speed. Some of these include Bitcoin’s Lightening Network for sidechains; Aeternity for state-channel; Zilliqa for sharding and Ontology for sub-chain or layered structure.
While the transparency feature offered by blockchain is laudable, it is a two-edged sword that could be fatal for situations where privacy is essential. In any case, blockchain transactions are not completely anonymous. To solve the issue of privacy, the solution has to combine the transparency/traceable feature and also be able to hide user’s identity. Projects currently developing this solution include Zero Knowledge and Ring Signature.
Although blockchain is the most popular distributed ledger technology, there are actually others like Hashgraph. But being the first, it enjoys favored status. It is good to see more projects coming up with the sole aim of making this technology more effective and accelerating mass adoption.
This report will be first unveiled by Huobi Pro at this month’s Blockchain Festival Vietnam. Purchase your tickets here with a 50% discount when you use the coupon code: WRITE50.