March 14, 2018,   10:20 AM

Is Blockchain Really A Disruptive Technology?

michael truschler


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Blockchain is not a disruptive technology. I know that many of you might disagree with that notion. I am convinced that blockchain is a great technology that already has immediate use cases for some businesses (P2P payments, supply chain, cross border payments, provenance of raw materials etc.) and will in the future have enormous impact on our economic and social lives. However, it is not disruptive as many people suggest but it is a foundational technology with massive potential. It is in its early stages as a technology that still needs to build a proper infrastructure, agree on standards and find widespread acceptance. Adoption is steady, not sudden. The idea of decentralized databases combined with cryptography and consensus is surely the future. But in my view, it will take at least 10-15 years to unfold its full potential and be part of our everyday lives (TCP/IP which forms the foundation of internet and emailing took 30 years to be an agreed and working protocol).

The current hype around blockchain in general and the cryptocurrencies in specific has to be put in context. Most of the decentralized applications (DAPPS) that are supposed to run on blockchain are in the very early stages, often only ideas that exist on a white paper. For them to become applications that solve real business and social problems will take years and in many of the cases never materialize. So be careful with initial coin offerings (ICOs) through which many companies are nowadays trying to raise funds. There is a lot of fraud in the market.

The trade with cryptocurrencies is mainly a pure gamble at the moment, especially when it comes to the smaller, less liquid currencies as those can easily be manipulated by market participants and the value behind many cryptocurrencies is simply non-existent. There are almost 1,500 coins listed on coinmarketcap.com out of which over 30% have a market cap of 0. The hype around those currencies however is helpful for blockchain as a technology as it draws attention from large corporations (ex. Microsoft, IBM) and institutional investors to the technology. This is needed to develop use cases and applications that solve real business problems and later play an important role in our lives.

There are many technical obstacles that blockchain needs to overcome. Number one issue is the scalability of the technology itself. Due to the mining process of validating transactions (proof of work concept) Bitcoin needs approximately 10 minutes for each block to be added to the chain. And it consumes immense amounts of electricity which makes it an expensive process to run. Today, Bitcoin processes about three transactions per second while the peak capacity of the network is theoretically seven (practically only four). Ethereum processes about six transactions per second with a peak capacity of 15. When comparing this to Uber that has 12 rides/sec, or Paypal with hundreds of payments per sec or VISA with several thousand transactions and a peak capacity of over 50,000, then the scalability problem of blockchain becomes obvious. The necessity to move to more efficient validation and operating processes is a clear focus for the blockchain developers. “Casper”, “Sharding” and “Plasma” are a few catchwords that define the current work of the Ethereum developers aiming to achieve scalability where transactions are less energy consuming, cheaper and can be processed much faster. So there is still a lot of work to be done to see blockchain technology having its breakthrough.

But make no mistake, blockchain will change our lives and the way business is conducted!

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