Only 1% of the companies are using Blockchain Technology

There are landmines and tremors in the journey towards maturity of any foundational technology …

Blockchain is still a nascent and controversial technology presumed as over-hyped and over-celebrated. Despite the enthusiasm of the Blockchain hype and countless benefits its offering, only 1% of executives said that they are developing or implemented this technology in their companies, 34% of them have no interest and the rest 65% are on their technology roadmap or in the planning stage. Any technology grows towards mainstream adoption will have a lot of positives and negatives.

Currently Blockchain technology is predominantly focused on user adoption which involves boosting transaction volume, operational efficiency, transparency, data integrity, corporate adoption, solving security concerns, increasing transaction speed, and more. Ultimately, there are lots of problems that need to be solved for Blockchain to reach its full potential. With this in our minds there are some real challenges that Blockchain as a technology will need to overcome.

Regulatory and Legal Concerns

• Regulatory uncertainty is the largest impediment to Blockchain adoption. The current regulations are mostly limited to Cryptocurrencies and Internal Coin Offering (ICO). While Blockchain is still in its infancy, governments around the world recognize the value of distributed ledger technology.
• Regulatory complexity is the greatest barrier to widespread Blockchain adoption, while regulatory changes is the primary driver for broader integration. Due to the lack of regulatory oversight, scams and market manipulation are common. Once companies put their assets on the public networks and start transacting with them, they must consider many of the same rules that banks implement around Know-Your-Customer (KYC) and Anti-Money-Laundering (AML).
• Blockchain protocols offer an opportunity to digitize governance models, and because miners are essentially forming another type of incentivized governance model, there have been plenty of disagreements between diverse community sectors. These disagreements are a notable feature of the Blockchain industry and are expressed most clearly around the question or event of ‘forking’ a Blockchain, a process that involves updating the Blockchain protocol when a majority of a Blockchain users have agreed to it. These debates can be very technical, and sometimes heated, but are informative for those interested in the mixture of democracy, consensus and new opportunities for governance experimentation that Blockchain technology is opening.
• Blockchain resolution of disputes will be more complicated as issues related to jurisdiction, liability, and enforcement with respect to transactions occurring on a decentralized system are much more complex than the standard transactions. For example, jurisdictional issues are made more complex because Blockchain based transactions could arguably be subject to the jurisdiction and laws of every country where a node is physically located. This creates a mess of laws and regulations (potentially conflicting) that would apply to transactions on the Blockchain which increases the complexity of legal disputes and drives up costs associated with litigating them.

As Blockchain platforms become more mainstream, implementing a robust governance model coupled with establishing best practices for reviewing the integrity of cryptocurrencies and their applications can help build trust in the company’s underlying assets, ensuring stakeholder voices are heard and ultimately instilling greater investor confidence and user adoption.

Complexity

• Blockchain technology is not fit for mainstream yet. Understanding the principles of encryption and distributed ledger is not an easy task even for a “street smart” person. Human capital is in constant demand and low supply in the Blockchain industry. Whether it be crypto-economics, DApp development or simply general knowledge of the space, there is a lack of talent to meet the growing demand for Blockchain. In terms of development, the most innovative platforms and apps are not likely to come from an ‘all-in-one’ tool-set, hence the barriers of entry for new developers is being lowered each day.
• With terms like Secure Hash Algorithm (SHA-256), different consensus algorithms like Proof of Work (PoW), Proof of Stake (PoS), Proof of Authority (PoA) etc. dominating the vocabulary of technology terms needs to go through the process that the internet did. Now we are comfortable using the internet without really concerning ourselves with TCP/IP, HTTPS, switches etc.
• Blockchain applications offer solutions that require significant changes or complete replacement of existing systems. To make the switch, companies must strategize the transition. Legacy infrastructure is a major limitation for Blockchain. Industries like payments, insurance, real estate, banking etc. all operates on legacy systems. There is a significant investment of both time and capital to create a new modern technology infrastructure and get people to use it. Beyond this you have several challenges on the consensus suitable for long time deployment and adoption of Blockchain technology within a domain.

Security Concerns

• Blockchain isn’t a perfect solution. Like any system, it has its own points of vulnerability. It’s a difficult system to create from scratch for your own brand. One small misstep, and the entire system could be compromised. The system itself is airtight, if it is executed properly. Vast majority of Blockchain security breaches are related to human error (end-point vulnerabilities). Endpoints are the computers that individuals and businesses use to access Blockchain-based services. When properly executed and protected, the Blockchain is transparent and tamper-proof.
• Access to a Blockchain requires both a public and a private key. These keys are cryptic strings of characters of sufficient length to make the odds of guessing them truly astronomical. Since it is essentially impossible to access data within a Blockchain without the right combination of public and private keys, this represents the strength and the weakness of the Blockchain technology. Without the right keys, no hacker will be able to access your data ever. On the other hand, all a hacker need is the right keys to access your data and do with it what they will.
• A Distributed Ledger is of no value unless we can move information into and out of it. As Distributed Ledger Technology (DLT) gains more adoption, the market for 3rd-party solutions will experience tremendous growth. Organizations wishing to deploy 3rd-party Blockchain apps and platforms must be aware that the security of their Blockchains is no greater than the trustworthiness of their vendor. Weak security on their own systems, flawed code, and even personnel vulnerabilities can expose their clients’ Blockchain credentials and data to unauthorized persons.
• Security concerns are slowing the development of Blockchain down, particularly considering the new compliance regulations that have come into play with EU General Data Protection Regulation (GDPR).

Time consuming and high Transaction Costs

• Blockchain offers tremendous savings in transaction costs and time but the high initial capital costs could be a deterrent. For a settlement on the Blockchain, all the nodes in the network must agree that a transaction is valid. This takes a fair bit of time. Even Bitcoin can only process around 7 transactions/second. In comparison, banks do this in a manner of seconds. The exact time needed for a transaction to be verified is unpredictable, but they can take something between ten minutes and an hour.
• Bitcoin currently has notable transaction cost. It can only process about 7 transactions/second, and each transaction costs about $0.20 and can only store 80 bytes of data. There’s also the politically charged aspect of using the Bitcoin Blockchain, not for transactions, but as a store of information. This is the question of ”bloating’ and is often frowned upon because it forces miners to perpetually reprocess and re-record the information.
• The crypto miners network work with 450 trillion solutions/second in efforts to authorize the digital transactions via wide amounts of computer power resulting in high energy costs. As the Blockchain technology is growing, more computing devices are required to process even the smallest digital transaction. The system should support thousands of transactions per second and the Blockchain size will be overstuffed in no time. Although the younger networks or small Blockchains wouldn’t experience the same problem, but there’s no denying that this is a major limitation of the Blockchain technology.
• Many enthusiasts are holding onto the hope that cryptocurrencies will eventually be able to compete with PayPal and Visa. Visa is currently the fastest measured payment network capable of processing approximately 24,000 transactions per second. PayPal can process approximately 193 transactions per second. Ripple is the outlier and can process up to 1,500 transactions per second, suggesting that it is likely to have the potential to become a viable payment method in the future. Meanwhile, Bitcoin and Ethereum are even further behind with transaction speeds of 7 and 20 transactions per second, respectively. This issue severely inhibits the likelihood of either becoming mainstream payment solutions in the future.
• Blockchain technology has had such a huge impact on our lives that scaling it has become a necessity to ensure that growth isn’t muted. Blockchains are having trouble effectively supporting many users on the network. Bitcoin and Ethereum, the leading Blockchain networks, have experienced slow transaction speeds and higher fees charged per transaction because of a substantial increase in users. Moreover, scaling methodslike sharding (type of database partitioning that separates very large databases into smaller, faster, more easily managed parts called data shards), the Lightning Network, Raiden Network and Plasma need to be verified and vetted before implementation into the ledgers. Scalability concerns must be effectively addressed before the Blockchain can be adopted on a wide scale.

Diverging Interest

• Replacing existing Financial infrastructure of an organization will require time and investment. With competing interests between different parties, it will take time to find a common ground for collective action. Despite the huge interest in adopting Blockchain technology from the established financial industry, the subtext behind much of what is said about it is “it would probably be better if it just quietly disappeared.” Banks make huge amounts of profit from playing the middle-man role, and because the cost is distributed among their millions of customers, end users usually pay very little individually.
• Bitcoin and Ether reaching record highsand then falling. Government briefings on smart contracts and how lawyers and accountants will be out of work in 5 years. ICOs raising hundreds of millions from blue-chip Silicon Valley VCs. Different reports on how Blockchain will help banks save billions. 10% of global GDP stored on Blockchain platforms by 2025. Blockchain applications are designed with corporate users in mind. But corporate leaders remain skeptical, especially in Asia. And to reach the potential of Blockchain, providers including banks and start-ups need to win over corporate users.
• More manufacturers are expressing interest in Blockchain technologies to bring greater visibility and security to their supply chains and contracts, but they’re slow to adopt. Skepticism about the technology, integration, and a shortage of skilled talent to manage Blockchain initiatives remains a challenge.

Conclusion

According to EY, as the Blockchain adoption ramps up, we see four transitions driving the technology’s maturity. Transitioning from private to public networks to create an open system for all users; shifting from synchronization to tokenization to improve accuracy and reduce risks; moving from cryptocurrency to tokenized fiat currency to transfer value on public networks; and shifting from parallel separate systems to integration with laws and regulation from central banks and governments. With these developments Blockchain could become fully operationalized into enterprises, leading to a surge in applications across industries.

Blockchain is in a tremendous place to see an uptick in development, adoption, and investment. Some of the major problems currently facing Blockchain have solutions in the works or at least a path forward. As these are completed and the industry is more palatable for the public there will be a sharp rise in usage and adoption.