Philipp Jovanovic Believes We Will See Many More Blockchain Experiments in 2018
Prior to the London blockchain meetup “Blockchain for payment processing”, Philipp Jovanovic, École Polytechnique Fédérale de Lausanne (EPFL) researcher, explained to us that outside of the cryptocurrency market for public blockchains, distributed ledgers and enterprise-grade blockchains, the technology has also started to see commercial success.
In Asia, for instance, many large-scale commercial banks and financial institutions in Japan, South Korea, and Thailand are working with Ripple Labs to integrate the Ripple blockchain network into their existing infrastructures to settle international payments more efficiently. Recently, Ripple partnered with South Korea’s second largest commercial bank Shinhan Bank, after creating a consortium of Japan’s biggest banks.
“Thanks to the tremendous progress and enthusiasm that we see for blockchain technology, we will witness many more real-world deployments throughout 2018.”
“Large-scale experiments of distributed ledgers for commercial applications are basically already here”, says Jovanovic. “For example, at the beginning of 2018, we've seen announcements that Asian credit card providers are actively experimenting with Ripple's blockchain technology to improve transaction speeds. Thanks to the tremendous progress and enthusiasm that we see for blockchain technology, we will witness many more real-world deployments touching on sectors like finance, insurance, IoT, mobility, supply chains throughout 2018”.
In the 2016-2017 period, the blockchain sector has seen significantly less success in comparison to the public cryptocurrency market. Jovanovic explained that, despite the lack of applications and success in the space, organizations will likely continue to explore permissioned blockchains and centralized blockchains that are capable of outperforming public blockchains with tradeoffs in security and decentralization.
“From a business perspective I can see the advantages of using permissioned blockchains due to their better performance, at least as long as public blockchains haven't solved their scalability issues, and the better control over development and operational processes”, Jovanovic stated. “Every organization that wants to use blockchain technology needs to assess the kinds of properties it needs from distributed ledgers and weigh the pros and cons of the two deployment models - permissioned vs. permissionless - before taking a decision”.
The Adoption of Cryptocurrencies And The Steep Learning Curve
Recently, the development team of Revolut integrated cryptocurrencies into its platform, allowing users to seamlessly purchase and sell cryptocurrencies like bitcoin using debit cards and bank accounts. The market has a steep learning curve, but eventually, the adoption of cryptocurrencies will increase to a point where cryptocurrencies like bitcoin and ethereum are utilized on a regular basis for a wide variety of applications.
“The question with regards to adoption is how many individuals have actually found a use-case, or more importantly are aware of the possible use-cases. There's an education piece here. We still have a long way to go in simplifying accessibility to continue mainstream adoption”, says software engineer, Lewis Tuff.
Tuff also notes that a large portion of the cryptocurrency market is composed of speculators and individual investors that do not necessarily have underlying knowledge about the technology supporting public blockchain networks and cryptocurrencies. Although many individual investors have invested in cryptocurrencies with the sole purpose of generating short to long-term profits, he explains that, for any technology, there is an adoption phase and at this stage of development, he does not consider the entrance of speculators as a negative component of the growth of the market.
“An increase in funds flowing into the space increases focus from users, engineers, institutions, media, which triggers an increase in investment from institutions and drives innovation.”
“An increase in funds flowing into the space increases focus from users, engineers, institutions, media, etc., which triggers an increase in investment from institutions and drives innovation”, says Tuff. “For users to adopt a new technology they require a use-case, as these evolve I see many users switching to cryptocurrencies as an effective, secure and low-cost means of programmatically transmitting money at scale”.
For certain cryptocurrencies, speculators are important for both their growth and increase in adoption. Bitcoin and Bitcoin Cash for instance, are both cryptocurrencies aiming to become major stores of value and currencies. Over time, speculators in the two cryptocurrencies will convert into users that utilize the two assets in transferring funds and processing payments.
The Growth of Centralized Blockchains
Currently, Jovanovic contributes to the Decentralized and Distributed Systems (DEDIS) Lab at EPFL in Switzerland, leading research and development in security and scalability aspects of decentralized systems. The first project released by DEDIS was CoSi, a scaling solution that allows thousands of users to create a collective signature using Schnorr multi-signing. Schnorr is a technology that is being actively developed by the Bitcoin Core development team as well, which is expected to be implemented by 2019.
By combining CoSi, Schnorr, and other innovative scaling solutions such as sharding, DEDIS created a blockchain system called OmniLedger, that is capable of processing 4,000 transactions per second. Given that bitcoin and Ethereum are not able to process more than 10 transactions per second without second-layer scaling, the OmniLedger’s performance is better than most public blockchains.
As Jovanovic explained, distributed ledgers and permissioned blockchains can have higher performance, but are less decentralized than public blockchains in nature. In the long-term, organizations like banks and large-scale conglomerates are expected to adopt permissioned blockchains for higher performance. Already, a few banks such as JPMorgan and HSBC have initiated research and development into private blockchains.
One of South Korea’s largest e-commerce platforms, WeMakePrice, which has millions of active users, has partnered with the country’s leading cryptocurrency exchange, Bithumb, to integrate cryptocurrencies. WeMakePrice stated that the integration of cryptocurrencies is a part of a larger initiative to ease the payment process for users and follow the trend of cashless economies like China and South Korea. According to Tuff, leading economies moving on from the physical money standard or fiat currencies to cashless alternatives is inevitable, especially as online retailers and e-commerce platforms continue to prosper and outperform traditional retailers.
“[Becoming cashless] is inevitable in the long-term”, concludes Tuff. “We're already seeing many "card-less" innovations gaining traction, for example, from Apple, Google, Samsung, and a number of dedicated start-ups, and over the coming years I see this space continuing to evolve. However, I do not believe this will be "quick", as there are too many incumbents, a lot of legacy infrastructure and crucially consumer and business mindsets to shift. The key will be to really add value to consumers to ensure there is not a huge cost to adopting new technologies.”
Do private blockchains defeat the entire purpose of the technology in making the transaction history not publically accessible? Surely it seems counter to everything that Satoshi Nakamoto, Bitcoin’s pseudonymous creator, outlined in his original 2008 white paper. Transparency, accessibility, and decentralisation were all key concepts in the cryptocurrency’s creation, but these all seem to be missing from this centralised, private blockchain model. Is this really a step in the right direction?
Established institutions, and banks in particular, are notorious for dragging their heels on new technologies, particularly when those technologies threaten their very existence, as cryptocurrency does. Unsurprisingly, therefore, they have always been unlikely to implement the blockchain in its true decentralised form. Despite this, use of the blockchain promises faster transaction speeds and lower transaction fees, but it remains to be seen whether banks will pass these benefits, especially the financial ones, on to customers. Given banks’ record of putting profits before people, many fear this is unlikely.
Illustrations by Ilya Martynov
To contact the editor responsible for this story:
Margarita Khartanovich at [email protected]