The Real “State of Blockchain”: Have Imagination and Enthusiasm Outrun Development?
In 2017, the global blockchain market reached a $411.5 million valuation, according to Research and Markets. By 2022, it is expected to grow to $7,683.7 million, at a Compound Annual Growth Rate (CAGR) of 79.6%. However, the question of how credible the current drivers of the market are and whether blockchain technology has truly gained the status of an ‘industry’ in the usual sense remains.
If we define the blockchain market as consisting of three different approaches to implement the technology, we should refer to CoinDesk's State of Blockchain 2018 report. The authors of the report explain that when we speak about the blockchain market, we are talking about public blockchains, enterprise blockchains and hybrid models that, for example, build on public blockchain infrastructure or provide technology for permissioned networks. In this context, it is important to note that, while a public blockchain has already produced a real-world application of the technology in Bitcoin, the other two approaches are still to be tested and it might take years of research and development until we see some successful projects and realistic solutions. Does it really sound like an industry yet?
Table 1: From CoinDesk’s State of Blockchain 2018 report
Nevertheless, blockchain technology is considered an industry of its own by a number of leading computer scientists, including Peter Todd, an applied cryptography consultant, and Zooko Wilcox, computer security specialist and Zcash founder. Prior to Genesis London Conference, a major blockchain conference, they shared their views on the current state of blockchain, its emerging capabilities, projects solving real-world problems, current trends and possible future developments.
“Scammers often use the term ‘blockchain’ to push things that don't really work and don’t really exist”, remarked Todd. “That’s a bit unfortunate because it overshadows how chains of blocks are a useful cryptography technique”. He believes that there is a genuine industry of real companies solving real problems that are making use of the technology. Like many things, a lot of the tech needed to use a blockchain has been around or in development for a very long time, but once you fit all the pieces together it makes the leap from ‘in theory you can do this’ to ‘yes you can actually do this’. “That’s where we are seeing real applications making that final leap to deployable products and services”, Todd concluded.
“There is an industry”, agreed Wilcox, “but there is also a space of non-industrial and non-commercial people who are researchers, activists, individuals, volunteers — just passionate people who are not part of an industry. So there is both an industry made up of a bunch of commercial companies and there’s also a greater community around it.
Emerging capabilities of blockchains
The client-side validation approach, zero-knowledge proofs and decentralisation of control are some of the most interesting capabilities of blockchains as seen by researchers and developers.
“For the Bitcoin or Ethereum model, every node has to process every transaction, which doesn't scale and is obviously a huge problem, whereas, in the client-side approach, because you can pick and choose what you're validating, I can prove to you that something is true by referencing the shared data structure. “Here, you have much better options for scalability”, said Todd. “You have much better ways of restricting who sees what data and reducing the data that everyone has to validate.”
“That’s still in the pipeline, and you need a very different software approach to achieve it, and often it’s an approach that doesn't need coins. In fact, it’s inherently against coins in that, since you don't have the shared global consensus, which is how you create ICO tokens and things like that, you’re definitely not in an architecture where you need to have coins attached. It’s just a pure service like any other crypto, it’s coming but it’s a bit slower than it could, precisely because it’s tricky to make a ton of money off,” Todd concludes.
Zero-knowledge proofs are coming soon too, for example, Blockstream’s Bulletproofs. Client-side approaches have many of these advantages simply because they’re zero-knowledge, in the sense that, people not participating in the transaction do not have that data. That’s a very strong way to achieve privacy and scale — just don't give the data to the other person.
Where will all these innovations come from? Probably not from tech giants, according to Peter Todd, noting that “tech giants don't tend to do novel things”. Thus, IBM might be suggesting accelerator partnerships, education and projects based on permissioned blockchains, but are largely more interested in products that they can sell on a large scale. “Why are they going to come up with something revolutionary? Their goal is to help you do boring business-y things”, commented Todd.
Table 2. IBM Blockchain projects from CoinDesk’s State of Blockchain 2018 report
Decentralisation of control applies both to public and private blockchains, believes Zooko Wilcox. The only reason people might want a private blockchain is if they’re eliminating a central point of control in their private enterprise structure; that’s often potentially valuable and disruptive for improving the enterprise. The value that blockchain provides to that group is that no one within the group has power over the others.
“If you replace your central agency with a blockchain, then you are not relying on the centralised agency which doesn't exist anymore and you’re not paying a fee to that centralised agency which is a monopoly”, Wilcox explains. “Instead you have to participate in the decentralised blockchain network within your private consortia. It’s not yet been proved that that’s better, but it plausibly better”.
There aren’t many blockchain-based projects out there that have been able to solve anything in the real world. Bitcoin, of course, solved the problem of transacting money in a censorship-resistant fashion, and did a pretty good job of that.
“It is too early to be solving real problems”, said Todd. “The example I like to give in my talks is, of course, certificate transparency. It works, it’s used and it has made a very big impact to the certificate system. If you want to know how big its impact is, ask the likes of Symantec about how well their CA business is doing now that certificate transparency caught them committing fraud. Or, in fact, ask Let’s Encrypt users”. Let’s Encrypt was a model for encrypting the internet that wasn’t really feasible until you could audit things sufficiently well to root out fraud. Now that you can, Let’s Encrypt can operate — that’s a huge advancement.
While some might be more aware of smart contracts, and even some financial institutions have taken an interest in utilising them, Todd affirmed that the hype around smart contracts is “a bunch of gobbledygook that doesn't really mean anything”. It’s not solving real problems. Things like hotel locks on the blockchain don’t really make sense and don’t do anything useful with Ethereum-based tokens. The only meaningful reason for their existence is to pump up the price of Ethereum.
Table 3. Ethereum transaction numbers from CoinDesk’s State of Blockchain 2018 report
Combining two disruptive technologies such as the Internet of Things and Blockchain does not make much sense either as it begs the questions of what a blockchain is preventing in IoT? “I’ve never heard of coherent arguments for that at all”, argued Todd. “Where that comes from is people trying to defraud people with fraudulent projects that don't do real things. IOTA seems to be a good example of this: where the tech decisions made make so little sense that it looks like a Nigerian scam strategy of ‘let’s do something that people are going to look at, if they’re cognisant they’re going to run away leaving only incognisant people who are your marks that you can get money off of”.
According to Wilcox, the financial industry, so far, has been most excited about two things: tokenisation of assets on a blockchain, allowing for settlement without a trusted third party; and smart contracts. The Quorum enterprise blockchain technology from JP Morgan already provided the latter using Ethereum’s smart contract technology. The reason they partnered with Zcash was to add data security and encryption for the settlement of tokenised assets. Here is a live open-source implementation of Ethereum which has been modified by JP Morgan and the Zcash company to have various improvements to make it more suitable for a permissioned blockchain — more suitable than the public Ethereum blockchain. One of those modifications is the addition of Zcash-style cryptography to protect data in the permissioned blockchain.
A little less conversation
The next couple of years are all about the question of whether cryptocurrencies can provide the value that has already been promised. “The imagination and the enthusiasm has outrun the development”, remarked Wilcox. It typically takes five years for a new innovation to be implemented, integrated and deployed, and to be used by people, and to actually start providing value.
“The biggest trend is adding more layers of complexity to hide what you’re really doing, that’s what scammer have to do.”
Zcash and Ethereum are both from that earlier generation and Bitcoin is, of course, the earliest. Bitcoin, Zcash and Ethereum are coming close to maturity, but none of the three have reached a point where they have achieved sufficient traction with increasing value for an increasing user base. This is due to various limitations that they have yet to overcome, starting with the scalability problem, the number one issue to be faced by both established and future coins alike.
“The biggest trend is adding more layers of complexity to hide what you’re really doing, that’s what scammer have to do”, asserted Todd. “This is why we transitioned from people making simple altcoins that never made any sense to making forks of bitcoin and other systems — so that’s another level of complexity. Then we transitioned from altcoins to doing ICOs because, after all, a white paper is much harder to understand and adds another layer of complexity to a scam to dissuade people from understanding what they’re buying into”.
Obviously, this trend is only set to continue, regardless of whether it is a good one or not. Arguably, the far better trend would be one towards simplicity.
Although discussions of blockchain’s place within the established business world are not only important but necessary, its meteoric rise in interest from industries from banking to cloud infrastructure to manufacturing seems to suggest that the role it will play will be a vital one. If it takes the form of permissioned or public blockchains or some interactionist approach between the two, it seems almost sure to be a key technology of the future.
With this in mind, it is important to be conscious of not overstating the blockchain’s capabilities or falling victim to the ‘blockchain everything’ mentality. When there are calls for plants on the blockchain, it might be time to stop, although the jury for blockchains on the blockchain is still out.
Picture taken from dilbert.com
To contact the editor responsible for this story:
Margarita Khartanovich at [email protected]