While everyone is following the crypto currencies exchange rates, developers are working on eliminating the shortcomings of blockchain, the basic crypto technology.
The Bitcoin rate is at another soaring stage. Some experts subject crypto currency to an inevitable death to crypto currency, comparing it with fraudulent investment schemes. Others predict its further growth. Over the past year, Bitcoin was expected to die out hundreds of times, still it is more alive than ever. The number of blockchain systems and crypto currencies grow each month, with even some Russian billionaires turning their eyes to the possibilities of the crypto market.
Blockchain has attracted big interest from the FinTech community, for it is the industry most favorable for technological development and able to change the processes and economy of the ecosystem in a radical way. However, people from the real sector of the economy — for instance, representatives of freight, public transport and retail — see blockchain in a more cautious manner. They see potential obstacles to the blockchain development, and this articles analyzes how the crypto community solves them.
The Problem of Scaling up the First Blockchain Platforms
Despite the enthusiasm demonstrated by the FinTech companies, many large players on the market are still carefully studying this technology’s potential. PayPal and SWIFT decided to take a pause until blockchain enters a “mature” phase. If we talk about blockchain-based services, such as a p2p-transfer system or paying for products and services with the key crypto currencies, neither Ethereum nor Bitcoin can compete with the global payment systems like Visa. Currently, these crypto currencies are unable to handle a large number of transactions in a fast and efficient way. Visa is handling from 2000 to 4000 transactions per second, PayPal — close to 450 transactions per second. For comparison, Ethereum processes only 15, Bitcoin — 7, and Litecoin — 56 transactions per second.
The transaction time is determined by the duration of the block closing operation for this very transaction and is limited by the time for solving the mathematical task, which is being constantly complexified. Before, you could have been using laptop for that, but today there are farms based on the video cards or specialized processors for performing these operations. Once the task is solved, the block is closed, and the miner receives a reward in the form of a crypto currency, which is being mined, for example Bitcoin. The increasing size of the block, and thus the increasing number of transactions it can hold is a logical software solution, which makes it possible to compete with other payment systems. The truth is that it is still a long way to go until it can compete with Visa, whose system can hypothetically provide up to 56,000 transactions per second. Therefore, Visa plans to launch its own blockchain platform for B2B payments, which would adequately correspond to its payment system performance.
I believe that in future, the systems which do not require complex calculations, or mining, for a block to work will win. Thus, it will become possible to pay for a gym locker via a smart contract input in a wristband chip. With most of the existing systems, such as Bitcoin, this operation would be expensive and time-consuming, plus a chip would require additional help in terms of performing calculations.
Crypto currencies of All Networks, Unite
New solutions for Bitcoin network are introduced on a regular basis, with one of the brightest among them being Lightning Network. The idea suggested by developers Joseph Pun and Thadeus Dryja might speed up transactions and provide a solution for bitcoin scalability problem.
At the very beginning of the cryptocurrency market development, there were just several major players, whereas today this number has exceeded 1000. New developers have entered the market, which now accumulates much bigger money than it used to. New developers have been trying to find ways to swap between different crypto currency networks without any mediators, such as trading exchanges or special regulators. Several teams are working on the protocol implementation, but the benefits offered by Lightning Network are obvious: two users with private keys will be able to process an unlimited number of micro transactions with each other, with the refund option provided.
As a result, almost any chance to commit fraud will be eliminated. While it is unprofitable to purchase small things like a cup of coffee with Bitcoin due to its high commission, this problem might be as well solved by Lightning Network. Why is it so important? Installing Lightning Network on all blockchains will enable to process operations between different platforms. The first transfers have already been successfully tested: Litecoin founder Charlie Lee processed several operations between Decred and Litecoin, Litecoin and Vertcoin, and also on November 17, between Litecoin and Bitcoin. This proved the possibility of the cross-chain trading between different blockchains, using the P2P technology.
According to Vitalik Buterin, it would require from 2 up to 5 years for Ethereum to solve its scalability problem; the first prototypes of solutions he describes as “well-developed.” Just one CryptoKitties blockchain game, where one should have an Ethereum wallet to purchase kitties, was enough to clog the network: about 30 000 transactions blocked the network, with some companies being forced to delay their ICO launch.
In other words, although there is a scalability problem, blockchain is here to stay. In Russia, big institutions are also looking into the possibility of applying this technology to different spehers. The Central Bank of the Russian Federation created the FinTech Association with a view of building up the accounting system decentralization and improving the client protection. Vladimir Putin instructed the government and the Central Bank to determine the status of digital technologies and concepts, such as “token” and “smart contract.” All these initiatives bring an optimistic mood to the market.
Dreams VS Product
It is appropriate to mention some optimism, but not the complete victory of blockchain, since with all the diversity and its exotic nature of application, this technology is just beginning to be applied. Analysts often talk about “high expectations” and the euphoria of “early adopters” confident of the fact that a word “blockchain” alone in the project description indicates its feasibility and ability to solve all the problems of any industry.
The historical parallels arising between e-mails and distributed registries are evident. In 1965, MIT staff members Noel Morris and Tom Van Vleck wrote a program called “mail” for the CTSS operating system. By the beginning of the 1990s, less than 1% of the population used e-mail, and today it is difficult to imagine a metropolitan resident without a “mail box.” In 2008, a document describing the new protocol and its working principles was published by a person or a group of people under the pseudonym of Satoshi Nakamoto. That year is considered the starting point for the new crypto epoch. It has been only 9 years since then, and today, news about blockchain occupy the world’s leading media front pages and make exchange analysts go crazy.
Obviously, the main crypto currencies blockchains, as well as the emerging alternative solutions for the real sector of the economy, will be forced to face problems of technical, economic and existential sense. Blockchain does not solve all the problems of mankind, and the possibility of paying with Bitcoins or Etherium in the nearest grocery store will not attract an ordinary customer. This has to be accepted — it should not provoke any pessimistic thoughts. Instead, we should work towards scaling up and improving the efficiency of blockchain as technology.
Now, the blockchain is at the beginning of an exciting period of its development. And if a taxi driver discusses with passengers whether he or she should sell them his or her bitcoins or invest in the tokens of smart contracts, then the philosophy of the blockchain has gone as far as a common crowd.