Blockchain, the Future IT Unicorn vs. Energy Consumption

This blog post gives you an easy-to-understand, quick overview of the past, present and future of cryptocurrencies focusing on their role in people’s lives.

Let’s get started.

Since its inception in 2009, blockchain technology has been heralded as one of the most disruptive innovations of this century. While the technology is best known for providing foundational support for cryptocurrencies, it also holds promise for a number of varying industries. Examples of these include governance, identity management, the Internet of Things, and supply chain management to name a few. 

 

In recent years, the discourse surrounding the technological innovation has morphed from one centered on potential gains to one focusing on the implementation of said promise. There has been some success in this regard, as there is evidence of the adoption of blockchain-based solutions in various industries. Additionally, enterprise-ready blockchain solutions are being developed and deployed by well-known, respected firms in the technology sector.

 

However, by and large, the consensus is that blockchain technology is yet to deliver on much of its potential. This is not to say that innovation has not had significant effects on certain industries. To claim so would be absurd. 



Bitcoin: A New Day

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The release of the bitcoin whitepaper in 2008 heralded the dawn of a new day with regard to the paradigms and definitions attached to money and the transfer of value. Bitcoin, underpinned by blockchain technology, was the first implementation of the innovation. 

 

The digital currency revolutionized the concept of money, especially as it pertains to the concept of central control. Prior to the genesis block of the Bitcoin blockchain being mined, the idea that a value system outside the control of governments or any single party could effectively function to meet the need of society was just that, an idea. 

 

Considered a fever dream of cypherpunks and crypto-anarchists on the fringes of society, Bitcoin’s pseudonymous creator Satoshi Nakamoto amalgamated a number of preexisting technologies, such as time-stamped networks and cryptography, with his proprietary innovation, the blockchain, to bring the idea to life. He created a network where any number of independent parties could transact securely in a pseudonymous manner. Nakamoto had succeeded in creating a value system, backed by sound science and mathematics, where different parties, each acting with their own interest in mind, would work towards the same goal. 

 

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This problem is referred to as the Byzantine Generals Problem. The name is derived from an allegory first described by a group of scientists in 1982. The allegory talks about a group of generals who are planning to attack a city but must act in concert with each other despite barriers to their communications and while they all consider their own interests. The allegory is an explanation of the challenges involved in distributed systems.  Through his invention, the blockchain, Nakamoto was able to leverage game theory, cryptography, and computer systems in an innovative way, spawning the billion-dollar cryptoasset industry we know today. Currently, the total value of the digital currency market is over $200 billion. Besides the obvious fiscal value held in digital assets, as they are underpinned by the blockchain, there are various socio-political benefits that the blockchain has influenced. For instance, cryptocurrencies have been of immense help for those living in countries experiencing severe economic downfall and inflation such as Venezuela and Zimbabwe. Pundits have gone as far as to describe Bitcoin “as an insurance policy against an Orwellian future” because its features promote and support financial sovereignty. 

Blockchain 2.0

The launch of the Ethereum platform in 2015 catapulted the industry into the age of the blockchain-powered smart contract. Dubbed ‘Blockchain 2.0’ the entry of self-executing agreements powered by code into the market created a whole new host of opportunities with regard to the myriad ways the technology could be integrated into different industries. 

 

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Similarly to the many altcoins that came into existence as loosely based on bitcoin, the Ethereum platform influenced the birth of a number of blockchain networks that support smart contract functionality. Additionally, many of these platforms took pains to include innovative solutions within their crypto-economic systems, which were designed to meet the challenges and shortcomings witnessed within the most popular digital currencies. Today, there are a number of smart contract platforms within the cryptocurrency market. While Ethereum remains the most popular, based on a number of metrics including DApp user numbers and developer statistics, this particular application of blockchain technology is being credited with increasing the reach of the innovation. That is because smart contract powered applications have attracted a set of users to the market who may have otherwise not interacted with the technology. Lastly, beyond the influences that blockchain technology has had on the financial industry through cryptocurrencies as well as the effect that smart contracts and other blockchain-powered technological innovations have had on myriad industries, there are certain ideological shifts, which the technology has played a pivotal role in. Digital currencies, such as bitcoin, have been of essential help for those unable to access the traditional financial market for any number of reasons. As the digital currency market continued to grow and mature, we witnessed the entry of privacy-focused cryptocurrency projects. Privacy-centric projects such as Monero and Zcash are dedicated to restoring fungibility to the digital currency landscape, one of the major challenges currently plaguing popular non-private cryptocurrencies.
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In the same way that bitcoin turned a dream into reality, anonymous cryptocurrencies are showing that it is possible to have decentralized currency that also supports privacy and security, contributing to the greater conversation on the definition and features of money.

Privacy-centric projects can be characterized as the more idealistic players of the cryptocurrency market. These projects are also more likely to implement consensus algorithms that keep the underlying blockchain resistant to ASICs, the machines designed to maximize the mining process for the good of the owner. ASICs are considered worrisome as there are fears that they promote centralization within a blockchain network. In this way, privacy-centric projects are also tackling the problem of centralization within blockchain networks.

A Look Into the Future

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It is an indisputable fact that blockchain technology is a very disruptive technology. However, it is not without its challenges. Digital currencies are grappling with fungibility and privacy issues while fears of centralization continue to grow. For blockchain technology itself, major challenges center on security fears and energy consumption. 

Blockchain-powered platforms have been on the receiving end of a number of security breaches. From 51 percent attacks to vulnerable software, it is becoming increasingly clear that great care needs to be taken when crafting a blockchain network. Moreover, the threat of quantum computing continues to cast its shadow over present-day cryptography, every day bringing us closer to a world where past security practices are rendered ineffective.

Lastly, energy considerations are a significant challenge for the sector. Due to their design, public blockchains typically require a significant amount of energy to achieve a universal state. While the amounts needed are dependent on the specific consensus algorithm employed within the distributed ledger, many of the most popular blockchain-powered networks, such as Bitcoin and Ethereum, require large amounts of energy to operate.

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Conclusion

In today’s reality, of growing worries over scarce resources and the global push to both reduce over-reliance on unsustainable sources of energy as well as reducing the total energy consumption, networks that require large amounts of energy are infeasible at worst and irresponsible at best.

 

What is clear is that the next blockchain unicorn must make intentional considerations, right from the design phase, to counter these challenges, in order to effectively serve its user base while ensuring its technology can stand the test of time.



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