Skip to 0 minutes and 13 secondsUntil now, we’ve heard about the application and technology of blockchains. In this lecture, we will point out the shortcomings and future challenges that the technology will face. Let’s start with the decentralization property. This is one of the biggest advantages but also, by now, a limiting factor. Decentralization is inherent in peer-to-peer networks, but it requires of an actual network of computers constantly exchanging information and running complex algorithms at high speeds. This architecture is working well in small environments, where few transactions are made. Scaling up this technology to a system that can manage thousands of transactions per second, like VISA does, is a real challenge.
Skip to 1 minute and 9 secondsCurrently, Bitcoin network is confirming blocks at speeds that go from several minutes up to some hours, with a capacity of few transactions per second. Implementing blockchain solutions in sectors with higher demands requires to scale the capacity up. Another challenge that we have already seen in the course is the amounts of computational power that Poof of Work algorithms require. this issue will be addressed through the implementation of Proof of Stake. However, we can highlight the transition between the two solutions as a major milestone in blockchain development. Regarding the security and privacy of blockchain solutions, there still is a big margin for improvement. As we learnt in previous lessons, all users own a public key and a private key.
Skip to 2 minutes and 5 secondsTo simplify it, we could understand the public key as some kind of bank account number, and the private as the password to that account. If both are lost or made public, the account and the funds in it become completely vulnerable. Therefore it is necessary to come up with better solutions for storing account data safely and protect it. Another factor to take into account is that the system is not anonymous. Given that all transactions are published on the ledger, anyone can trace transactions of a certain account, even if it’s not linked to a formal identity.
Skip to 2 minutes and 52 secondsThe account, thus, is pseudonymous, meaning that no one could directly find out who is the owner of an account, if they do not know the identity behind the public key. However, certain transaction patterns could uncover the owner’s identity. This is especially important for products that we consume frequently or every day. Imagine a scenario of energy trading, where two users sell their energy. One of them has three times more installed capacity in his household, and we can observe how in the ledger, there’s one account transacting much higher amounts of energy. It would be easy to figure out that this public key belongs to the user that produces more energy.
Skip to 3 minutes and 50 secondsFurthermore, for a widespread use of blockchain technology in a multi-sectorial level, the existing computing systems need to gradually change. This means a notable change of strategy and investment, which requires the involvement of the industry in a long term perspective. On the side of users and operators of such systems, a cultural shift is necessary. Finally, one of the major milestones that will trigger the massive adoption of blockchain technology is the existence of regulation, a topic that has turned very controversial. A strong and clear regulation is somehow necessary to avoid incurring in market failure and to ensure a minimum standard of product quality for the consumers. Until now, regulators have taken a wait-and-see attitude towards blockchain technology.
Skip to 5 minutes and 1 secondAs this technology is evolving very fast, it is hard to delimitate the scenario where the regulation will become effective. Questions are generated at higher speeds than answers. On top of that, before regulators can create a legal framework, they must reach a better understanding of the technology and its impact. I will pick up two examples showing the complexity of regulation by the International Organization of Securities Commissions (IOSCO).
Skip to 5 minutes and 40 secondsThey stated in a report on distributed ledger technology that “Financial technology regulators may need to develop “highly automated” surveillance and hire technology experts if they want to closely monitor risks posed by blockchain …”. Also, this reports states that “The global nature of Fintech therefore creates challenges that regulators should address through international cooperation and the exchange of information”. That means that a global regulation is a must to create a framework for blockchain applications. A global regulation, for a global technology.
Barriers to beat
In this video you will acquire a general perspective of the technical challenges that blockchain is facing, and the major concerns in some fields regarding blockchain’s implementation.
We will discuss about the drawbacks that some people point out regarding blockchain, and the possibilities of solving these issues over the next few years.
A lesson from Andreas Samper, Associate Professor at UPC
Share your thoughts in the comments!
© EIT InnoEnergy