FUD (fear, uncertainty and doubt) and concerns around blockchain

As with the invention of any new technology that stands to transform industries, such as electricity, combustion engines, solar panels and electric vehicles, the advent of blockchain has met by some with criticism – some fair, and some simply intended to slow the process of adoption.

In this article, we will look at some legitimate critiques in order to dispel some intentional propaganda, which is referred to as FUD, or ‘fear, uncertainty and doubt’.

This form of FUD is intended to cause confusion and mistrust in blockchains that seek to influence the market, and affect the price of various tokens to intentionally depress the market price. This has typically been done by entities and groups that want to protect the old way of doing things and slow down the inevitable transition to a global blockchain digital ecosystem. It has also been done by powerful entities and groups that seek to depress the prices of tokens in order to buy them in bulk at a lower price, banking on the assumption that the price will rise in the future.

There are a number of limitations to blockchains that need to be overcome, with the following three being amongst the ones most discussed online.

Energy consumption

The first concern about blockchains was the fact that the Bitcoin blockchain, the first blockchain, was designed using a ‘proof-of-work’ consensus protocol as we outlined earlier this week. The implication of this is, in order to run the system, high amounts of energy are needed by the hosts who are racing against each other in order to secure a greater reward.

This is, of course, a legitimate concern, and for this reason PoW has been rarely used in subsequent blockchains, with some even needing to switch to a ‘proof-of-stake’ consensus protocol. By shifting to PoS, the need for computers around the world to race against each other using high-capacity hardware was removed. However, there has been FUD propagated that seeks to confuse people into thinking that all blockchains have very high energy demands, when this is just not the case.

Scalability

The next major concern is around the lack of scalability of blockchains, which occurs as more and more users join the platform and the transactions become slower as a result. The shift from PoW to PoS largely responded to the scaling issues due to additional nodes not needing to invest large amounts of energy of computation power – making it more likely that new hosts would join the consensus system.

When using a PoS consensus mechanism, transactions on the blockchain can also be undertaken in parallel, rather than in sequence as early blockchains were designed to do. So again, although there were early concerns about scalability, blockchain developers are working hard on solutions and are focused on designing blockchain ecosystems that can scale to global use.

Regulation

The area of regulation and blockchain is a complex one since a blockchain is non-sovereign, meaning that it is not controlled by a government or even a corporation. This presents issues when governments seek to use fiscal measures, such as monetary policy, to influence activity in their domestic markets.

The lack of a regulatory response, on the whole, has created some FUD around how governments might react in the future, affecting the price of the tokens. As with all marketplaces, there is a key role for regulation to police bad actors and set out the rules for how ownership of a range of new types of digital asset classes should be treated, both from a regulatory and legal perspective.

It is not surprising that such a new and far-reaching form of digital technology like blockchain will have initial issues that need to be worked out in order to expand uptake. At this stage, there seems to be two main camps; those that use this as a way to try to discredit the new technology (likely in order to protect the older version that they are invested in), and those that get on with it and put in the hard work to figure out the solutions.