To some, blockchain is a potential game-changing innovation that could disrupt and replace traditional payment and information-recording systems.
Created around 2009 by Satoshi Nakamoto, the pseudonym ascribed to the anonymous originator, or originators, of bitcoin, as the underpinning for a new-age, 21st-century payment structure on an immutable, publicly distributed ledger; however, the revolutionary blockchain hasn’t yet lived up to the hopes and dreams of advocates, who are aspiring to put it to use.
And a blockchain sea change isn’t expected soon, according to at least one bank.
“Despite tremendous hype over the potential for crypto technologies in money and finance—specifically, blockchain and distributed ledger technology—we see little likelihood of widespread adoption in any area in the near future,” wrote analysts at Barclays in a note dated April 10.
Citing lack of trust, sovereignty disputes, privacy and irreversibility, the Barclays analysts sought to assess the hype against the realities for near-term blockchain usage.
Indeed, while proponents promote blockchain as a panacea capable of fixing problems such as data integrity, supply-chain transparency and overall efficiency, the technology is known to have a number of flaws, some of which are articulated in the Barclays report.
For one, the banks’s analysts argue that claims of efficiencies achieved via the distributed-ledger technology aren’t accurate.
Most major cryptocurrencies use proof-of-work verification. That means they require miners to confirm transactions on the blockchain, which consumes significant amounts of energy. The mining of bitcoin
the world’s No. 1 digital currency, uses the equivalent of 5.6 million U.S. households and about the same as the country of Colombia, which has a population of 48 million people, according to the Bitcoin Energy Consumption Index. Moreover, because of the inherent coding behind bitcoin’s blockchain, the amount of energy required to mine bitcoin will cost more over time.
As miners scour the globe in search of cheap energy, countries are wrestling between embracing this new technology and the long-term benefits for the country, knowing a slight increase in energy costs will see so-called miners hunting for places with the lowest-cost energy.
Another misconception is that data integrity is improved on a distributed ledger. Private entities which are storing employee data on a digital ledger, for example, can still introduce false data in the blockchain; it may be more secure and easily tracked, but it doesn’t increase the accuracy of the information, the analysts said.
Inaccurate data on a blockchain is a significant problem due to another aforementioned trait of blockchain: its immutability. That is as much to say that mistakes are impossible to reverse.
“Blockchain and distributed ledgers provide means of contract or transaction enforceability without a supporting legal structure, but lack recourse or reversibility in the cases of errors or fraud,” writes Barclays.
And in light of recent election hacking and tampering concerns, blockchain won’t immediately solve voting integrity concerns, which a number of people have touted as a possible use case for blockchain.
“A corrupt government can create a blockchain system to count the votes and just allocate an extra million addresses to their cronies,” wrote Kai Stinchcombe, founder and CEO of True Link Financial in a Medium post.
Speed and efficiency
Now, a decade in, the question is whether blockchain is revolutionary technology with multiple applications, or just a platform for traders to buy and sell digital currencies.
“It is high time to end the hype. Bitcoin is a slow, energy-inefficient dinosaur that will never be able to process transactions as quickly or inexpensively as an Excel spreadsheet,” wrote Nouriel Roubini, economist and cryptocurrency skeptic, in a recent Project Syndicate column he co-wrote called “The Blockchain Pipe Dream.”
Of course, the advocates of blockchain are as ardently optimistic about what the technology can do, comparing blockchain with the early days of the internet.
“It’s easy to compare blockchain with the internet due to the surrounding attention and the amount of money being poured into the respective spaces, but this only gives me more confidence that the technology will prevail long term,” said James Tabor, CEO of Media Protocol in an email to MarketWatch.
“In the same vein as the internet made the flow of communication seamless and information readily available, blockchains can dismantle the centralized powers that have caused so much pain across all industries,” Tabor said.
However, this seamless flow of information remains an Achilles’ heel for blockchain.
Ethereum handles 20 transactions a second, bitcoin just seven. Meanwhile, according to its website, Visa has the capability to processes 24,000 transactions a second.