Black and white photo of a lock and chain
Despite the promise of and the funding behind blockchain technology, no killer app has emerged to unlock the power of the distributed cryptographic ledger. PHOTO: Photo by John Salvino on Unsplash

You can’t turn a corner these days without running into blockchain. Just being associated with blockchain can instantly raise your company’s valuation. And if you want to be a leader in your industry, just mention that you have blockchain experiments happening in your R&D labs and you will immediately be dubbed an “innovator.”

Entrepreneurs are using this distributed cryptographic ledger to reinvent everything from currency to health records, to business contracts, to real estate transactions and media distribution. The question is, has it lived up to its hype thus far and what is blocking it from becoming a truly disruptive technology?

The Money Keeps Pouring In

Massive amounts of venture capital continue to bet that blockchain will find a commercial, production-class solution sooner rather than later.

In 2017, there have been 42 equity investment deals totaling more than $325 million. This follows $390 million of investment in 2016. Google and Goldman Sachs are the two most active corporate investors in blockchain companies. We may now be reaching a point of over-capitalization for a technology that may remain in the R&D lab for many companies for the foreseeable future.

Blockchain is attracting a who’s who of the investment community. Even billionaire investor Mark Cuban is getting hot on blockchain. Radical App, the group that oversees Dust, a chat app, will be releasing its Mercury Protocol blockchain messaging technology that promises to change the way we interact online by providing more privacy and rewarding positive behavior.

The insanity may have reached an all-time high with the launch of ICOs, or Initial Coin Offerings, which are aimed at funding blockchain-based startups.

To take part in an ICO, investors of the project send digital money to a website run by the company and then receive digital tokens in return. Dozens of small companies have raised millions, even hundreds of millions, of dollars through them — in many cases from ordinary investors. It’s the latest mania that looks more like a Ponzi scheme than a viable investment.

But don’t think it’s an automatic ride. Of 103 blockchain companies that received initial seed or angel funding in 2013 to 2014, only 28 managed to raise further money. At some point, you do need a product to survive.

Blockchain Technology Is Evolving Too Slowly

The reality is that some of the ideas currently funded seem more like academic research projects than industry-shaping initiatives. Blockchain has been around for just under 10 years and while it has spurred a lot of innovation, it’s still very much an “in the lab” technology. We need to see more consumer-friendly applications based on blockchain if we want to accelerate progress and adoption.

If you consider the same 10-year period of the iPhone mobile revolution and all the commercial applications that have resulted from apps to messaging to payments, it’s not even close to the same trajectory.

The iPhone put the internet in our pocket; its camera made everyone a broadcaster; the app store changed the way software was created and distributed; the wallet transformed the way we pay; messenger apps transformed the way we communicate; and it made it possible to launch new business models and platforms like Uber, Airbnb and others. It’s changed our lives. 

The reality is there have only been two somewhat successful applications of the blockchain: bitcoin, a digital currency project, and Ethereum, a blockchain app platform. Despite being worth over $30 billion and $65 billion, respectively, there are only 15 meaningful contributors to Ethereum and bitcoin, respectively, and the rate of contribution isn’t going up much with their rise in popularity. This is a big issue in terms of evolving the core protocols of blockchain. 

Where’s the Killer App?

We need to see more blockchain applications that touch consumers. And those applications need to be intuitive and easy to use. The promise of blockchain in large part depends upon enough parties using the same implementation of the technology. Currently, there are too many variations in the market.

One of the major challenges facing blockchain is its association with its origins as the underpinning for the digital currency bitcoin. This is an association that in some ways has narrowed the scope of blockchain technology and has created uncertainty in the consumer market as the valuation of bitcoins fluctuates drastically. Despite bitcoin’s success, a majority of the population has no idea how to even buy a bitcoin.

It’s important to realize that blockchain is not a financial services only technology. It has much broader application across industries. And maybe that’s where the focus should be.

Let’s consider music streaming services. The pendulum previously swung from download to streaming and is now moving towards stream to own. Consumers and artists should have more control over how they consume and sell music. Resonate is a new emerging music service based on blockchain aimed at doing just that.

Blockchain All About Performance and Scale

The performance of the blockchain has been a source of debate. The architecture of the blockchain network is to make it easy to check a transaction, very hard to add a new one, and almost impossible to change information already held in a ledger. While very powerful, this architecture presents some key performance challenges that currently limit the practicality of the network. 

Blockchain depends on a network of “nodes,” each of which stores the entire transaction history and the current “state” of account balances, contracts and storage. This is obviously a cumbersome task, especially since the total number of transactions is increasing approximately every 10 to 12 seconds with each new block.

At present, each new block of transactions added to the blockchain takes about 10 minutes and is approximately 1 Megabyte in size. This throttles blockchain performance to somewhere in the range of seven transactions per second (tps). Consider that Visa averages around 2,000 tps, with a peak capacity of perhaps 56,000 tps, and you realize that something has got to give. 

Several initiatives are underway to address the blockchain performance issue and offer alternatives. Changing the method by which transactions are validated on the blockchain to be more consensus based can have a dramatic effect on increasing throughput. The Lightning Network is an alternative protocol, which is essentially a series of ledgers separate to the blockchain that settle up periodically offering the promise of greater throughput.

Even large players like Microsoft are trying to address performance and scalability specifically in an enterprise context. In August, it introduced the Coco Framework, an open-source system that enables high-scale, confidential blockchain networks that meet all key enterprise requirements.

Many existing blockchain protocols fail to meet key enterprise requirements such as performance, confidentiality, governance and required processing power. 

By avoiding consensus algorithms and operating on the premise that an enterprise can control and govern actors and nodes, Coco presents an alternative approach to ledger construction, giving enterprises the scalability, distributed governance and enhanced confidentiality they need without sacrificing the inherent security and immutability they expect. The hope is this can provide a means to accelerate production enterprise adoption of blockchain technology. 

Blockchain Is Bad For Our Planet

For all its value, saving the planet may not be one of the virtues of blockchain. Turns it out it takes a lot of energy for the community of miners to perform their calculations. Each blockchain is a ledger which is basically a file that is distributed across many computers. It takes a lot of computer resources for the calculation, transmission and storage of the ledger. To perform these operations, huge datacenters or “mines” are required which in turn consume energy to both heat and cool. 

In June, a whitepaper from the World Economic Forum stated that the energy consumed in computational capability in the blockchain network is unsustainable. The Bitcoin Energy Consumption Index was created to provide insight and raise awareness on the unsustainability of the “proof of work” algorithm.

In a 2014 study, Karl J. O’Dwyer and David Malone showed that the consumption of a blockchain network was equivalent to the electricity consumption of a country like Ireland, approximately 3 gigawatts of energy consumption. 

To put this in perspective, we can compare the energy consumption of a blockchain-based bitcoin network to Visa’s payment processing network. It’s estimated that to process all of Visa’s 82.3 billion transactions it would consume the energy equivalent of 50,000 U.S. households. The equivalent energy consumption for a similar bitcoin-based network would be 2,100,000 U.S. households.

The high energy consumption results from the “proof of work” concept is a hashing algorithm, which is a piece of data that is produced from a hashing algorithm that is costly and time-consuming to produce, but is vital in order to validate the transactions on the blockchain. 

To become sustainable, blockchain must explore more energy efficient algorithms, like “proof of stake,” where ledger owners can create blocks instead of miners, thereby significantly decreasing the computational requirements and lowering the energy consumption.

How Long Should We Wait for Blockchain?

Maybe it’s still too early in the history of the blockchain to expect widespread adoption. Maybe we are just in the temporary trough of disillusionment. Or maybe like artificial intelligence, it will take 40 years for blockchain technology to fully mature.

There’s no question it’s an innovative set of technologies. But after 10 years, we should be further along in seeing its benefits.