Author: Hu Yoshida, Chief Technology Officer, Hitachi Vantara
Last year I was on a CNN Future Cities Panel in Singapore along with a member of the Singapore government and several startups. The topic of blockchain came up and a participant made the assessment that blockchain was a solution looking for a problem, partly in response to all the hype about blockchain at that time and the lack of successful implementations aside from Bitcoin. In August of last year, Gartner published a report which claimed that blockchain had reached the peak of the Gartner Hype Cycle for Emerging Technologies.
Bitcoin started to see some problems, a year ago. As transaction volume increases, the blockchain becomes longer, increasing transaction processing time. Here is a link that shows confirmation times peaking close to 5 hours. As volume increases, transaction times increase even further.
Another problem with Bitcoin’s blockchain, is “counterparty risk”. When you pay for something using Bitcoin, there is no guarantee that the other party will deliver the promised asset. How many companies who paid the $300 in bitcoin ransom to “WannaCry” ever received the decryption key to unlock their data? There are other blockchain initiatives that address this problem like Hyperledger and Ethereum whose Crypto currency Ether, began to surpass the valuation of Bitcoin in the beginning of this year.
Bitcoin blockchain has other limitations, like the number of transactions per block, and total limitation in the number of Bitcoins. What happens when you run out of new Bitcoins? What happens to the price of Bitcoins in fiat currency? Some believe that it will implode while others think it will continue to increase like a Ponzi scheme, where the initial investors will get richer and richer.
Increasing the number of transactions per block would make Bitcoin more scalable, but since transactions in a block chain cannot be modified, creating a new block size with more transactions requires a new blockchain. This is known as “forking”. On the first of August, Bitcoin got forked, meaning that a new cryptocurrency, called Bitcoin Cash was created and has begun to be mined as a separate blockchain. Bitcoin cash is built on the same blockchain network as bitcoin, but the new software increases the number of transactions per block that make up the network to allow it to process more information and increase transaction speeds.
After an initial dip in price, Bitcoin rallied and accelerated even higher to hit $4,305 by August 18! Bitcoin Cash was initially slow in getting miners to participate in creating and propagating the new blockchain, but was up to $499 by the same date in August. Meanwhile, Ether, the cryptocurrency for Ethereum, which was poised to overtake Bitcoin in valuation earlier this year is still in second place with a price of $320.
Crypto currencies can be exchanged at various online exchanges. These exchanges are beginning to act like a central ledger, which is contrary to the distributed ledger reason for having a blockchain. Also, the cost of a Bitcoin transaction is rising. The median transaction value is about $500 and incurs about a $4 fee. This is based on value of transaction and amount of data in it. Just two years ago, the costs were almost negligible. So what started out as “free money transfers” to beat banks and credit cards, is looking a lot like the same old thing. https://bitinfocharts.com/comparison/bitcoin-transactionfees.html
The crypto currency hype trend continues and seems to be accelerating. The uses of blockchain in other areas are still mostly in proofs of concept stages. However, once we see some first movers deliver new blockchain solutions, we may see another surge in blockchain hype. I think we are a few years away from the “Trough of Disillusionment” before we see the “Slope of Enlightenment” and the “Plateau of Productivity” per Gartner’s Hype cycle for emerging technologies. Is it possible that Blockchain will skip the intermediate stages and go directly to the Plateau of Productivity? There is a lot of confusion about the future of Blockchain, fueled by a lot of speculation.