What’s holding up the blockchain?
It’s not technology or regulation holding back the blockchain – software that stores and transfers value or data across the internet – we just haven’t figured out the next big use-case. Two reports released this week by the CSIRO’s Data61 not only inject some well-researched gravitas into the conversation, they also provide insight into why some of the major blockchain projects have stalled.
Since 2015, banks, regulators, tech giants and startups all over the world have raised billions of dollars to explore the blockchain.
But the only really successful, scaleable use of the blockchain remains cryptocurrencies like Bitcoin. Bitcoins currently trade at almost AU$4,000, with a total market equivalent to thirty times the GDP of Australia.
Think of the blockchain as a type of transparent spreadsheet or “public ledger”. When someone transfers a Bitcoin, for example, the transaction is verified by “miners”, encrypted and a “block” is added to the spreadsheet. Mining takes a lot of computing power, and so miners are incentivised to participate in the system with a reward of bitcoin.
It’s finding a way to put all these pieces together for purposes other than cryptocurrencies that has yet to be figured out.
Because of all the computing power required to verify and encrypt new blocks, running a blockchain network is expensive and consumes a lot of electricity. For this reason, a blockchain should only be used if it solves particular problems. For example, a blockchain could allow users to see each other’s ledgers and transactions, negating the need for a trusted third party to manage risk. The blockchain itself, through sophisticated cryptography, would provide privacy and trust.
Conversely, if there is already a central third party managing trust between users and verifying transactions (something banks already do for consumers), then a blockchain is probably not needed at all. Failing that, a sophisticated database or expert system would be a cheaper and simpler alternative.
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Source: What’s holding up the blockchain? – The Conversation