It’s been 13 years since we were introduced to bitcoin and blockchain. Lauded as a disruptive technology for its transparency and immutability, Blockchain continues to be a buzzword that attracts interest in the purported benefits of efficiency, ability to reduce cost and its support for a trustless ecosystem.
But like many emerging technologies, there remain hurdles that are leading to slow-moving adoption among enterprises including lack of scalability, limited interoperability, a dearth of blockchain developers, insufficient standardization, extensive energy requirements, and the absence of regulatory clarity.
Allen Li, head of engineering at ADDX, acknowledges that the idea of chaining data and maintaining it on a distributed ledger to make that data tamper-proof has been around since the 1990s. Cryptocurrencies popularised blockchain technology.
He goes on to add that while crypto and smart contracts may have popularised the technology, efforts are now underway to understand its applications in areas outside of finance, including healthcare and government.
Blockchain security
“A blockchain or a decentralised system is more secure than a centralised system in many ways because it avoids a single point of failure,” said Li. “Of course, you can make centralised systems very secure – and we see that with governments and banks today.”
He pointed out that breaking into the cybersecurity walls of a centralised system has the potential to do a lot of damage such as shutting it down, tampering with the data, and so on. With blockchains, because the data is spread out across all nodes, such attacks are virtually impossible.
“In a blockchain, with proof-of-work consensus, to tamper with the chain, you would need a majority of nodes, what is called a 51% attack, which is super difficult,” he commented.
Li concedes that blockchain has security vulnerabilities it must grapple with. “For example, coding bugs in smart contracts can be used by hackers to steal cryptocurrency,” he commented.
He reminds us, however, that hackers have been stealing money from everywhere, for a long time – not just in the crypto world but in the traditional world of banks as well.
“On the whole, I would say blockchain isn’t perfect, but it is a solution that we should consider alongside all the other tech solutions we have and depending on what the problem is that we’re trying to solve, and what the specific context is, blockchain can still be a quite useful too."
Allen Li
Integration challenges
He notes that blockchain awareness, at present, is somehow associated with cryptocurrencies. This decries businesses from appreciating the inherent potential of the technology.
“For example, you could have your own private, permissioned blockchain that solves a specific problem within your company,” he opined.
He believes that it is important for companies and their leadership to know what they can and cannot do with blockchain. But arguably the more serious issue to deal with is legacy systems in use by the business.
He cites the case of a financial institution that has invested millions (or more) into its technology infrastructure over many years or decades.
Blockchain may offer greater efficiency, but the organisation needs to consider how it would fit into the existing technology architecture.
“Will it disrupt your ongoing operations? What is the plan to transition from your legacy technology into the new technology? These are very big and complex conversations and will take months if not years to reach a conclusion and then get executed,” he opined.
Scalability challenges
Li explains that each block in the blockchain has a fixed size, which means there is a fixed amount of information that can fit on the block. There is also block time, meaning in a fixed time interval, the number of blocks that can be mined is also limited.
“When there are not many users and transactions, this isn’t a problem. But when volume grows, transactions can slow down,” he called out.
He cited the situation with Ethereum, which he says can take 12-14 seconds to process one block. “The time you need to process transactions translates into higher cost, in the form of gas fees. This is a layer one solution,” he continued.
He points to a workaround for this problem calling it ‘layer two’ which is to make the data processing happen on the second layer, not on the main chain, resulting in the processing taking much less information to validate and record on the main chain.
Interoperability challenge
Like the Unix operating system, blockchain has spawned several variations, mostly in terms of how information is stored.
“There is a view that building bridges across these networks to ensure interoperability would be important and would result in a lot of gains,” he added. “But this isn’t easy to do technically, and it would be interesting to watch how the space evolves and what solutions developers come up with.”
Li said a lot of people are working to solve these challenges.
Key takeaway
Li suggests that any discussion around blockchain as a potential solution begins with identifying a problem or pain point or process that requires a ‘great deal’ of manual reconciliation or ‘repeated back-and-forth’ because the data resides in a single centralised ledger.
“If the answer is yes, the blockchain could potentially solve this problem,” he concluded.
Click on the PodChat player and listen to Li offer insights into the challenges and opportunities in the commercial applications of blockchain.
- Blockchain was introduced in October 2008. 14 years on, what has changed in terms of (a) technology; (b) adoption; (c) regulation?
- Is the adoption of blockchain limited to crypto, currency and things to do with the financial matter?
- Are the claims that blockchain is secure overhyped?
- Can a blockchain fail?
- What remains a key challenge limiting the adoption of blockchain in commercial businesses (e.g., no crypto, not exchanges, not NFTs)?
- Look from a business
- Look from a technology
- Does a block have a scalability problem?
- What is one key takeaway for those evaluating blockchains for enterprise applications?
