In recent years, blockchain is a term that has gone from residing purely within circles of coders involved in projects developing cryptocurrency, to the mainstream media, where
it has been reporting for some time how the technology is going to change all of our lives emphatically, not least of all in a sector like trade finance. Where is the blockchain technology then, and why hasn’t it arrived?
For the most part, blockchain technology has been inseparably associated with cryptocurrency, and beyond that, the exalted bitcoin. The famous cryptocurrency (and indeed infamous for some) has had a rollercoaster ride in its life, even if it is a valuable commodity these days: at the time of writing and according to Coindesk, one bitcoin is worth either £27,563.44, or $38,024.25. At its peak (and according to CNBC), a single bitcoin was worth nearly $64,000 (in April 2021). Figure 1 may demonstrate its overall rise in value, but it also depicts its volatility. What with bitcoin being decentralized and unstable, governments and financial institutions may be right to remain wary. And, although blockchain technology is behind many other cryptocurrencies on the market (at the last count there were over 6,000 in existence according to Raynor de Best for Statista), it is with the reputation of bitcoin that blockchain is tethered, at least for now.
Not just bitcoin, but the wider cryptocurrency market itself, has a reputation for being wild country. On a daily basis there are new stories abounding about how organized crime is using digital currency to launder their ill-gotten proceeds, or how a scammer
has managed to defraud the vulnerable. In particular is the story of One-Coin. Many people believe this to be the largest Ponzi scheme the world has ever known with $4
billion in potential losses.
One of the main architects of the allegedly fake cryptocurrency is a Bulgarian woman called Ruja Ignatova. She became the face of the currency and expounded and sold a concept known as One Life: that One Coin was going to revolutionize the entire world. In reality, many people have lost large amounts of money, and Ignatova is nowhere to be found (she vanished in 2017 and some fear organized crime is involved).
For the public at large, an awakening needs to happen. The general public require an
understanding of the difference between each cryptocurrency as well as what blockchain is, in and of itself.
Blockchain is capable of driving any number of advancements – a facet of the technology that doesn’t advertise to the general population like it should. Indeed, it appears blockchain technology is in dire need of a public relations makeover, and its use in some new and progressive way might go some way to achieving it. Perhaps the trade finance sector is perfectly placed to lead the way?
Intuition and Institution
As stated by Carlo R.W. De Meijer for Fintech, imbedding blockchain technology in business amounts to 80% business process change, and 20% technological implementation. In short, integrating blockchain into an organisation’s operations is disruptive.
For any business looking to make the leap to a blockchain-based system, a drastic move away from traditional business practices has to occur. This even applies to companies that consider themselves progressive: ones that have already moved to an online culture. This is because blockchain technology is cryptographic and not just information based.
Not withstanding, because blockchain technology is uncoupled from a central overarching administrative power, institutions are nervous. They are conditioned to operate in the bubble of an overseer, who retains knowledge and command should anything go wrong.
Blockchain technology is not intuitive because it does not require the same oversight. It’s lack of intuitiveness is alien, and that is a hard sell. But it lacks intuitiveness because it is truly innovative, and therein lies its potential.
Perhaps one of the most fundamental hurdles to blockchain technology is regulation.
It is incumbent upon a government to protect its economy and provide utilities to its
population. In order to achieve this, it has to regulate the flow of money and tax it. Irrespective of the fact that tax versus income is a complex and thorny issue at the
best of times, history would indicate that regulation and taxation under the surveillance of a democratically elected government is the most effective form of fiscal protection and control.
However, at its heart, (and allowing for the fact that the blockchain tends to be unassailably shackled to cryptocurrency), blockchain technology removes the mediator from each transaction, and it is at the point of mediation that much of the regulation – and traditional protection – takes place.
How can governmental oversight be achieved while preserving the decentralized nature of the technology Presently, this is an unresolved issue and generates endless debate between technological proponents and entities that require the mediation.
As a technology, blockchain is fledgling. What this means in reality is that the digital infrastructure required to accommodate it is rudimentary. When discussions arise surrounding the viability of blockchain technology, transaction speed comes to the
The speed of a transaction is indicative of the scalability of the technology. According to Ali Saberi for Utilli, Visa handles 1,700 transactions per second, but claims to be able to cope with up to 24,000 (many debate this capability). Comparatively, Mastercard makes claims to handle 5,000 transactions per second.
As discussed by the Blockchain Council, bitcoin’s blockchain network is only able
to manage a maximum of seven transactions per second. This just doesn’t cut the mustard. Aspects of a network that tend to impact its speed are volume (and congestion) and in the case of currency, fees.
Blockchain technology is particularly cumbersome due to the intense mathematics that has to take place to make the technology secure (and decentralized): the cryptography.
Up until recently, if the entirety of the online world had been using bitcoin as a currency, things would have swiftly ground to a halt. The point though, is that bitcoin’s blockchain is but a part of the technological picture.
According to the Blockchain Council, there are much faster cryptocurrencies in operation these days. As can be seen in Figure 2, EOS is capable of 2,800 transactions per second, and confirmation of said transactions occurs within half a second (compared with bitcoin where it takes nine minutes, 59 and a half seconds longer). And once again, it is pertinent to emphasize that these network speeds only pertain to digital currency.
The potential of blockchain is reflected in the growth of bitcoin. Not necessarily in regard to the value of bitcoin and its growing ubiquity, but rather by how many new cryptocurrencies have come into being.
Where once there was only bitcoin there is now ethereum, tether, binance coin, cardano, XRP, USD coin, dogecoin, polkadot, uniswap, binance USD, chainlink, bitcoin cash, solana, litecoin, wrapped bitcoin, polygon, stellar, ethereum classic, dai, theta, terra, veChain, filecoin, tron, monero, aave, EOS, and FTX token, to name but a fraction (from CoinMarketCap).
Many have fallen into abeyance while new ones spring up regularly. What is interesting and somewhat surprising, is the fact that largely all of these blockchain networks are isolated from one another. The code upon which they sit are islands that do not communicate.
Protocols, securities, programming languages, consensus processes, and privacy mechanisms, are all unique and unfriendly. The result is a cluttered expanse of networks making up a sector that is in disharmony. The overall lack of uniformity makes widescale adoption a mammoth undertaking.
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