As pointed out in part one, there are various reasons why blockchain technology has not been widely adopted. These discussions have covered subjects such as its association with cryptocurrency, a need for wider technological understanding, a need for businesses to move away from deeply embedded business practices, a necessary sea change in thinking around currency protection and regulation, advancement of infrastructure, and interconnectivity between blockchain networks. Just with these impediments, blockchain technology has its work cut out. But there are other hurdles that stand in its way…
As discussed in part one, should a business want to make the switch to a blockchain-driven operation, it can be a profound step. Where an organization is still dedicated to working with paper – a major issue in the trade finance sector – the actual transition to the blockchain could be less painful than the one faced by an organization with digital systems already in situ. The problem arises where the new technology needs to be able to integrate the old ‘legacy system’ into new practices.
For the most part, the answer lies in intensive resource investment, both financially, and in expertise. It is not surprising many businesses – especially perhaps small or medium enterprises (SMEs) – struggle to ring-fence the resources needed to make the change.
Beyond this, businesses must maintain the integrity of their data security, something not always achieved and a great deterrent to innovation. There is a growing market, however, for the safe storage of data, while businesses undergo their process transition.
Over the last several years, a gap has asserted itself in the market for ‘blockchain talent’, according to the Blockchain Council. As blockchain technology advances, so too does the need for appropriate technological expertise, but these have not remained in step with one another: the technological pace is outstripping professional availability.
And this is a growing problem globally. Technological giants such as Google, Microsoft, and IBM, have been keen to utilize the blockchain but have been scratching around to find suitable candidates.
Consequently, individuals with the right skill set have seen a boom in their respective corners of the sector. Even comparable expertise in jobs such as AI, Machine Learning, and Data Science, is not attracting quite as much cash as the blockchain professional.
The disparity might start to shift in the near future however since more and more organizations are springing up to offer critical training and professional certifications.
PoW or not PoW
Increasingly significant, and no doubt become as profound an issue in blockchain’s success as regulation, is that of its perceived energy consumption. Figure 1 demonstrates comparatively, how much energy is expended in running the bitcoin network, and the blockchain technology behind it. It tends to be through the bitcoin lens that blockchain
technology is scrutinized, and this may well be skewing perceptions. Per year, whole countries – like Holland – use less power than required to operate bitcoin. Early this year, US Treasury Secretary Janey Yellen (the top economic advisor to Joe Biden) said that ‘the amount of energy consumed in processing those transactions,’ (she was discussing transacting bitcoin) was ‘staggering’. A particular aspect of bitcoin that is intensely thirsty for energy is bitcoin mining. Mining is the process that takes place whereby new coins are brought into circulation.
Additionally, mining is an important factor in maintaining and developing bitcoin’s blockchain ledger. It involves solving highly complex mathematical problems using sophisticated computers. Mining currency tokens is not limited to bitcoin either, even if bitcoin is the most famous.
It is important to point out that bitcoin and blockchain are not inseparable. It is the cryptocurrency component that requires mining. And as stated by Sedlmeir, Buhl, Fridgen, and Keller in their paper on the subject, energy dependency is uneven across the entirety of the technology.
Essentially, what might be described as the first generation of blockchains, or Proof of Work (PoW), has been followed by a new generation categorized as non-PoW, and without getting too embroiled in the technical, the PoW-based blockchain technology is, by orders of magnitude, more energy consuming than non-Pow ones, and it is PoW-based blockchains that tend to be associated with cryptocurrency.
The emergent non-PoW technology mollifies the issue of energy consumption relative to its predecessor. However, and as discussed by Sedlmeir et al, and also comparatively, even non-PoW alternative consensus blockchain technologies consume substantially more energy than general centralized traditional IT networks.
Ultimately, the energy consumption of existing blockchain technology is excessive, but the perception initially attached to it through cryptocurrency association is becoming less accurate as technology advances.
Specifically pertinent to the world of business is the development of private blockchains. These networks do not need to be open to the vastness of cyberspace. Rather, they can remain contained in order to serve an organization and allow access to the invited.
Away from cryptocurrencies then, and toward the world of financing, these networks could be especially effective. The advent of blockchain technology in trade finance – according to IBM – will provide new financing products and revenue streams, create more opportunities for banking to SMEs that usually use open account trading, and generate analytical insights into financial positions and transaction histories that cannot be ascertained currently, reduce operating costs, provide greater control through blockchain security and visibility, and increase the speed of financial authorization and overall trading cycles.
Clients of financing will be able to access services more readily. There will be a reduction in the risk of defaults or late payments for financiers also, who will be able to track agreements from one end to the other. In turn, these opportunities will help to expand businesses and give them access to unprecedented corners of the global marketplace.
Largely speaking, the technological progress of the blockchain ilk tends to take a long time to marinate. The blockchain industry may well be waiting for the next new thinking but the hurdles still in the technology’s path are challenging and will take time to resolve.
Uptake will also rely on how effectively it can penetrate mainstream consciousness since blockchain technology is counterintuitive: for many, the ideas of absolute decentralization and wholesale joint ownership are slippery.
The two primary watchwords that appear time and again in discussions about blockchain are transparency and efficiency. The former is most certainly achievable now, despite various bad factions cringing at the notion. The latter is definitely on its way. It just happens to be playing catchup, for now.