The Shortsightedness of Blockchain Disillusionment

Anyone who gets disillusioned with blockchain should consider spending time researching why blockchain technology:

1. Is still immature,
2. What needs to happen to make it scalable, and
3. Why it can revolutionize business and society

The hype over blockchain was not misguided.  As with most catalyzing technologies, the hype resulted from a glimpse of a promising future reality that is not fully baked yet. We are predictably starting to fall into the infamous ‘trough of disillusionment’ (see Hype Cycle for Blockchain Business, 2018) but that does not mean we will stay in the abyss indefinitely.

We just published a research note The Future of Blockchain; 8 Scalability Hurdles to Enterprise Adoption  and examined what scalability means and what needs to happen to achieve it in blockchain.

We identified 8 main hurdles, half of which are technical and half of which are needed for a successful operating model.  See Figure below.

Beware of Centralized Permissioned Blockchain Projects

Until such time(s) that these hurdles are surmounted, most permissioned blockchain projects will remain in development or POC mode. More importantly, they will NOT support the KEY blockchain tenet of DECENTRALIZATION so under those circumstances, these projects are likely much better off using proven legacy database technology. Most vendors supporting permissioned blockchain will tell you otherwise but if you look carefully, those vendor projects are likely to turn into yet another form of vendor lock-in, despite assertions to the contrary.

8 Hurdles Analyzed

Our research examines each of these 8 hurdles in depth. For example, we start to analyze:

Layer 2 (aka Second Layer) Scalability Solutions. Emerging solutions that remedy these issues and enable scalability are all based on the premise that not all nodes need to process all transactions. They therefore break away from the fundamental limitation of current blockchain systems. The emerging solutions include:

• Layer 2 “off chain” protocols, which are still largely in beta (e.g., Lightning Network for Bitcoin, Plasma, Raiden or Liquidity Network for Ethereum, State channels, Truebit, etc). These off-chain solutions generally move transactions off the main chain to a second-layer messaging system unencumbered by main chain consensus protocols and data structures. For example, with Bitcoin cryptocurrency, a user can move funds off chain to a stored value account on the Lightning Network, which then uses a separate protocol to move funds to other peers. Once the user closes his or her Lightning channel, the funds revert back to the main chain.

• Sidechains are blockchains that handle assets off of the main blockchain and are able to return them to the main blockchain at a future date. Sidechains, still largely under development, can benefit from the security of the root chain either through verification (e.g., in the case of Polkadot), or through enforced smart contract rules that guarantee a user can pull their child chain tokens out at any point (e.g., in the case of Ethereum Plasma’s “child chains”). Sidechains can update their state at any point on the root chain to ensure transaction immutability at that point. They can also theoretically enable transaction reversal only on the sidechain, as appropriate per user requirements, before the state is updated on the root chain.

Strategic Planning Assumptions

Our research concludes with these main strategic planning assumptions:

• By 2023, viable permissioned blockchains will be tightly integrated with public blockchains, using architectural options such as sidechains hanging off of public blockchains.
• By 2020, most permissioned blockchains will be anchored to public blockchains using one of various technical methods, such as sidechains or virtual chains, but their scalability and operational effectiveness will not be widely proven until 2022.
• By 2022, the dominant blockchain platforms will support the flow of both private and public transactions across multiple ledgers.
• By 2028, public and permissioned blockchains will be merged at the infrastructure level, and they will support transactions that are either public or private.

Bottom Line

We will be continuing to research each of these hurdles along with the platforms’ and vendors’ progress in surmounting them.

The blockchain market clearly has a lot of work ahead of it but it will get done. It’s well known that some of the smartest minds out there are working on solving these problems.

In the meantime, it’s shortsighted to write blockchain technology off because successful projects (other than stored value cryptocurrency) are far and few between.  There’s a good reason for that and it mainly comes down to the lack of scalability – from both a technical and business perspective — in today’s platforms and solutions.