How Blockchain and Cryptocurrencies Can Achieve Mainstream Use: Part 1
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- How Blockchain and Cryptocurrencies Can Achieve Mainstream Use: Part 1 - September 27, 2018
“Today thoughtful people everywhere are trying to understand the implications of a protocol that enables mere mortals to manufacture trust through clever code. This has never happened before—trusted transactions directly between two or more parties, authenticated by mass collaboration and powered by collective self-interests, rather than by large corporations motivated by profit.” ~ Here’s Why Blockchains Will Change the World, Fortune Magazine
Blockchain tech is heralded by proponents as a disruptive innovation to the very foundations of our global economy, promising to give the status quo a run for its money in everything from… well, money, to payment processing, fundraising, contract management, distributed cloud computing, voting, supply chain management, identity management, public record keeping, real-time asset ownership proof and more. But despite all the hype, it hasn’t yet come close to gaining mainstream adoption. In this series, we’ll explore why that is, and what needs to happen before it does.
By far the biggest challenge for Bitcoin, Ethereum and most other cryptocurrencies (many of which are simply copies, or forks) is scalability, or the ability to be used by large numbers of users at the same time. Bitcoin, for one, simply can’t be used as a payment processor or currency because the distributed network it relies on can only process 3 or 4 transactions per second. In order to match the scale of Visa, for example, it would need to process 24,000 transactions per second. To be used even at the scale of PayPal, a cryptocurrency would need to process up to 450 transactions per second.
The Bitcoin Lightning Network is touted as a solution to this problem, but the reality is that it hasn’t proven itself as workable yet, and on top of that, it also gives up some of the decentralization principles that Bitcoin was founded on, essentially relying on centralized “banking hubs” to run it. This might be better than the existing financial infrastructure, but there are still better, much more decentralized and trustless options (more below).
Meanwhile, Ethereum and other blockchain-based smart contract and decentralized application (DApp) networks can’t process close to enough transactions to run even one application at scale let alone the 1, 910 or so that currently exist.
This is with the total number of users for all DApps combined currently standing at a mere 11,250 daily active users. If all of these DApps did end up being used by even a few hundred thousand users, simple math shows that transactions in the DApps would slow the network to a crawl, making all DApps completely unusable.
There are solutions to this scaling problem, however. Ethereum’s scaling solution, called sharding, isn’t set to be released until 2020 (they hope), but there is already a scalable DApp and smart contract platform operating, called Zilliqa. Unlike Ethereum and other existing solutions, Zilliqa’s network will run faster as the number of nodes in the network grows, reaching approximately 15,000 transactions per second with the number of network nodes that Ethereum currently has (with its existing nodes, it can do a respectable 2,488 transactions per second). The more nodes that are in the network, the faster it gets, theoretically scaling as much as demand warrants.
Another contender in the scalability race is Holochain, which technically isn’t even a blockchain, though it operates in much the same manner. Like Ethereum, Holochain is a DApp platform, but unlike Ethereum, each network node in the public Holochain ledger maintains a private “fork” of the network, which is stored and coordinated via a public distributed hash table (similar to blockchains).
Akin to how Proof of Work, Proof of Stake, and related cryptocurrencies reward “miner” network nodes that run their networks, Holochain users earn Holo fuel for sharing extra space and processing power to run network DApps. The difference is that the more users there are using Holochain, the more transactions per second the network can handle, since network participants are actually doing useful work rather than simply devoting all that processing power to solving cryptographic puzzles, as in mining.
As the developers write in their Github page:
“So, Holochain as an app framework does not pose any limit of transactions per second because there is no place where all transactions have to go through. It is like asking, “how many words can humanity speak per second?” Well, with every human being born, that number increases. Same for Holochain.”
Another promising technology that operates on a similar principle as Holochains is called Directed Acyclic Graphs (DAGs).
Just as with Holochain, DAGs rely on network user processing power to run the network, creating an infinitely more scalable solution compared to Bitcoin and other blockchain networks. With all users contributing the same or more processing power than they use, DAGs could easily replace all centralized payment networks on the planet with processing power to spare. Cryptocurrencies using this technology include Nano, IoT Chain, IOTA and Byteball.
With the brunt of the blockchain hype now dying down as Bitcoin’s price continues its decline from its all-time high of nearly $20,000 in December, and with relatively few actual users, one might wonder if cryptocurrencies will ever fulfill their promise of creating a more decentralized currency, or even a usable DApp or smart contract platform. If the technology continues to move forward, however, with leading projects incorporating innovations by startups in the space, or simply falling away to make room for more scalable and useful technologies, more mainstream usage is inevitable. In the next articles in this series, we’ll explore other hindrances to wide scale blockchain use, including Ineffective Governance, Energy Waste, Centralization and Inequality, and Legal Issues.