A new report from the World Economic Forum looks at blockchain’s promise as well as the practical challenges the industry needs to address.
Blockchain technology holds great promise for many companies across many industries – ensuring a trusted environment for commerce or operations by facilitating the creation of immutable records of transactions as they transpire along with related material.
While blockchain has plenty of potential it also faces many obstacles as explored in a new white paper published by the World Economic Forum. “Innovators are programming this new digital ledger to record anything of value to humankind – birth and death certificates, marriage licenses, deeds and titles of ownership, rights to intellectual property, educational degrees, financial accounts, medical history, insurance claims, citizenship and voting privileges, location of portable assets, provenance of food and diamonds, job recommendations and performance ratings, charitable donations tied to specific outcomes, employment contracts, managerial decision rights and anything else that we can express in code,” the paper’s authors, Don Tapscott and Alex Tapscott state.
The 3 levels of blockchain
The Tapscotts identify three functional levels for blockchain: the platform level supports “the protocols of blockchains — such as bitcoin, Ethereum, Ripple or Hyperledger – which support “an ownership claim on a particular technology platform, a claim represented by a token that comes with decision rights and usually an incentive to ensure the platform’s long-term success.”
Next, there’s the application level, which comprises “the tools that run on platforms, tools such as smart contracts that require massive cooperation between stakeholders to work.” Then, there’s the “overall ecosystem, the ledger of ledgers connecting (or not) bitcoin, Ethereum, Hyperledger, Ripple, Tendermint and other platforms.”
Challenges to blockchain need to be overcome both at a macro-level and among enterprise users. The Tapscotts explore some of the key issues that need to be addressed to make blockchain perform as expected:
Weak blockchain governance
“We need self-organizing, bottom-up and multi-stakeholder governance,” the authors say. Without a formalized governance structure, two effects could occur: “Either blockchain-based communities have difficulty acting or reacting expeditiously or else informal and invisible power dynamics emerge, often more centralized than they appear. That bears repeating: without governance, invisible powers could emerge.”
Immature protocols and standards
There’s a downside to arriving quickly at industry standards, the Tapscotts point out. “The space is still so young that the desire for standards, while well-placed, runs the risk of hardening projects that have really just come out of the lab.” The challenge is “preventing widespread adoption of an inferior technology.” As a result, “anybody running systems in this space needs to anticipate a period of five or 10 years of fairly rapid progress in the underlying technologies.”
The blockchain falls short on security controls for massive bumps in usage, the Tapscotts caution. “It lacks the transactional capacity to onboard millions and millions of people. Such an immature technology would be susceptible to capacity problems, system failures, unanticipated bugs and, perhaps most damaging, the huge disappointment of technically unsophisticated users, none of which it needs at the moment.”
Lack of constructive discourse
The Tapscotts quote one informed observer of the bitcoin scene who put it bluntly: “If I were to criticize the blockchain technical community, it’s not very respectful. There’s a lot of bravado, a lot of posturing, as you would expect, and it doesn’t even involve tech.” Such a hostile discourse “may put off otherwise really talented developers.” More conferences which allow for face-to-face discussions and socializing may help ease some of these issues.