blockchain is shedding its toxic reputation
Many companies that would benefit from the blockchain have avoided it. Its carbon footprint, expenses and links to volatile cryptocurrencies contributed to the blockchain’s toxic reputation that it couldn’t shake and companies didn’t want to touch.
That was until the “merger”. This – now widely used – term refers to the restructuring of the world’s largest programmable blockchain: Ethereum. Simply put, in September the cryptography that powers the system has been switched from Proof of Work (PoW) to Proof of Stake (PoS). This essentially replaced the huge, power-hungry computers that were the network’s core validators with individuals and companies. It is expected to reduce the energy consumption of Ethereum by 99% and reduce the global use of energy by 0.02%, according to Vitalik Buterin, and significantly improves sustainability. The Surge, the epilogue to Merge, will eventually increase capacity and lower fees on the network.
It is clearly a significant step towards bringing Ethereum into the mainstream, and it marks an evolution of blockchain technology. But what does blockchain’s improved reputation do?
really intended for institutional use?
Press coverage has focused on more widespread crypto use; however, the real effect will be on the institutional side – particularly within financial services. Now the stage is set for innovations, it is likely that parts of the industry may turn to decentralized infrastructure. Blockchain can offer safe and secure transaction processing at a fraction of the cost, especially compared to the enormous costs and burdens of today’s systems.
This has never been more relevant. The digital asset market is maturing significantly just as its traditional counterpart is entering a period of turmoil and uncertainty. As the world rushes towards another recession, businesses will be looking at ways to save money and cut costs. A greener, more cost-effective blockchain can be part of the answer and reduce the institution’s huge IT expenses.
If implemented correctly, blockchain can save billions in infrastructure and associated IT costs. Instead of paying for SLAs, data centers, cloud hosting and other services, financial institutions can and will leverage blockchain infrastructure at a fraction of the cost of running the same transactions in-house. Apart from cost efficiency, tokenization can improve several areas of asset management specifically, such as issuance, exchange and servicing, as well as simplifying processes involving a number of intermediaries. Potential benefits include improved access to and personalization of investment solutions.
For private equity, blockchain can enable shared ownership and decentralized funds, which will not only increase transparency, but create more flexibility around liquidity for what could previously only be long-term, locked-in investments.
However, there is still one piece of the puzzle that is missing: interoperability. For true mainstream adoption of blockchain to happen in businesses, users need to be able to transact across multiple networks. Currently, it is not particularly easy to share information from one blockchain to another. To put this into context, if email communication interoperability had never been achieved, Outlook users would not be able to send messages to Gmail accounts and vice versa.
Although widespread adoption occurred as a result of the merger, the full benefits of the technology for businesses will not be unlocked until different blockchains – including Ethereum – can communicate effectively with each other.
