Where is Blockchain headed?

by Arthur · November 6, 2022

The riddle of blockchain’s full potential is still being answered, but it continues to mature rapidly with regulators looming in the wings.

That was one aspect of a conversation among stakeholders in the sector at the DC Fintech Week conference, held online and in person last week. Chris Brummer, founder of DC Fintech Week, took on moderator duties again for the “What’s Next for Blockchains (And What Shouldn’t Be)?” session with on-stage panelists Charles Hoskinson, CEO of Input Output Global and co-founder of Ethereum; and Kevin Sekniqi, chief operating officer of Ava Labs; with Stani Kulechov, CEO of Aave, streaming in from Bogota, Colombia.

Blockchain is largely known for its role as the distributed ledger that enables cryptocurrency, but the technology has other potential uses. For example, Kulechov said there are also ways blockchain can open up inclusive opportunities for innovation in finance across a range of industries and regions. “When the space is very open, it means that anybody can come from any part of the world and actually innovate and create better financial applications and also non-financial applications,” he said.

The further development of blockchain may take the proverbial village to see it through. There are communities emerging in this landscape, Kulechov said, that must come together to establish rules for self-governance. It will ensure that incentives for blockchain use are aligned between the different communities, and not just for decentralized finance or Web3 space.

Building blockchain to hold more of a mainstream presence continues to be a work in progress. “There’s obviously still a lot of work being done to fundamentally scale these systems,” Sekniqi said. The ongoing work will continue for the next couple of years, he said. Sekniqi believes blockchain has moved out of the early technology phase of development, which could also bring deeper scrutiny from regulators. “When you become mainstream, it becomes very difficult to be on the fringes,” he said.

That means working on a bigger stage in the regulatory environment—a shift that blockchain stakeholders should be aware of. “Every single major blockchain and blockchain developer needs to develop systems with this in mind,” Sekniqi said. This revised thinking includes working to build blockchain in sustainable ways and enabling privacy in responsible ways, he said. “There is a lot of technology to be introduced there,” Sekniqi said. – There is a lot of work ahead in the next couple of years.

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Growing pains

The build-up of blockchain has inevitably led to some growing pains as the scale of the space and its big data needs to be increased. “We’re trying to exist with the consequences of scale,” Hoskinson said. “We have this homogenous model that everyone is their own blockchain, everyone has a full copy. This is the idea Bitcoin came up with.”

He raised doubts about the continued feasibility of such a model as its use escalates exponentially. “If you have millions of users year after year, you end up with blockchains that are at the petabyte scale or yottabyte scale,” Hoskinson said. “So how do you preserve this concept of inclusive accountability, meaning you don’t have a complete copy of the blockchain, but you’re able to verify it with the same trust model when an event happens?” He sees progress brewing in zero-knowledge encryption, where no additional information is shared during an interaction via blockchain to maintain privacy.

Other areas of blockchain technology research and development include making blockchain work on smartphones without compromising integrity, he said, which is an important factor in cryptocurrency consumption.

Another big area of research is on the governance side of blockchain, Hoskinson said, with some debate about the necessity of management teams for decentralized systems and whether those teams should be elected in some way to represent the people. “How the hell do you cope? Do you do it off-chain, with some kind of external social consensus? Are you doing it on-chain with explicit voting?” he asked. This is most represented with DAOs (decentralized anonymous organizations), Hoskinson said. There are also regulatory conversations about how to classify such organizations.

Concerns about power consumption

It’s no secret that blockchain and cryptocurrency can lead to significant power consumption by the computers that run this space. Hoskinson said it’s environmental concerns that encourage creating systems that don’t use large amounts of energy just to operate. There are also trade-offs to consider, he said, when it comes to the decentralization and control required for that to happen.

The pace of blockchain growth has led to a certain urgency. Hoskinson said not all blockchain companies have adopted the practice of taking time for research after a review process with slow methodological rollouts. The rush to make money from certain organizations, regardless of consequences, has created regulatory talks. “Anytime there’s a failure in the process, it usually ends up being a hack or semantic problem, which ends up in loss of value,” Hoskinson said.

These failures have painted the blockchain sector with at least a need for some caution going forward. “There has been over $35 billion worth of hacking; There have been ecosystems that have collapsed completely because of fatal fundamental economic failures, he said. “The question is whether the incentives are right in the industry? Because the problem is that the incentives right now are moving fast and ruining things, collect as many customers as you can and get paid up front. As long as you have that, it’s a mistake the market can’t correct, so regulation is necessary.”