nahmii, a Gateway to Scalable Virtual Economies (Part 1)
By: Katat Choi
Tags: Blockchain, Ethereum, Second Layer, Sdk, Scaling

First they ignore us, then they laugh at us, then they fight us, then we win. Andreas M. Antonopoulos

Momentum has been building within the blockchain industry since the introduction of Bitcoin in 2009. In addition to generating significant media interest, the technology has also been hailed as a potential disruptive force across a wide range of industries.

Recent high-profile blockchain initiatives such as Facebook’s Libra project and China’s DCEP digital currency have seen the technology reach a new, more mainstream audience. We have now reached the point where almost all major organisations are investigating blockchain, with many moving beyond mere curiosity about the technology and into active development. This shift marks an inflection point in the evolution of blockchain. As of today, it is likely we are in Andreas M. Antonopoulos’ fighting phase to find the equilibrium between the emerging decentralised communities and the traditional centralised organisations.

If we assume that markets work like living organisms, then liquidity provides the nutrients required to maintain their health and growth. In a competitive environment, only those organisms with a sufficient supply of nutrients will thrive. Continuing our analogy, markets without sufficient capital will die.

One of the advantages of having a central power to govern a financial system is the low latency in making new transactions compared to the decentralised organisations powered by blockchain. Centralised transactions within the traditional organisations can therefore be processed at the millisecond level with uncapped limited for the throughput.

People in China nowadays rarely carry cash in their pockets. Instead, the mobile phones are new “wallets” to make the payments daily, for both shopping online and offline. According to the People’s Bank of China (PBOC):

Mobile transaction volume reached 277.4 trillion yuan ($41.51 trillion) in 2018, up more than 28 times from five years ago.

On the side of blockchain-powered applications, high development costs, a steep learning curve, slow transaction processing and the complicated UX are the key barriers preventing mass adoption. Add in blockchain’s well-known scaling problems and this raises a simple question: if the centralised financial model is working so well, why experiment with blockchains that are still so cumbersome to transact in real-world use cases?

The answer is found in blockchain’s unique features: permissionless, trustless and decentralisation. The Internet offers freedom for information to flow through the networks. Blockchain offers the freedom for value to flow through the markets, reducing the costs and inefficiency introduced by the middlemen who control the rules of the market networks. Who will benefit from this technology? One obvious example is the financial industry, which inherits the traditional top-down structure of power distribution where centralising forces create a monopoly business which stifles innovation.

Consider the recent trend of DeFi applications. This new approach has revealed the potential value of mesh network structures, utilising composability atop different protocols to derive a new set of financial services. DeFi protocols, 0x, MakerDao, Set and many others, have demonstrated the power and flexibility of decentralised technologies. Because of their permissionless nature, these innovations have allowed for such rapid iteration that traditional financial institutions may find themselves left behind in the near future.

While it is clear that some industries are unlikely to benefit from this move towards decentralisation, the competition between the two ideologies looks set to foster innovation in the markets for some time to come. Before decentralised solutions like blockchain can achieve their true potential however, major barriers to adoption must first be overcome.