A Beginner’s Intro to Blockchain and Crypto
Tags: Blockchain, Bitcoin, Cryptocurrency, Technology, Finance

Right now, smart contacts are the most known application that enterprise organizations are becoming familiar with, but they do come with some challenges in this early stage of the technology like:

● Adoption Curve

There are still various business obstacles it needs to overcome.

● Learning Curve

Many business roles will need to be changed.

● Standardization

Each industry will need to establish the right standards to benefit their needs

● Data Privacy

How to address GDPR regulations with existing smart contracts

● People’s Expectations

Some over-excitement on the existing ability current smart contacts can provide at this time

There are other applications that can be built with Blockchain with the addition of smart contacts called dApps, and these bring other great benefits that can be leveraged, but also come with some challenges because of the newness of the technology.

The word dApp is an acronym for decentralized application: a software created through smart contracts that link the Ethereum blockchain, or any other suitable platform, to the back-end of an app. The dApps developers write sets of smart contracts that determine the overall function of each decentralized application. At the current state of technology, it is impossible to create a complex application and at the same time preserve the added value of decentralization, due to several technological limitations, among which the most impacting are:

● Transactions per Second

Bitcoin can bear an average of 5–7 tx/s, Ethereum 12 tx/s, compared to a Visa circuit, which can sustain up to 1,200 tx/s or a simple application like Facebook, which can even manage more than 1,000,000 tx/s;

● Transaction Costs

A Bitcoin transaction costs about USD 2.00–7.00 and an Ethereum transaction without a smart contract costs about USD 0.3–0.8, clearly showing how such costs are not acceptable for an application that requires millions of transactions per second;

● Bottlenecks

A fundamental problem is that all applications run on the same network, leading to periods of congestion where transactions can increase tenfold, driving up costs or even fail.

In order to solve the limitations related to transactions per second and costs, while still guaranteeing security, solutions such as the Raiden Network for Ethereum and the Lighting Network for Bitcoin have been created. Allowing to establish a private and distributed connection between multiple users, where only the first and the last transactions are validated on the blockchain, these solutions prove to be particularly useful for micro-payments and to store data on actions taken among several less significant participants.

Another solution to the problem of scalability, which has been promoted by the Ethereum team, is called Ethereum Plasma and consists of a protocol for the decentralization of federated blockchains. Federated blockchains, which differ from the other kinds of blockchain in the fact that they operate under the leadership of a group, are mainly used in internal company protocols and are infinitely scalable, but at the same time centralized, since they rely on a limited number of selected and non-anonymous validators.

Plasma offers developers the ability to create and customize their own private blockchain through a smart contract, with or without a reference cryptocurrency and federated validators, but still maintaining the quality control offered by the Ethereum Public Blockchain, thus generating a parallel, off-chain model, where Ethereum acts much like the “Supreme Court” and the private blockchain as the “State”.

In the last year, the blockchain technology underlying crypto-assets has experienced exponential growth, determined by the demand for the development of the first generation of decentralized applications. This scenario has led to the birth of many second-generation projects, both aimed at testing new and scalable methods of validation, such as Casper, NEO, or EOS, and at testing new blockchain applications focused on specific real-life uses, such as IOT, Big Data, Hosting, etc.

This, in turn, led to the third-generation concept of blockchain: interoperability. Interoperability carried out by projects such as AION, Polkadot, Cosmos, and ICON, allows an application to interact with multiple blockchains, opening the way to the first real generation of complex decentralized applications, which for each function needed, are capable of selecting the most performing blockchain and applying it to the use case without risking bottlenecks or network defects. Interoperability leads to what we like to call “Blockchain as a Microservice”, since we are now able to structure modern applications as divided into many dedicated and replaceable microservices. Much in the same way, the first generation of decentralized applications will continue to use blockchain technology, constantly catalyzing innovation and stimulating further research into its evolution, guaranteeing the possibility of scaling over time, without downgrading in terms of data validation efficiency.

Over the years, when any new or innovative technology came out it, was normally the IT departments who played a central role in getting their companies up to speed on its benefits and managing it. Blockchain is bringing a change to that approach, and one of the hurdles faced is that businesses are having a challenge in understanding that the business side will be more affected and need to change more than IT.

In the report Blockchain, Enigma, Paradox Opportunity conducted by Deloitte Consulting, they go on to say:

“It has been estimated that Blockchain is about 80 percent business process change and 20 percent technology implementation. This means that a more imaginative approach is needed to understand opportunities and also how things will change”

This concept of the business needing to make the major adoption changes associated with new technology is challenging for many senior leadership types. It will require a shift in the mindset of how companies will need to look at leveraging this technology since it’s going to change business and governance models along with whatever strategic roadmaps might already be in place. If organizations haven’t started looking at implementing a digital transformation mentality, it should be an area that should be considered if they are thinking of moving forward with the adoption of blockchain technology.

Many people still like to focus on just the functionality and features of Blockchain and get stuck there. If you look closer to where the disruption from Blockchain will come, it will lead you to focus on the business side of organizations, and the ways in which they will need to adapt to how the world will be doing business as Blockchain is increasingly adopted globally.

Even with all the great benefits Blockchain will bring to the business side, it will behoove businesses to become more educated on how they can leverage the crypto/tokenization side of Blockchain as well. It has the opportunity to advance faster recognition of revenue and increase the ability to conduct business transactions with easier processing of funds.