The Growth of Blockchain Technology
The Development of Blockchain Technology
Blockchain technology, alternatively referred to as distributed ledger technology (DLT), is the technological framework that underpins cryptocurrencies like bitcoin and ether. The philosophical and technical mechanisms that enable a blockchain to function were unleashed on the world by way of a pseudonymously published white paper in 2008. The author, using the name Satoshi Nakamoto, did not use the term blockchain in the paper on peer-to-peer electronic cash systems, but the clever code that enabled distributed ledger technology traces its roots to these humble beginnings.
While the technology was initially utilized in the financial services industry by investors, currencies traders, and libertarian cypherpunks, a growing group of technologists, business people, governments, and investors are realizing the potential applications for distributed ledger technology in solving a variety of problems stemming from deficits in social capital (transparency issues) or inefficiencies in processes that span the physical and digital worlds. (Bratcher, 2020). Blockchain technology has the potential to be as disruptive in the future as the internet has been over the past several decades (Casey and Vigna, 2018).
As is common with disruptive technologies, most analysts and observers overestimate the technology’s impact in the short-term and underestimate it in the long-term. The applications for blockchain in the public sector are myriad, as it provides are more transparent and secure way of maintaining registries of all kinds (Kaczorowska, 2019). The true value add in blockchain is a more efficient and transparent transfer of value in a trustless environment. In other words, it does not require third-party verification due to the checks and balances of the distributed network of nodes, clever code, and public-private key cryptography. According to IBM, blockchain technology adds irrefutable proof that a transaction occurred because of these four qualities: consensus (agreement that a transaction has occurred), provenance (history of transactions), immutability (an append-only data structure), and finality (an agreed source of truth).
Blockchain, and cryptocurrencies specifically, are not a panacea. The ICO craze of 2017-2018 demonstrated that malicious actors can take advantage of this technology for illicit gain. Blockchain initially garnered a poor reputation in the public eye because of incidents like the “Silk Road” scandal. However, as can be seen in recent investigations by the US Department of Justice, authorities are beginning to realize that certain kinds of cryptocurrency transactions are easier to track than traditional money laundering or crime committed with bearer assets like cash.
To borrow an analogy from Gartner, Blockchain has been through the hype cycle, through the trough of disillusionment, and is now maturing into the plateau of productivity.
Maturing Use Cases
Blockchain is coming into its own and has found adoption in several industries, where it has been able to streamline processes or eliminate issues of trust. Perhaps the most prominent use case for blockchain is in the world of supply chain logistics. This technology became especially popular in the food and beverage industry, for either proving the authenticity of goods, or for recording their origins – especially important for tracking cases of food-borne illnesses back to their sources, and making sure that only impacted lots are recalled (and that no impacted lots are overlooked).
Blockchain technology also underpins a whole new world of financial instruments. Decentralized finance (DeFi) uses smart contracts to govern the actions of financial platforms, automating things like loan approval and investments. DeFi platforms can either serve the same functions as centralized platforms, such as payment processing, or they can give rise to entirely new and novel financial instruments. One such example is flash loans, which allow users to plan and perform a complicated series of actions, which result in a loan being taken out, utilized, and paid all in a single transaction.
An Industry Polices Its Own
In order for the blockchain industry to continue to grow, it must be seen as a safe space for both individual users and institutional investors. To some extent, this will require sensible legislation from regulators around the world, but the industry itself, and the community surrounding it, also has a role to play.
Legislation has been struggling to keep up with the pace of innovation in the blockchain industry. Hackers and scammers, on the other hand, have remained on the cutting edge, finding ways to exploit every new development for their own advantage. This has created a space that often seems intimidating to the average retail user, and a poor investment for institutions.
Currently, it often falls on the industry to police itself. This takes two main forms: scam hunting, and audits.
Scam hunters investigate projects in the blockchain industry to determine their legitimacy and their potential to take advantage of their users. These may be individuals, loosely-organized groups, or even businesses. Scam hunters share the results of their investigations via written posts on their own blogs, Medium, and major blockchain publications, in YouTube videos, on podcasts, and via community hubs such as forums and Telegram chat groups.
Audits are performed by professional organizations or by individuals. These audits look at the code for smart contracts and other elements of a blockchain project, analyzing it for potential weaknesses and loopholes that could be exploited. These audits may reveal “back doors” that the project owners could exploit for their own benefit or flaws in the code which hackers could use to gain illicit access to funds or data.
Cointelligence has built a reputation for policing the blockchain industry with both scam hunting and audits. Since 2017, we have called out scam ICOs, fraudulent exchanges, and individual scammers. We have published independent audits of smart contracts we had concerns about and performed paid audits for projects who wanted an external code review.
Self-policing signals to individuals, institutions, and regulators that the blockchain industry is serious about safety and security. It shows that the industry is maturing, and has an eye to its own future, and understands the importance of the role it can play in revolutionizing finance, supply chains, and more.
References
Casey, Michael. & Vigna, Paul. (2018). The truth machine: the blockchain and the future of everything. New York: St. Martin's Press
"IBM Blockchain - Enterprise Blockchain Solutions & Services | IBM.” https://www.ibm.com/blockchain (February 13, 2020).
Kaczorowska, M. (2019). Blockchain-based Land Registration: Possibilities and Challenges. Masaryk University Journal of Law and Technology, 13(2), 339–360. https://doi.org/10.5817/MUJLT2019-2-8