On October 31 of this year, it will mark blockchain’s 10th anniversary. 10 years have passed since the individual, group or entity, named Satoshi Nakamoto published the famous white paper describing blockchain and its use. A decade is a long time for any technology, doubly so for any emergent computer technology. While blockchain has advanced in some ways, its basic functionality has remained the same since its inception. The main critiques with the system are its painfully low transaction speeds, its massive power consumption, sustainability and, as we previously discussed on The Financial Telegram, the many scams, as well as fraudulent crypto-investment schemes.
In a bit of a “Catch-22,” blockchain’s primary strengths are also its biggest weakness. The “proof of work” consensus mechanism and how it creates immutable data blocks have made blockchain a very powerful distributed ledger technology (DLT). However, while these two factors are what have made it so successful, it has also made it painfully slow, at 3 to 4 transactions per second, describes Doctor of Business Administration Patrick Schueffel, in a research paper at the Institute of Finance in Fribourg. Moreover, the intense mathematical power required for the “proof of work” concept consumes phenomenal amounts of energy.
Bitcoin’s blockchain, for instance, has a high power consumption equivalent to .13% of the total power consumption in the world. What’s worse, according to Digiconomist is that the network is mostly fueled by coal power plants in China, resulting in a massive carbon footprint. To put it in perspective, compared to VISA’s payment system which consumes 169 Kilowatt-hour per 100,000 transactions one Bitcoin transaction on the blockchain consumes 923 Kilowatt-hour. While blockchain has its benefits, the technology also comes with its costs and the data shows that it is not a sustainable technology.
While blockchain certainly has its advantages, there are plenty of other current and emerging technologies which offer secure transaction and data management. Among the existing technologies, an article by FXCM entitled ‘What Are Blockchain’s Limitations’ suggests SQL Server and Oracle as alternatives to blockchain technology. As for emerging technologies, IOTA is touted as the eco-friendly alternative and unlike Bitcoin’s blockchain, which requires dedicated miners for each validation process and massive computing power, every participant on the IOTA network helps contribute to the validation process of the transactions. In this way, the blockchain-like consensus system is simplified and able to run on small devices with limited power, without the need for dedicated miners and massive computing power.
Similar to IOTA’s architecture, which uses a Directed Acyclic Graphs (DAG) technology, is the Hashgraph algorithm, which can provide the benefits of blockchain without the limitations. Highly efficient and secure, using asynchronous Byzantine fault tolerance, and requiring no “proof of work,” Hashgraph can handle hundreds of thousands of transactions per second. Tangle, is another disruptor, which doesn’t use blocks and unlike blockchain requires only two previous random transactions to be confirmed and approved by the system (instead of the entire history of transactions) before any new transactions are added. While blockchain, as the incumbent technology, has been associated with DLG technology, emerging technologies are poised to offer better and faster alternatives.
Image Source: Freepik