The emergence of blockchain and cryptocurrency technology is one of the most exciting developments of the 21st century. Developers, business owners, governments and corporations are all grasping to discover and implement radical use cases. As with any new ecosystem development, the potential threats and opportunities are of equal importance. We’ll begin by looking at the potential threats that blockchain faces, before examining abundant opportunities.
The most ‘basic’ form of threat that cryptocurrency and blockchain faces. Immutability of the chain requires various forms of consensus mechanisms to validate and record transactions. A 51% attack occurs when a group of nodes is able to control 51% or more of the total hashing power of the blockchain, and can, therefore, alter the record-keeping mechanism. This allows for something called a ‘double spend’, whereby the attackers are able to ‘steal’ the underlying cryptocurrency by duplicating transactions.
Successful 51% attacks have had devastating consequences on some cryptocurrency ecosystems, with notable examples including Verge.
It’s well known that blockchain developers have to pick 2 out of 3 fundamentals when building their networks; security, speed, and decentralization. Whilst security and decentralization of a PoW consensus network like Bitcoin is incredibly safe, due to the large numbers of users validating transactions, it suffers from slow speeds of transactions as a result. Likewise a network like Ripple is factors faster than Bitcoin, with over 1,500 tx/s throughput, however, it is far less decentralized and, arguably, less secure.
This conundrum of balancing scalability and chain security has lead to the development of many different secondary layers. These are then applied ‘on top’ of the primary blockchain and include the Lightning Network for Bitcoin and Plasma for Ethereum.
Despite these inherent obstacles, there remain substantial opportunities with the application of blockchain technology.
Whilst the success of protocols such as Bitcoin have initially suggested that the ‘success’ of blockchain lies in the issuance of cryptocurrency, this view partially clouds the society-altering opportunities of DLT for commerce as a whole. For example, current cross-border processes are laborious and costly, with sky-high fees blighting workers and families alike. PayPal, despite being one of the cheapest current cross-border choices, charges roughly 3.4% plus an engorged spread between their FX currencies. Western Union is even more expensive which charges $5 for a money transfer of up to $50, but a transfer of $900 could cost $76.
Distributed ledgers such as Ripple and Stellar are aiming to tackle exactly this sort of financial inequality, providing transactional costs of fractions of a cent. Moreover, instead of taking days to receive, these transactions are often confirmed in 3-5 seconds. Incredibly these are just two examples of how commerce could be completely transformed by blockchain and DLT.
Blockchain technology has the potential to be utilized for immutable citizen identities, healthcare records, document processing, state services and the secure transmitting of sensitive information. Decentralized and unhackable voting, to increase citizen participation, is also being developed. The potential to vote from a decentralized app, in a completely secure, private and recordable way, could be revolutionary. Due to time-saving measures, implementation of blockchain will also likely increase government and state efficiency, leading to cost-savings and better infrastructure investment.
Weighing up both of security risks and opportunities of blockchain and distributed ledger technology is paramount in order to understand the benefits and potential pitfalls. Excitingly, these topics and many more will be covered during the New Economy Online Conference sponsored by Newconomy and (UBAI) the University of Blockchain and ICOs.