In this second part of the topic decentralization, we will look at trends in blockchain technology. Similar to the Internet, the development of blockchain technology underwent several stages, and it hasn’t yet reached its full potential. Everything started with Blockchain 1.0, which includes simple cryptocurrencies, like Bitcoin. Cryptocurrencies enable the irreversible and traceable transfer of currencies without the need for a trusted third party or the exposure of one’s true identity. With the introduction of smart contracts, Blockchain 2.0 was born. Those smart programs can express business logic and enable Distributed Autonomous Organizations, thus offering many more possibilities than simple cryptocurrencies. Although we don’t know yet what Blockchain 3.0 might bring, there already are alternative and advanced technologies, which do not quite count as blockchain technology anymore, but solve problems which blockchain technologies have not yet solved. Scalability is one of the biggest problems of the current blockchain technologies. We measure scalability in transactions per second that the blockchain can process. While Bitcoin can process 7 transactions per second and Ethereum 15, Visa currently processes about 1667 transactions per second, which shows the current unsuitability of blockchain technology for some use cases. There are several solutions that are being developed to solve the scalability problem, both for blockchain platforms and as blockchain alternatives like Hashgraph. For example, choosing a different consensus mechanism can help to speed up the transaction processing of blockchain technologies. While proof of work is a very time-consuming mechanism, proof of stake can for example be much faster, which is why Ethereum for example is planning to switch from proof of work to proof of stake. Until now, we have seen several examples of how blockchain can change existing applications or create entirely new application areas. In the Harvard paper “The truth about blockchain”, the authors present a framework to bring structure to the question of how blockchain can create change. They categorize blockchain applications based on their novelty, meaning how new the application is to the world, and their complexity in terms of how many different participants are needed to create value. The category “Single use” represents blockchain inventions with low novelty and low complexity, like bitcoin as an alternative payment method. The category “Localization” describes blockchain applications with high novelty but low complexity, like local, private networks between banks for processing financial transactions. The third category, “substitution”, summarizes applications with low novelty, but high complexity, for example cryptocurrencies on a large scale. And lastly, the category “transformation” represents high-novelty, high-complexity applications which require a great amount of effort and change, but also offer the largest benefits, for example using smart contracts to build whole corporations. As we saw during this course, blockchain offers a huge potential to transform applications and whole industries. But how far has the actual implementation of blockchain use cases come? At this moment, there are only a few applications, which are actually live. One example is Everledger, a blockchain to track diamonds based on the unique characteristics of each diamond. However, most blockchain applications are still prototypical implementations or proof of concepts, like Blockchain for Education, Food Chains and Smart Grids. However, as the blockchain technology matures, the amount of real, live applications will grow and continue to transform how our day-to-day operations work. In summary, a lot has happed in the development of blockchain technology since the Bitcoin blockchain was introduced and the development is still going on, as much more is possible with blockchain technology. For example, the scalability problem which is currently impeding blockchain use in some application areas, needs solving, but a lot of ideas are already present. Possible application areas for blockchain reach from low-novelty, low-complexity use cases like simple payments, to very complex, unique applications. And although most use cases are still in the development phase, they all show the unique transformative potential of Blockchain.
