In 2017 we were told that blockchain technology and cryptocurrencies were going to save the world, disrupting just about anything with a digital fingerprint. But we saw very few tangible examples that justified the hype. In 2018, many of the intriguing pitches we heard will still be around, only now the challenge is going to be finding a way to deliver real products and services. Here are some of the biggest issues that members of the blockchain world will have to work through if the new year is going to realize the potential that was so highly touted in the last.
Bitcoin’s civil war
The higher Bitcoin transaction fees rise—a function of soaring demand bumping up against the currency’s transaction-processing capacity—the stronger the tension grows between two camps of Bitcoin devotees. On one side are those in favor of addressing the currency’s capacity bottleneck by doubling the size of transaction “blocks” recorded on the blockchain. On the other are traditionalists loyal to the core developers, the small group in charge of maintaining Bitcoin’s software.
Entrepreneurs and others who argue for expansion are eager for Bitcoin to evolve into a mainstream payment method. The fight was supposed to come to a head in November, but a planned “hard fork” was postponed. The outcome of the battle could very well decide the future of the world’s first cryptocurrency (see “What Bitcoin Is, and Why It Matters”).
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Ethereum’s moment of truth
Vitalik Buterin designed Ethereum specifically to facilitate so-called decentralized applications. The system, which went live in 2015, has a built-in programming language that developers can supposedly use to create all sorts of new apps that are powered by the network. Thus far, however, the most popular way to use it has been to create brand-new cryptocurrencies and sell units to investors in what are also called initial coin offerings. (What the Hell Is an ICO? ← Here’s a primer)
Promoters and advocates say such digital tokens can eventually form the basis of a new digital economy in which valuable data is managed in blockchains instead of centralized servers. Cool, but we were promised an economic revolution, and so far all we got has been a game in which you trade and breed digital cats. If that doesn’t change in 2018, a lot of investors will be disappointed.
Proof-of-work vs. proof-of-stake
No matter how you slice it, Bitcoin uses a lot of energy. So does the second-largest public blockchain network, Ethereum. That’s because they both rely on a computation-intensive method, called proof-of-work, to establish agreement between all the participants in the network that new transactions are valid.
There are less energy-intensive ways to do this. A leading contender to supplant proof-of-work is called proof-of-stake. Instead of miners’ being relied on to validate new transactions, the responsibility would fall on users with a monetary stake in the network, called “stakers.” It’s unlikely that Bitcoin will move away from proof-of-work anytime soon, because it would have complex technical and economic ramifications. But Buterin recently said that Ethereum could upgrade to a hybrid scheme that includes proof-of-stake components as early as next summer.
Privacy tricks that sound like science fiction
So you thought Bitcoin was anonymous? Hope you weren’t buying anything naughty with it, because—surprise—it really isn’t. But privacy is still of major interest to the cryptocurrency community, which is why you should expect to hear more in the coming year about a cryptographic protocol called a zero-knowledge proof.
The mind-bending math of zero-knowledge proofs makes it possible to prove something (say, that you are older than 18) without revealing anything else (like your precise age). A currency called Zcash already uses this to make truly anonymous transactions possible. JPMorgan Chase has even adopted it for its “enterprise blockchain” system. And thanks to its latest software update, Ethereum’s developers can now implement zero-knowledge capability too. It would not be surprising if the next year were to yield applications of zero-knowledge proofs that we haven’t yet imagined. Get ready: things could be about to get very weird—and very private.
Keep up with the latest in Bitcoin at Business of Blockchain 2019.
May 2, 2019