The riddle of blockchain’s full potential is still being answered, but it continues to mature fast with regulators looming in the wings.
That was one aspect of a conversation among stakeholders in the sector at the DC Fintech Week conference, held online and in person last week. Chris Brummer, founder of DC Fintech Week, took on moderator duties again for the “What’s Next for Blockchains (And What Shouldn’t Be)?” session with on-stage panelists Charles Hoskinson, CEO of Input Output Global and co-founder of Ethereum; and Kevin Sekniqi, chief operating officer of Ava Labs; with Stani Kulechov, CEO of Aave, streaming in from Bogota, Colombia.
Blockchain is known largely for its role as the distributed ledger that enables cryptocurrency, but the technology has other potential uses. For example, Kulechov said there are also ways blockchain can open up inclusive opportunities for innovation in finance across a variety of industries and regions. “When the space is very open, it means that anyone can come from any part of the world and actually innovate and create better financial applications and also non-financial applications,” he said.
The further development of blockchain may take the proverbial village to see it through. There are communities emerging in this landscape, Kulechov said, that need to come together to establish rules for self-governance. That would ensure that incentives for using blockchain are aligned between the different communities, and not just for decentralized finance or Web3 space.
Building up blockchain to hold more of a mainstream presence continues to be a work in progress. “There is obviously still a lot of work being done to fundamentally scale these systems,” Sekniqi said. That ongoing work will continue for the next couple of years, he said. Sekniqi believes blockchain has moved out of the early technology phase of its development, which can also bring deeper scrutiny from regulators. “When you become mainstream, it becomes very difficult to be on the fringes,” he said.
That means working on a larger stage in the regulatory environment — a shift that stakeholders in blockchain should be aware of. “Every single, big blockchain and blockchain developers are going to have to develop systems with this in mind,” Sekniqi said. This revised mindset includes working on building blockchain in sustainable ways and enabling privacy in responsible ways, he said. “There’s a lot of technology to be introduced there,” Sekniqi said. “There’s a lot of work to be coming in the next couple years.”
The buildup of blockchain has led inevitably to some growing pains as the scope of the space and its big data needs amp up. “We’re trying to exist with the consequences of scale,” Hoskinson said. “We have this homogenous model that everybody is their own blockchain, everybody has a full copy. This is the idea Bitcoin brought.”
He raised doubts about the continued feasibility of such a model as usage escalates exponentially. “If you have millions of users year after year, you end up having blockchains that are in the petabytes scale or the yottabytes scale,” Hoskinson said. “So how do you preserve this concept of inclusive accountability, meaning you don’t have a full copy of the blockchain, yet you’re able when an event happens to verify it with the same trust model as if you did?” He sees advancements brewing in zero-knowledge cryptography, where no extra information is shared during an interaction via blockchain to maintain privacy.
Other areas of research and development of blockchain technology include getting blockchain to work on smartphones without compromising integrity, he said, which is an important factor in the consumerization of cryptocurrency.
Another big area of research is on the governance side of blockchain, Hoskinson said, with some debate over the necessity of management teams for decentralized systems and whether those teams should be elected in some way to represent the people. “How the heck do you handle that? Do you do it off-chain, with some sort of external social consensus? Do you do it on-chain with explicit voting?” he asked. This is most represented with DAOs (decentralized anonymous organizations), Hoskinson said. Regulatory conversations are also happening about how to classify such organizations.
Power Consumption Concerns
It is no secret that blockchain and cryptocurrency can lead to significant power consumption by the computers that drive this space. Hoskinson said there are environmental concerns encouraging the creation of systems that do not consume vast amounts of energy just to operate. There are also tradeoffs to consider, he said, in terms of decentralization and control that are required for that to happen.
The pace of blockchain growth has brought some chancy haste. Hoskinson said not every blockchain company has been adopting the practice of taking the time for research following a process of review with slow methodical rollouts. That rush to turn a profit by some organizations, regardless of consequences, has stirred regulatory conversations. “Every time there’s a failure of process, it usually ends up with a hack or semantical issue, which ends in a loss of value,” Hoskinson said.
Those failures have painted the blockchain sector with at the very least a need for some caution moving forward. “There’s been over $35 billion worth of hacks; there’s been ecosystems that have entirely collapsed because of fatal fundamental economic flaws,” he said. “The question is, are the incentives right in the industry? Because the problem is, right now the incentives are move fast and break things, gather as many customers as you can, and get paid upfront. As long as you have that, that’s a failure the market can’t correct, so regulation is required.”