November 09, 2020
A decade ago, Satoshi Nakamoto published the bitcoin whitepaper, the spark that started the blockchain fire engulfing us today. Since then the options available and uses of blockchain technology have dramatically expanded.
However, we are still very much in the early days, often described as the “wild west”, of blockchain. What do the next 10 years look like, and what are some ways to ride the blockchain wave to get your company ahead? In this article we’ll be exploring some key features that different blockchain architectures support and discussing the contexts in which they can be useful in a variety of applications across industries.
Consensus algorithms
Consensus algorithms are one of the distinguishing features between blockchain platforms. They determine who adds blocks to the chain, and can affect transaction times, energy usage, and how trustless the network is. Here is an overview of 3 popular protocols and some discussion of where they will go in the next decade.
Proof-of-work (POW)
This is the algorithm used by Bitcoin’s blockchain, as well as Ethereum (currently). The way POW works is that the miners compete to solve a mathematical puzzle every time a block needs to be added to the chain. The miner that solves the puzzle first validates the next block, and receives a reward. It’s one of the most popular protocols, however it has high energy requirements since solving the puzzles takes a lot of computational power and hardware, making it ecologically suboptimal.
This algorithm is good for keeping a network decentralized and secure, the main appeals of blockchain, but network performance suffers as a consequence.Over the next decade it is likely that prominent blockchains will move away from POW. Ethereum currently uses this protocol, but they will soon be moving towards a combination of it and another later mentioned algorithm. Because of the electrical demands and hardware requirements, this algorithm it is losing popularity, which will likely continue.
Proof-of-stake (POS)
A consensus algorithm where the more of the network a node owns (stake) the more likely the node is to mine the next block and reap the reward. This is a more popular protocol than most, but still not nearly as common as POW. It still provides a financial incentive to be a part of the network, and to own a lot of the network, but without the hardware needs and extreme electrical expenditures of POW.POS is typically used in cryptocurrency based networks, with the “stake” being how much of the currency each node owns.
Depending on the function of the network, this may or may not be useful when using blockchain in a business. Ethereum is moving to using a POS-POW combination to improve on the weaknesses already discussed of POW. Whether or not this is the protocol that will replace POW in the next decade is unclear, but it’s certainly a qualified contender.
Proof-of-authority (POA)
Specific nodes in the network are given authority and are the only accounts that can mine new blocks. POA is not a commonly used protocol on public chains (although a couple Ethereum test nets use them). This could be because one of the appeals of blockchain is that it’s decentralized, while POA is not, as the network creators centralize what nodes can verify and mine blocks.
For business applications though this algorithm may become more popular. One of the draws to POW and POS networks is that there is an incentive for being on the network and mining. On a POA chain that isn’t the case. People on the network won’t be there just looking for financial gains via mining. It’s useful for industry applications, as the chain creators have all the control over what nodes are validating blocks.
In the next 10 years potentially other protocols will become more widely adopted, but it’s certainly something to consider when choosing a platform. The choice of algorithm can greatly impact transaction times, network security, and other areas of using a blockchain. Now that we’ve seen some ways in which the depths of blockchain may change in the next decade, let’s look at how some blockchain capabilities could evolve.
Smart contracts
Smart contracts are a feature not supported on the Bitcoin network that are gaining popularity today. They are a piece of code that is visible on the network for nodes to interact with. Ironically, one of the initial appeals of blockchain is that it removed the need for third parties, however a smart contract is essentially just a non-sentient, transparent third party.
Smart contracts are used to control the logic of decentralized applications (next section), but they can also be used to do anything a standard contract can do. For example, the DAO (decentralized autonomous organization) smart contract that was hacked in 2016. One of its functions was to hold cryptocurrency sent to it by members and then distribute funds to projects that members voted on and agreed to fund. Security problems aside, the goal of this contract was to allow for an organization to be fully functional without a management hierarchy.
Many blockchains today have smart contract capabilities, and this trend will likely continue. They can allow for easy data transfer, are transparent, customizable, and trustless (there’s no need to blindly trust anyone on the network). These contracts have an amazing variety of uses, from things like DAOs to distributing tokens in ICOs. When used strategically, smart contracts are an excellent tool on many blockchains to do a wide variety of tasks across a wider variety of industries. In the next decade hopefully they become supported on more blockchains and used by more organizations.
Decentralized applications (Dapps)
Dapps are simply applications deployed on a blockchain. When interacting with them they behave like standard websites or web applications, but rather than running on servers they are decentralized and distributed throughout the nodes in the network. Types of dapps include those that have their own cryptocurrencies (such as gaming apps that use crypto as game currency), financial dapps such as those for distributing tokens in ICOs, and more general dapps that can be used for anything.For example, BlockParty is a dapp that allows participants to register for events by sending it ether.
Once a participant’s attendance is marked as present during the event, the smart contract behind the dapp distributes the ETH deposit (along with any extra money from individuals who didn’t show up) back to attendees. It is a useful, straightforward, transparent decentralized application that could have been written as a standard web app, but instead it utilizes features on the Ethereum blockchain to incentivize attendees to show up to free events.
There are many fields in which dapps are useful and hopefully will be adopted in the next decade. Social media, healthcare, energy, data storage and other areas are excellent places where dapps could come in handy. There may be a slow transition, as the frameworks for developing dapps is much more limited than those available for web applications. Essentially anything can be tokenized, from domain names to software licenses. Dapps are one of the easiest ways to interact with these tokens and will become more popular along with blockchain.
Domain names
Currently identities on the blockchain look like this: 0xd275225cccae255fb831ff51b13aa5ad52939736. Public addresses mean nothing to humans, so there is some movement in the blockchain community to use human readable domain names. Ethereum Name Services (ENS) for example allows users to register a public address to a domain name. 0xd275225cccae255fb831ff51b13aa5ad52939736 could become myAddress.eth. These domain names also don’t only have to be registered to accounts. On a blockchain everything has a public address, from smart contracts to dapps to miners, and anything with a public address can have a domain registered to it.
Domain names help alleviate some of the difficulties of using blockchain, but they’re not widely used yet or intuitive to come by. Thus there is a lot of room for improvement in the next decade. One of the original selling points of blockchain among its early users was the anonymity public addresses provide. However, as we move into an age where more people are using blockchain, domain names are one way that this technology can be more user friendly.
The future
Presently using blockchain is not for the faint of heart. Cryptocurrencies aside, many tools are not amateur friendly from writing smart contracts to registering domain names. As blockchain becomes more popular in the next decade ideally better resources and more user friendly tools will continue to develop so that in turn the popularity can increase.
Blockchain has hundreds of applications beyond just cryptocurrencies and investments. We’re still in the frenzy phase described by Carlota Perez’s Technological Surge Cycle. There is a lot of experimentation and exploration being done by individuals and organizations about the possibilities and opportunities this technology holds. Where do you think the next decade will take us?
Could blockchains become auditable? – especially when used in banking, technologies and their implementations need to be auditable. Could the European eIDAS Regulation on Digital Signing and Authentication help? And how fit are blockchains for the future? – in fact they are not ready for quantum computing as Blockchains uses algorithms like elliptic curves which can be cracked by quantum computers.
This series tries to shed light on important security related aspects of blockchains and discusses some of the currently emerging loopholes. This first article looks at expected developments in the blockchain technology during the next 10 years. In the 2nd article we argue why blockchains will need to be auditable for successful business adoption. The 3rd article discusses how the digital signature regulation eIDAS can help making blockchains auditable.
