“If the United States were to decide we didn’t want cryptocurrency to happen in the United States and tried to ban it, I’m pretty confident we wouldn’t succeed.”
This was a statement made just a couple of days ago at the U.S. Senate’s hearing about regulation of cryptocurrencies and blockchain.
Even parties who might want to regulate or constrict blockchain recognize it as an inevitable, unstoppable force of the future. Cryptocurrency is just one of the many manifestations of this technology, with the potential of blockchain ranging to everything from small grassroots efforts like crowdfunding to large-scale, global endeavors like an entirely new Internet. Because of its efficiency, scalability, and affordability, blockchain technology will take the world by storm and completely redefine the way we think about data transmission. The simple and yet powerful axioms that define blockchain technology also give it many benefits that outdate traditional economic views, and even outdate current tech giants who challenge those views.
For all of the jargon and mystery associated with blockchain technology, it is essentially just a decentralized ledger. It involves storing data in groups called blocks across thousands or even millions of nodes, which are all the devices across a blockchain network. After the nodes reach a consensus – that is, they agree on the validity of the data in the block, the block becomes published and added to the chain of other blocks.
Because the data is stored and processed evenly across all nodes, decentralization is one of the defining features of this technology.
Another key aspect is transparency: once the block is added to the chain, anyone can access it and view it. The third critical feature of this network is immutability – after the block is published, it cannot be tweaked, disputed, or removed. Even if one node on the network tried to change the information, all of the other nodes would have information to oppose and therefore neutralize it. These key features give the technology major advantages to traditional data transmission techniques. One of the most important advantages is that blockchain does not have transaction costs.
Everything is automated and decentralized so, while there are associated infrastructure costs (often internalized by the network), there is no overarching agency to charge the operation. This is the exact opposite of financial institutions and companies based on the market-maker principle.
Companies like Airbnb and Uber – which rely on the costs they charge for connecting buyers and sellers – will be made obsolete by blockchain technology. All that needs to be done is to encrypt the information associated with a bed and breakfast or a car ride – and the convenience provided by such business models will be multiplied and freely provided by the blockchain.
Even more complex and large-scale marketplaces like Amazon could be replaced by blockchain technology. Not only could the products themselves be captured by blockchain code, but also the reviews, ratings, and other associated third-party information. All of this data could be stored and transmitted – freely – on the blockchain network. What’s more, the producers and suppliers would receive the full profit as opposed to a small portion or royalty.
Intuitively, it’s easy to see why this would be attractive to both buyers and sellers, but this is substantial even from a fundamental economic perspective. By eliminating transaction costs, which is a source of market inefficiency and deadweight loss, markets will be able to conduct business at true equilibrium where supply meets demand, and thus total market utility and welfare will increase. Since profit from the companies is no longer getting eaten up by transaction costs, more producers will be able to enter markets, more consumers will be able to purchase, and higher quality products will be sold for cheaper prices. Blockchain has the power to bring the world to a new age of economic prosperity. While the inherent traits of blockchain give it much promise, when combined with other growing technologies, the power of blockchain is heightened even further.
For example, the growing development of artificial intelligence makes it a promising partner for blockchain. By applying artificial intelligence to blockchain networks, they could potentially become even more secure and robust. Even though the decentralized and encrypted nature of blockchain technology makes it very difficult to hack, hacks are still possible, such as those launched against cryptocurrencies. Though they are not popular, when they do happen, they get a lot of publicity and undermine the promise of blockchain technology. By applying artificial intelligence in the form of an algorithm like Homomorphic encryption, which operates on encrypted data, this issue could be solved.
Another aspect that artificial intelligence could improve is efficiency. As mentioned earlier, though there are no transaction costs associated with blockchain technology, there are infrastructure costs. Millions of dollars can be spent sharing and validating blocks in certain blockchain networks. With artificial intelligence, the network might be able to figure out the likelihood of certain nodes to validate more quickly than others, and direct the load towards those nodes and away from less efficient ones. These are just a couple ways in which artificial intelligence could be applied to blockchain to catalyze its growth even further and bring us that much closer to the future.
Combined with AI, blockchain is even smarter and faster, which will make it that much easier to seamlessly integrate into our everyday lives. With its rapidly growing adoption, the future of blockchain is right around the corner. Even so, I think there are certain aspects of blockchain that must be addressed before this future can be fully realized. One of the biggest obstacles is just social uncertainty. As mentioned before, the famous hacks to cryptocurrencies makes people question the security of blockchain. An even more pressing setback is that most people simply don’t yet understand the advantages of a safe, decentralized ledger.
As with many technologies, I think once more effort is put towards education about blockchain, it will continue to spread and advance. I think another important issue that must be addressed is energy efficiency. In the process of validating and storing the data, also known as mining, a lot of computational energy is spent, and it can quickly add up over large blockchain networks. With a growing international focus on global warming and environmental issues, this must be addressed for us to realize the future that blockchain can provide.
The good news is that technologies like artificial intelligence are already being applied towards energy efficiency, and this may be yet another way in which AI can help blockchain. A third and final shortcoming that I see keeping us from the future of blockchain is current technology limitations. One such example is mobile communications. Many people believe that once 5G cellular technology becomes widely adopted, blockchain will really be able to take over as the new, decentralized internet. This makes since because this will enable computers and mobile devices to become more powerful nodes and transmit data at a faster rate.
None of the obstacles mentioned are by any means insurmountable, and I think that, if addressed soon, the future could be closer than we might think. Now more than ever, people are starting to place a large emphasis on things like privacy, efficiency, affordability, and equity. Blockchain answers all of these concerns, and its potential is starting to become more recognized. With the growing popularity of emerging technologies like smart contracts, cryptocurrencies, and other blockchain applications, it’s only a matter of time before blockchain runs the world. The funny thing about the future is that nobody knows what it is, but everybody expects it to be faster, smarter, and better than the now. I agree – that’s why I say the future is blockchain.