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Blockchain Technology: Five Obstacles To Mainstream Adoption

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I’m a strong believer in the potential of blockchain technologies. The concept of providing trust using a distributed network rather than a central authority is compelling and has the potential to bring benefits to finance, digital rights management, voting systems, supply chain management, and many other areas.

But I’m also a believer in the importance of acknowledging the obstacles that could impede mainstream adoption of blockchain technologies. A clear-eyed view of those obstacles will make it easier to address them early in the technology adoption curve, and make it more likely that we’ll end up with a thriving blockchain ecosystem in the future.

With that in mind, here, in no particular order, are five challenges that are important to keep in mind as this technology evolves:

1. Hype

To say there is too much hype around this space would be an understatement. Despite what some of the press around the blockchain has suggested, it is not the solution to all problems. In fact, there are plenty of areas where it would make little sense to replace current systems with blockchain-based systems.

Why does this matter? Because overpromising in relation to an emerging technology has costs. When lofty predictions aren’t realized, the resulting loss of credibility makes it harder for everyone in the ecosystem, including the many blockchain entrepreneurs who are being careful not to overpromise and are working to bring well-thought-out proposals to investors and well-designed products to the market.

2. The potential that a blockchain can lose integrity

It is often implied that “the” blockchain has absolute integrity—that it can’t be compromised or altered. But that’s an oversimplification. First of all, there isn’t only one blockchain. There are lots of blockchains. Some of them are more robust than others. Second, a blockchain that has integrity today could lose that integrity in the future. For example, typical proof-of-work based systems (such as the bitcoin network) are designed under the assumption that no single entity controls more than 50% of the processing power.

The network of nodes that collectively manage a blockchain can evolve over time, including in ways that might mean that one of the key assumptions underpinning the system's integrity no longer holds. Given that blockchain technologies are being advocated for applications (such as registries of property ownership, or corporate recordkeeping) that require integrity spanning years or decades, more thought needs to go into mechanisms aimed at ensuring that the associated ledgers will remain robust over those timescales. And more thought needs to go into what to do if a mission-critical blockchain loses integrity.

3. ICOs that raise hundreds of millions of dollars based on little more than a white paper

Initial coin offerings have emerged as a highly popular approach to raise capital in the blockchain space in a way that circumvents many of the hurdles that accompany a more traditional venture capital fundraising process. But some of those hurdles—such as the extensive due diligence process performed by prospective VC investors—play an important role in improving the odds of a successful return on investment.

Another potential concern is the amount of money raised in ICOs, which is sometimes completely decoupled from the actual cash needs of the company. One thing I have learned in many years of doing venture capital work in the San Francisco Bay Area is that too much money can kill a startup just as thoroughly as can too little money. When there is too much money in a startup, financial discipline tends to go out the window. Overfunded companies often hire too many people too fast and without enough diligence, overpay for services, and lose focus when it comes to product development.

A software startup company doesn’t need hundreds of millions of dollars to develop a product and bring it to market. An ICO that brings in hundreds of millions of dollars based on little more than a whitepaper may be a cause for short-term celebration for the company’s founders, but it’s far less clear that people who invested in the ICO are going to have much to celebrate when all is said and done.

That doesn't mean that all ICOs are bad investments. But it means that a dose of realism is in order. Even with all the due diligence that VCs perform, most VC-funded startups don't succeed. Success percentages are going to be even lower with ICOs, which lack many of the guardrails that accompany more traditional fundraising.

4. Finding the right balance in regulation

Overregulation can impede innovation. But it would be unrealistic to assert that there should be no role at all for regulation in the context of blockchain technologies. After all, those technologies are already being used in ways—such as for moving money, entering into contracts, and issuing securities—that implicate a thicket of existing legal and regulatory frameworks. Those frameworks often date from decades ago, and can be poorly matched to today’s technologies. Thus, it will be important for people in the blockchain ecosystem to engage with legislators and regulators so they can better understand the technology and its applications—and hopefully apply and update those laws and regulations in ways that support rather than impede innovation.

5. Cybersecurity

 Cybersecurity is a challenge in any digital context, and particularly so with the evolving set of services that are built around blockchain technologies. This is because in addition to the “traditional” cybersecurity challenge of adapting to a rapidly changing cyber threat landscape, with blockchain the underlying ecosystem itself is also changing much more rapidly than in other domains. New blockchain systems, services, and approaches are being developed and deployed on a nearly daily basis. For people building cyberdefenses in a blockchain context, this means that they don’t enjoy the same information advantage over cyberattackers that they might have in a more traditional, more stable environment.