Can distributed ledger technology scale?

Can distributed ledger technology scale?

At its core, blockchain is a distributed ledger technology, a method to easily securely store transactions. Many industries are starting to experiment with the true potential of this technology in fields ranging from medieval records archival to smart contracts.

However, the technology still has a scalability problem. In many of its current forms it simply can't handle the kind of transaction volumes that companies like Visa generate on a daily basis. So, can the technology scale to accommodate larger applications?

It will get there, eventually

For Xiahong Ling, founder of Bodhi, the answer is most certainly yes, as other companies are already developing scalable blockchain solutions. He mentioned the Lightning Network as an example. Lightning Network conducts transactions off the blockchain and uses blockchain to enforce a smart contract. Essentially,  blockchain acts an arbiter to enforce the terms of a contract.

Distributed ledger technology also relatively cheap compared to other solutions, so it would be greatly beneficial used on a large scale, according to Marco Abele, founder and CEO of Tend.

"Some fundamental components of distributed digital ledger technology are definitely applicable to bigger solutions and therefore extremely relevant to scalability," Abele said in an interview. "DLT is comparatively cheap, it's efficient and, importantly, very secure, whilst removing the need either for an intermediary or for a central authority. The key qualities of this network are that it is fully transparent (anyone can see the ledger’s history of transactions), it is time-stamped and therefore auditable, it is decentralized (the ledger exists on multiple computers), and it is secured through cryptography."

Challenges remain

While blockchain theoretically can be scaled for larger solutions, actually getting the task done is another story entirely.

"The harder question is 'how,'" Nick Cowan, founder and CEO of the Gilbraltar Stock Exchange, said in an interview. "There's a lot of debate between on- and off-chain scaling solutions, for example. The other question is 'when'. It's right that consensus takes time. It proves that the technology is still decentralized!"

Cowan also noted the "perceptual" problems with the technology — i.e., all the chatter about technical elements, novelty and scary anecdotes that can distract attention from its more practical applications.

Lin pointed out that many blockchain projects struggle with the task of getting a solid infrastructure built that will support desirable products and services.

"Since blockchain is still in very early stages of development, many projects are experiencing challenges with infrastructure, as [developers] have to build much of it from scratch themselves," he said. "In addition, the actual user base of distributed ledger technologies is relatively small, which hinders its growth. Regulation of DLT has also been a challenge for both governments and businesses in the space."

Another significant challenge is simply that blockchain experts are in short supply and high demand, which makes it very expensive to develop the technology.

When we will reach the tipping point?

The key to getting to a blockchain tipping point is for people to clearly understand the practical use of distributed ledger technology, looking beyond the hype and the fear.

"When we start to see more real, practical applications, perceptions will change," Cowan said. "You don’t need to understand much about how Wi-Fi or email works to use it every day. Eventually it will be the same for blockchain technology and it will be just as revolutionary."

Image via Istock.com.


Topics: Blockchain, Trends / Statistics


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