There’s an insatiable appetite for blockchain-related technology. One look back at SXSW 2018, and it would be hard to miss the 40 sessions focused on the topic -- a programming note that was so loud it was mocked on Twitter by journalists and technologists alike.
It’s clear that business executives, consumers, technologists and many others want to know more about blockchain. I consider myself among this group because I believe it’s an important development that could change civilization for the better. Technologies with this much potential don’t come along very often. But -- and this is a big but -- we’re not close to that becoming a reality just yet.
Much is said and written about blockchain’s potential to disrupt, but I find the scale challenges inherent in blockchain’s design are often overlooked or mentioned in passing as niggling details. We can’t gloss over the issues. Until we can overcome these challenges, blockchain will only have an impact in tightly constrained networks and narrow applications.
It’s my job at Sage Intacct, a provider of cloud financial management software, to understand how to apply new technologies to our product plans. In this case, it’s straightforward -- accounting sub-ledgers are an immediate opportunity for disruption by blockchain. Blockchain is, after all, a distributed ledger. Accounting sub-ledgers record transactions between a business and their customers, suppliers, employees and other participants in business activity. The obvious benefits are instant reconciliation and reduced audit costs. The less obvious benefits come from blockchain smart contracts, which can trigger accounting activities based on transaction terms.
We could build these capabilities into our product, but our customers aren’t ready to adopt blockchains yet. I mentioned the issue of scale -- blockchain networks can’t scale to support high volumes. Blockchains are simply too inefficient. Beyond scale issues, standards aren’t mature enough to induce participation. If a business does choose to participate in a blockchain, deploying the blockchain will require extensive information technology (IT) support because there are few packaged solutions, and those solutions that are packaged require extensive coding and configuration.
Here’s why these questions are big ones. Take Bitcoin -- which records all transactions on a blockchain. The computational energy required to post a single blockchain transaction is enough to power the average U.S. household for a week. The beauty of blockchain is that trust is replaced with consensus. Consensus requires every single node in the blockchain network to agree the transaction is correct. The Bitcoin blockchain can currently support only seven transactions per second (tps). For comparison, the PayPal network can support 193 tps and the Visa network can support more than 1,600 tps. Clearly, we have a long way to go. This is why we don’t see people paying for pizza with bitcoin. It's used more as a store of value.