Scalability of Blockchain; Amarpreet Singh

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When bitcoin; the pioneering cryptocurrency of blockchain, was first created, it was targeted at the financial transaction industry. However even today, Bitcoin can only process 8 transactions per second; paling in comparison to Visa’s 65,000 transactions per second (Fortune, 2018).

Besides transaction speed, there are still many scalability hurdles that blockchain has to cross before being widely adopted. I had the pleasure of speaking with tech expert Amarpreet Singh to learn more about his outlook on blockchain.

An advisory board member for over 40 ICOs (Initial Coin Offerings) and invited speaker for a plethora of tech forums, Amar is a seasoned fintech and blockchain expert who has amassed a wealth of tech experience working for international organizations such as Microsoft, Airbus and the World Bank. He also has a consulting house in Singapore and a technology center in India that provides back end and front end blockchain solutions.

Transactions per second

While bitcoin may be reaching its limits, Amar sees that the blockchain space is incredibly innovative and the new cryptocurrencies coming in hold much promise in solving the scalability issues with Bitcoin. For example, Ripple (XRP) can now handle up to 1,500 transactions per second (Business Insider, 2018) and claims to be able to scale to the same throughput as Visa (Ripple, 2018).

New kinds of blockchain are also being developed, for example; Directed Acylic Graphs (DAG) and IOTA Tangle. Also, Amar is optimistic on the future of Hashgraph. Using a new consensus algorithm, Hashgraph is able to process more than 250,000 transactions per second which is a huge leap from blockchain, which process 3-7 transactions per second (TheHindu, 2018). However Amar says that the success of this project will hinge on the execution being done well as he estimates that this new system might take 2-3 years to develop and by then the industry conditions might have changed.

Transaction fees

One of the advantages that blockchain has over traditional wire transfers is its potential to charge lower transaction fees. In this regard, Amar sees that Stellar Lumen is a rising star as it can scale while maintaining very low transaction fees. Based on calculations using the current supply, transaction fees will continue to remain very low and the price of 1 lumen; now priced around a third of a dollar, will need to increase to $143,000 to reach Bitcoin’s transaction fee of $1.43.

(BlockEQ, 2018)

Price Stability

Every other day we hear of cryptocurrency prices either skyrocketing or plunging which largely hampers its ability to be used as a reliable medium for transactions. Bitcoin, Ethereum, Ripple and Bitcoin Cash have the largest cryptocurrency market capitalization, but as seen from the graphs below they are all plagued by turbulent prices which affects its adoption by traditional businesses.

(Coindesk, 2018)

Amar says that this volatility occurs because many tokens do not yet have clear uses and thus become mere speculative tokens since there is no reason for people to use it in real life or hold it. Therefore the key to stabilisation lies in utility. For example, if AirAsia launches an ICO to create loyalty tokens that can be redeemed for products and services, the token price will remain stable since rewards get progressively better rewards as users accumulate more tokens.

In future, Amar sees the possibility of cryptocurrency central banks stabilising prices by burning tokens or increasing supply, issuing options and warrants and pegging to FIAT currencies.

Combating misinformation

Another key hurdle for wide blockchain adoption is misinformation. In a survey spanning 11 countries conducted by HSBC, 59% of respondents had not heard of blockchain and 80% did not understand what the technology is (HSBC, 2017). Therefore it is unsurprising that many equate blockchain with bitcoin due to the latter’s dominance in news headlines.

However Amar is optimistic that the public will gradually develop a greater understanding of the capabilities of blockchain as more blue-chip companies use blockchain as an infrastructure instead of a financial instrument. For example the PSA, PIL and IBM blockchain trial did not focus on tokens (JOC, 2018), but instead tested blockchain’s ability to optimise communications and transparency.

Amar also sees that blockchain education is on the rise. In particular, the Singapore University of Social Sciences has been making great strides in this area and has been organizing conferences and workshops to help demystify the technology (SUSS FinTech and Blockchain Group, 2018). Polytechnics have also been mulling Blockchain courses and Ngee Ann Polytechnic in particular has approached Amar to train their teachers so that they can then in turn train students.

Ultimately Amar recognizes that some aspects of blockchain will always remain foreign to most people but we can reach a level where the public is adequately educated about Blockchain to use it without fully understanding how it works. Drawing a comparison, Amar says that today, most use iBanking to transfer money even though only a few understand the technology behind it; mainframe computers, legacy systems etc. Therefore Amar is confident that the blockchain space can be transactional in nature allowing users to harness blockchain without understanding the technology.

Regulations

In his conversations with various government officials, Amar has noticed that attitudes are shifting. From the printing press to the television, innovation cannot be stopped; either adopt early or lag behind. Many regulators are becoming aware of this and thus intentionally stay a few steps behind blockchain innovation, opting to react rather than to roll out preemptive policies that may cause their country to lag behind. Amar says that Singapore’s MAS is a good example and regulators have allowed blockchain innovation to flourish while ensuring that the economy and society are protected. Beyond allowing blockchain, MAS has also been spearheading Project Ubin; a project involving major financial institutions and blockchain companies aimed at exploring the use of Distributed Ledger Technology for clearing and settlement of payments and securities (MAS, 2018).

Amar says that Gibraltar has also adopted a progressive regulatory stance on blockchain. Just as Singapore’s economy was galvanized by harnessing trade, Gibraltar seeks to harness blockchain to spark their economic miracle. As a sign, on 8 February 2018, the Gibraltar Blockchain Exchange announced the completion of its token sale; raising US$27 million in funding (PR Newswire, 2018).

Amar says that other countries like Maldives and Malta are starting to take notice of Gibraltar and are thinking of following the same direction. Binance CEO; Zhao Changpeng, was recently invited to Malta by the government to review a new pro-cryptocurrency business bill and Mr Zhao announced that his company would be starting a fiat-to-cryptocurrency exchange in Malta (Bloomberg, 2018).

China is perhaps the most notable example of adopting a restrictive policy towards cryptocurrencies and Amar says that as with many “western” innovations, the party has to show that its authority is preeminent. Even so, regulators are still receptive to blockchain and local governments have been pursuing blockchain-related programs and investments (SCMP, 2018). Moving forward, Amar sees that the Chinese regulatory stance will have to shift since a cryptocurrency ban in today’s age simply has too many holes that can be exploited.  As cryptocurrencies evolve, more facets of blockchain will be discovered and play to the Chinese governments’ interest. For example, cryptocurrencies can potentially enable tracking of currency flows and can be controlled by a central authority.

What will blockchain look like in 2020

Just as how our understanding of the internet evolved from packet networks to ARPANET to the current iteration today, the use cases of blockchain that we see now are only the beginning of our understanding of what this technology can ultimately become. Like the internet, blockchain is an infrastructure technology that does not fall into a specific industry but can drive transformation in every industry in the world. In the next 2 years Amar predicts that blue-chip companies and start-ups alike will push blockchain into the mainstream and we will feel this change in our daily lives.

 

References

BlockEQ. (2018). Transaction Fees on Stellar – BlockEQ – Medium. [online] Available at: https://medium.com/@blockeq/transaction-fees-on-stellar-3d5e442fc00a [Accessed 12 May 2018].

Bloomberg. (2018). World’s Biggest Cryptocurrency Exchange Is Heading to Malta. [online] Available at: https://www.bloomberg.com/news/articles/2018-03-23/the-world-s-biggest-cryptocurrency-exchange-is-moving-to-malta [Accessed 12 May 2018].

Business Insider. (2018). Everything you need to know about the complex relationship between Ripple and cryptocurrency XRP. [online] Available at: http://www.businessinsider.com/ripple-link-xrp-explained-2018-3/?IR=T [Accessed 12 May 2018].

CoinDesk. (2018). CoinDesk – Leader in blockchain news.. [online] Available at: https://www.coindesk.com/ [Accessed 12 May 2018].

CoinDesk. (2018). CoinDesk – Leader in blockchain news.. [online] Available at: https://www.coindesk.com/ [Accessed 12 May 2018].

Fortune. (2018). Tesla and Skype Investor Tim Draper Predicts Bitcoin Will Hit $250,000 in 4 Years. [online] Available at: http://fortune.com/2018/04/13/tim-draper-bitcoin-price-prediction-tesla-skype-dfj/ [Accessed 12 May 2018].

HSBC. (2017). Rise of the technophobe – education key to tech adoption, says HSBC. [online] Available at: http://www.hsbc.com/news-and-insight/media-resources/media-releases/2017/rise-of-the-technophobe-education-key-to-tech-adoption-says-hsbc [Accessed 12 May 2018].

JOC. (2018). Blockchain: Singapore’s PIL, PSA International, IBM say blockchain trial a success, sign MOU. [online] Available at: https://www.joc.com/technology/singapore%E2%80%99s-pil-psa-international-ibm-say-blockchain-trial-success-sign-mou_20180227.html [Accessed 12 May 2018].

MAS. (2018). Project Ubin. [online] Available at: http://www.mas.gov.sg/Singapore-Financial-Centre/Smart-Financial-Centre/Project-Ubin.aspx [Accessed 12 May 2018].

PR Newswire. (2018). The Gibraltar Blockchain Exchange Raises $27 Million in Token Sale to Lead the Introduction of New Blockchain Sector Best Practices. [online] Available at: https://www.prnewswire.com/news-releases/the-gibraltar-blockchain-exchange-raises-27-million-in-token-sale-to-lead-the-introduction-of-new-blockchain-sector-best-practices-673597703.html [Accessed 12 May 2018].

Ripple. (2018). XRP | Ripple. [online] Available at: https://ripple.com/xrp/ [Accessed 12 May 2018].

SCMP. (2018). Chinese government says yes to blockchain, no to ICOs. [online] Available at: http://www.scmp.com/tech/enterprises/article/2142962/chinas-local-governments-ramp-blockchain-projects-amid [Accessed 12 May 2018].

SUSS FinTech and Blockchain. (2018). SUSS FinTech and Blockchain. [online] Available at: https://sussblockchain.com/ [Accessed 12 May 2018].

The Hindu. (2018). Can hashgraph succeed blockchain as the technology of choice for cryptocurrencies?. [online] Available at: http://www.thehindu.com/sci-tech/technology/can-hashgraph-succeed-blockchain-as-the-technology-of-choice-for-cryptocurrencies/article23348176.ece [Accessed 12 May 2018].

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