Blockchain has been the focus of many discussions recently. I should know as I recently wrote a piece on why credit unions should keep an eye on it. However, in recent months there have been flaws discovered in the current structure of how the blockchain functions.
Bitcoin and blockchain have been called quite a few things over the years: the “new money,” “currency killer,” “currency of the people”, or my personal favorite, the “establishments worst nightmare.” Some of these names have merit. When first released bitcoin caused quite a commotion in the more tech savvy financial circles. It offered a simple, secure, speedy service that had the potential to change the game of transaction entirely.
So why is it failing now? To understand how it is falling behind, you must first understand how the transactions are authenticated. In short, they are put into a queue to be checked by everyone “mining” before they can be confirmed and then added to the chain. Back at its inception the process was created in a way that matched the current use level as well as the hardware that it was being run on. There was a throttle of sorts set into place allowing for roughly 3-7 transactions per second. As the number of users and transactions have gone up, and the hardware now nearly ten times as efficient in part due to Moore’s law, the only thing that has not changed is the throttle. This has led to queues that have made transactions wait nearly days long before than can be authenticated.
It’s not like people haven’t purposed the simple fix of removing or increasing the number of transactions allowable per second. So why is this throttle still what it is at today if systems can clearly handle more? The simplest answer is money. Here is the issue, while it may be called the “currency of the people,” it has become anything but. Those miners who authenticate the transactions, who in the past were people with simple rigs in their homes have long since been replaced by giant mining facilities. While these mining businesses have no real authority over the blockchain, they hold all of the power that makes it function and right now, they have no interest in changing a thing. Able to bring in millions of dollars from people paying a premium to get their queued transaction moved up to the top, there is no reason to change the system.
So why is this near monopolization of the blockchain good for credit unions? It is undoing itself. Bitcoin and blockchain, by all rights held the power to shake up the financial sector, that is undeniable. With the unwillingness to innovate by major mining companies, it will shortly become obsolete in the public sector. Many financial institutions agree that blockchain technologies are the future of banking and have invested billions of dollars in the research of its applications as they would not run into any of the problems the public sector is currently facing. By creating a private ledger and its own systems to create a more efficient form of authentication will save them time and money with the benefit of automatic security.
Now that the public sector has hit is own self-imposed limit, many of the original engineers and early adopters are jumping ship to help credit unions get the return on their investment into the most revolutionary technology the financial industry has ever seen.