By 2026, the worldwide blockchain market will be worth $67.4 billion.
Blockchain comes in handy in this turbulent environment by shaping meaningful change across varying industries and spheres. As a two-part blog post, we shall walk through various facets of blockchain, touch upon its manifold applications and inherent challenges, and delve into the profound impacts it has cast upon business and governance.
This is Part 1 of the blog series, which will cover the following topics:
Blockchain Trilemma
Digital Identity
Tokenization
Central Bank Digital Currency (CBDC): The Trend Across the World
Regulatory Developments in the Blockchain Space
Implications for Blockchain Startups and Investors
Blockchain for Sustainability
The Integration of AI and Blockchain
The Emergence of New Blockchain Platforms
Blockchain in Supply Chain and Logistics
The next blog on Part 2 will cover the below topics on the ongoing trends in the blockchain industry.
Education
Government Adoption
Downfall of NFT
The downfall of Defi in 2023
Metaverse
Blockchain Security
A revolutionary digital ledger known as blockchain technology operates through a decentralised system in which transactions on its networks are secured, and transparency is guaranteed. This data is organised in blocks which form chains connected by time; thus, it remains immovable after recording a transaction.
The Transformation of Blockchain Technology
In 1991, Stuart Haber and W. Scott Stornetta conceived the conceptual basis for blockchain. However, the word “blockchain” became popular in 2009 when Bitcoin was introduced by an anonymous person named Satoshi Nakamoto. After this, there were advancements, and it found uses in many areas, from banking to medicine.
Navigating the digital wave with blockchain trend adoption, the blockchain industry will be worth $163.83 billion by 2029, with an annual growth rate of 56.3%. It is estimated that there are over 170 million blockchain wallets worldwide.
1 .Blockchain Trilemma Vitalik Buterin coined the term ‘Blockchain Trilemma’, which posits that developers face three main challenges when building blockchains - scalability, security, and decentralization – where it becomes difficult to achieve all three aspects. The general view is that one cannot achieve two of the three benefits of Decentralization, Security, and Scalability in decentralized networks. However, ongoing innovation across the decentralized ecosystem has led to a diverse range of Layer-1 and Layer-2 solutions that are overcoming these obstacles to solve the trilemma once and for all in the following fashion:
Decentralization. Instead of one entity managing it, blockchain control is spread equally amongst all network participants.
Security. Blockchain networks must have impenetrable defense mechanisms that bar attackers from taking control.
Scalability. As such, blockchains should handle many users with no delays or increased transaction fees.
Obtaining the three aspects for various people in the sector will not happen, not even in the future. Nonetheless, some eager cryptocurrency developers think a blockchain network can achieve all three plus even greater results. For instance, Algorand is one cryptocurrency project claiming they are tackling the blockchain trilemma.
2. Digital Identity
“At least 80% of government services that require citizen authentication will support access through multiple digital identity providers by 2023.”
An individual’s shadow data, generated with every click and every scroll online, inadvertently leads to the developing of a digital identity. Pseudonyms include fake profiles using an unknown identification number, such as a random unique identifier of the device’s IP address. For instance, username and password used in data collection on an individual, driver’s license number, history of purchases done online, birthdays, and date of birth, among other searches online. Biometrics, Behavioural and Biographic are the models that constitute one's identity.
2.1 Keys to Digital Identity
Cryptography is a critical element in securing such decentralized identities. Private keys are only known to the owner of a key in Cryptography. Public keys are disseminated universally. This pairing accomplishes two functions. Authentication involves using the public key to verify when a holder of the paired private made the message. Secondly, there is encryption where the holder of the respective pairing private key can only decode the message encoded using the public key.
Identity Standards require modern identity solutions enforced by regulations like the EU General Data Protection Regulation (EU GDPR). Government authorities consider distributed ledger technology as a way by which identity may be given to the unknown and safeguard citizens' personal identifiers.
Blockchain technology offers the following benefits:
● Decentralized Public Key Infrastructure (DPKI)
● Decentralized Storage
● Manageability and Control
3. Tokenization
In blockchain, tokenization is equivalent to issuing a blockchain token, which can be described as a security or asset token. Digital representation in blockchain tokens is a real asset. Real-world assets, whenever the digital representation of such assets gets expressed in the form of cryptocurrency, are known as tokenization.
Tokenization, whether asset tokenization or real-estate tokenization, is drastically changing how we relate to valuable assets. Blockchain can represent and store any asset or service on a blockchain, creating an ecosystem where anyone can access virtually every asset with unprecedented online transparency and security. Nonetheless, with the legal guidelines for selling, distributing, and managing crypto tokens remaining diverse across nations, a coordinated multi-lateral plan is needed to construct the potential of international, boundaryless value transfer networks which Cryptos may eventually This tokenized future appears to be rapidly approaching as increasingly large numbers of people and governments all over the world realizes the great potential and practicality behind blockchain.
Benefits of Tokenization
● More liquidity
● Faster, cheaper transactions
● Transparency and provability
4. Central Bank Digital Currency (CBDC): The Trend Across the World
CBDCs are digital currencies issued by central banks. The value of these notes is based on the official currency in which they are issued. Many countries still develop their CBDCs, with only some having a live one.
4.1 CBDC in India
“The Reserve Bank of India (RBI) is working with lenders to introduce new features to popularise the central bank digital currency (CBDC), the so-called e-rupee." It added, "RBI, banks plan new features to boost CBDC transactions,” a recent report said.
The RBI is also considering introducing wholesale CBDC in the interbank borrowing or call money market, said the central bank’s executive director Ajay Kumar Choudhary.
"Retail CBDC transactions are averaging close to 18,000 a day, way short of the RBI’s one million-a-day target by the end of 2023."
4.2 The Global CBDCs
As per the Atlantic Council, below are the current stats on global CBDCs:
130 countries, representing 98% of global GDP, are exploring a CBDC.
19 countries in the G20 are now at the advanced stage of developing CBDCs. Only 9 of them have pilots.
Digital currencies have been introduced in 11 countries. In China, the pilot test is being exercised in more than 200 scenarios like public transport, subsidies, and e-commerce and has reached 260 million people.
European Central Bank set to launch pilot of digital Euro. In 2023, more than twenty other countries will move towards piloting their CBDCs. Australia, Thailand & Russia intend to further with piloting. They are expected to be launched in 2024 by India and Brazil.
Progress in retail CBDC within America stalls. However, other G7 central banks, such as the Bank of England and the Bank of Japan, are working on CBDC prototype development while consulting with stakeholders about privacy and financial stability concerns.
The US is advancing by wholesale CBDC. Development on wholesale CBDCs has doubled since Russia invaded Ukraine and the G7 sanctions response. However, 12 cross-border wholesale CBDC projects have been envisioned now.
5. Regulatory Developments in the Blockchain Space
5.1 Regulatory Landscape in India
Blockchain’s global regulatory landscape is diverse and evolving. Some countries adopt a blockchain-friendly approach by adopting these regulations, while others carefully define new legal frameworks.
The regulation of blockchain technology in India is gradually evolving, although it is nascent compared to other countries. Here's a breakdown of the current scenario and historical context based on various sources:
General Landscape: There's no specific legislation governing blockchain technology in India. Blockchain technology falls under the purview of existing laws, such as contract laws, and is being adopted by governmental and private entities, including banks.
Investments and Adoption: Investments in blockchain-related markets in India have reportedly crossed USD 20 billion across various sectors, with states like Maharashtra, Telangana, and Kerala supporting blockchain startups and investments. The demonetisation move in India also highlighted the need for digital transactions, which blockchain technology facilitates.
The FDI in computer software and hardware, a sector where blockchain is a significant player, increased threefold to $26.14 billion during 2020-21, indicating significant growth in the technology space in India.
Areas of Concern: One of the disadvantages of blockchain technology identified is the complex regulations surrounding it. Though not specific to India, this global challenge could impact its adoption and regulation in the country.
6. Implications for Blockchain Startups and Investors
The need for regulatory clarity in enabling innovations and Investments in Blockchain Space. Well-defined laws will assist in protecting investors, encouraging justifiable conduct, as well as promoting stable development in the sector.
With the penetration of blockchain technology into different industries, harmonised global regulation could evolve that balances innovations with security and compliance- something that shapes the trajectory of the future of the blockchain industry.
7. Blockchain for Sustainability
7.1 Blockchain’s Role in Enhancing Sustainability
The transparency and traceability facilitated by blockchain technology are becoming critical components of sustainability in multiple areas. It becomes possible, for example, in supply chains to track and verify the sustainability credential of a product from source to consumer, ensuring all manner of fairness is honoured along it.
For instance, look at a case study that applied renewable energy. Blockchain has also been used by companies such as Power Ledger to develop decentralised energy trading systems that allow customers to trade their excess renewable energy among themselves.
7.2 Future Prospects
The advances towards sustainability, however, might be more critical when using blockchain in managing carbon trade that is transparent as one of the critical instruments in global sustainability struggles.
8. The Integration of AI and Blockchain
8.1 The Convergence of Two Technologies
The intersection of AI and blockchain lays the foundation for more robust solutions on the use of the predictive power of AI and security attributes of blockchain in many fields like Smart Contracts and Data Analytics, among others, to promote security and optimum data Management.
One of the most popular examples includes SingularityNET, a decentralised marketplace or exchange for AI services where secure and transparent transactions between developers and customers or clients can be achieved with the aid of blockchain.
8.2 Challenges and Solutions
Although it offers many benefits, the fusion comes packed with hurdles such as data privacy, scalability, and interoperability. Efforts include developing scalable solutions such as Layer 2 scaling and interoperability protocols to assist these challenges.
9. The Emergence of New Blockchain Platforms
9.1. Overview of New and Upcoming Platforms and the Possible Impact on the Industry
Meanwhile, new entrants like Polkadot and Solana offer innovative solutions for specific problems within the blockchain ecosystem, such as scalability and cross-chain communication.
One example is Solana, which has a high-performing protocol focusing mainly on decentralised applications and cryptocurrencies, which ensures relatively low cost and quick transaction speeds or throughput.
They can potentially become a major competitor for Blockchains like Ethereum by overcoming their existing limitations, which may bring in another wave of blockchain evolution and growth.
9.2. Layer 1 Platforms
Layer 1 blockchain platforms, also known as "base layer" or "mainnet" blockchain platforms, form the foundational layer of blockchain technology. They are responsible for the fundamental aspects of decentralised networks, including consensus mechanisms and security.
Here's some key information about Layer 1 blockchain platforms:
Consensus Mechanisms: Layer 1 blockchains use various consensus mechanisms to validate and record transactions on the network. The most common consensus mechanisms include Proof of Work (PoW), Proof of Stake (PoS), Delegated Proof of Stake (DPoS), and more. These mechanisms determine how new blocks are added to the blockchain and how validators or miners are selected.
Security: Layer 1 blockchains prioritize security to ensure the integrity and immutability of the ledger. The security measures can include cryptographic techniques, decentralized nodes, and mechanisms to prevent double-spending.
Smart Contracts: Some Layer 1 platforms, like Ethereum, support smart contracts, which are self-executing contracts with the terms of the agreement directly written into code. These contracts enable decentralized applications (DApps) and automated, trustless transactions.
Scalability: Scalability is a critical concern for Layer 1 blockchains, as it determines how many transactions the network can process per second. Various Layer 1 platforms implement different solutions to address scalability issues, such as sharding, sidechains, and off-chain scaling solutions.
Interoperability: Some Layer 1 blockchains, like Polkadot, are designed to focus on interoperability. They aim to facilitate communication and data exchange between different blockchains, creating a more interconnected blockchain ecosystem.
Governance: Governance mechanisms vary among Layer 1 platforms. Some rely on on-chain governance, where token holders vote on network upgrades and changes. Others have off-chain governance models or hybrid approaches.
10. Blockchain in Supply Chain and Logistics
10.1 The Need for Transparency and Traceability
It improves transparency and traceability in supply chains to guarantee genuine and ethical production products by maintaining records of all transactions and movements of goods on a secure and non-alterable basis.
IBM Food Trust leverages the benefits of Blockchain technology so that customers and retailers can trace the sources and distribution chains of their food products for freshness and quality.
10.2 Challenges and How Blockchain Can Address Them
Supply chains still face various problems, such as counterfeit goods, unfair competition, and low-quality management. The blockchain providing a tamper-proof ledger ensures everyone has real and true data, eliminating such situations.
As we come to an end, it is noteworthy that financial institutions can save up to $12 billion every year by using blockchain technology. On the other hand, the healthcare industry is predicted to reach $231.0 million by 2023 with the integration of blockchain, with a 63% growth rate over the next six years.
Wrap-Up
Digital Assets, through the blockchain technology, transcend their inception. The same applies to other areas, including but not limited to enhanced transparency for supply chains and driving innovations for decentralised finance, among others.
Increasingly, with integrations such as AI and continuous improvement of platforms and applications, blockchain has become a key technology capable of reshaping multiple sectors and changing the world’s economic panorama.
Continue being up-to-date on emerging blockchain trends and always be willing to learn more about this revolutionary methodology that can enhance progress in your fields.
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