PBOC’s Lead Researcher: Three Obvious Deficiencies Impede Blockchain’s Wide Adoption
At present, for blockchain to receive wide-scale adoption and to support the real economy, there are numerous technical issues that should be addressed, according to Yao Qian, the director of the Digital Currency Research Institute under the People’s Bank of China(PBOC).
In his latest opinion piece, published by Chinese financial magazine Yicai on Friday, the central bank’s lead researcher on the official digital currency further explains the advantages, disadvantages and the latest theory and practical development of blockchain technology.
Yao argues that blockchain has obvious deficiencies,impeding its widespread adoption. The first problem is blockchain’s slow performance fails to meet the larger requirements for storage and bandwidth. Take bitcoin as an example, it allows up to only 7 transactions per second, which is far from satisfying the payment needs of the entire society.
As transactions grow in Bitcoin’s blockchain, simply increasing the block size to solve the scaling issue will enable only a few large companies to afford the blockchain system. This design violates “decentralization”, the very idea of blockchain.
Second, lack of data privacy and control. All data in the current blockchain system is transparent and open to all participants. However, blockchain solutions at present are not mature enough to address the pain points in many fields, such as the real-name registration for assets and the management of loan agreements through smart contracts.
Third, network governance mechanisms should also be improved. Due to a large number of nodes, public blockchains use hard forks or soft forks to upgrade which is dramatically different from the upgrading method of the terminal system. The efficiency of hard forks and soft forks remains to be seen. In addition, given that public blockchains cannot be shut down, a serious bug can have significant impacts.
Yao points out that a new area will emerge between centralization and decentralization in the future, and various subdivided blockchain systems will have different levels of decentralization to meet the specific needs of different products.
Besides, he also highlights the issue of bitcoin’s consensus mechanism. Some studies have found that there is a problem for the theoretically 51% attack on bitcoin. The existence of one mining strategy, known as “selfish-mining ” will harm the bitcoin blockchain’s security. Self mining theory indicates that a miner can be selective about when he publishes a new block he has found. If a miner holds 33% of the overall network hash rate, he can benefit from the selfish mining. Given that fledgling bitcoin miners and institutional miners exert different impacts on the community, new models are needed to solve the problem.
As for the regulation over the blockchain industry, Yao argues that in the face of evolving blockchain technology, authorities need to revise relevant laws ,regulations and set up technical standards simultaneously in order to strengthen supervision and prevent risks.
Yao concludes that blockchain is an emerging technology that may become the financial infrastructure of the future. The technology has its advantages and disadvantages, but is still evolving. At present, for blockchain to receive wide-scale adoption and to support real economy, there are numerous technical issues that should be addressed.