Can blockchain technology live up to the hype? Barclays analysts say no
To some, blockchain is a potential game-changing innovation that could disrupt and replace traditional payment and information-recording systems.
Created around 2009 by Satoshi Nakamoto, the pseudonym ascribed to the anonymous originator, or originators, of bitcoin, as the underpinning for a new-age, 21st-century payment structure on an immutable, publicly distributed ledger; however, the revolutionary blockchain hasn’t yet lived up to the hopes and dreams of advocates, who are aspiring to put it to use.
And a blockchain sea change isn’t expected soon, according to at least one bank.
“Despite tremendous hype over the potential for crypto technologies in money and finance—specifically, blockchain and distributed ledger technology—we see little likelihood of widespread adoption in any area in the near future,” wrote analysts at Barclays in a note dated April 10.
Citing lack of trust, sovereignty disputes, privacy and irreversibility, the Barclays analysts sought to assess the hype against the realities for near-term blockchain usage.
Indeed, while proponents promote blockchain as a panacea capable of fixing problems such as data integrity, supply-chain transparency and overall efficiency, the technology is known to have a number of flaws, some of which are articulated in the Barclays report.
For one, the banks’s analysts argue that claims of efficiencies achieved via the distributed-ledger technology aren’t accurate.
Most major cryptocurrencies use proof-of-work verification. That means they require miners to confirm transactions on the blockchain, which consumes significant amounts of energy. The mining of bitcoin BTCUSD, -3.85% the world’s No. 1 digital currency, uses the equivalent of 5.6 million U.S. households and about the same as the country of Colombia, which has a population of 48 million people, according to the Bitcoin Energy Consumption Index. Moreover, because of the inherent coding behind bitcoin’s blockchain, the amount of energy required to mine bitcoin will cost more over time.
As miners scour the globe in search of cheap energy, countries are wrestling between embracing this new technology and the long-term benefits for the country, knowing a slight increase in energy costs will see so-called miners hunting for places with the lowest-cost energy.
Another misconception is that data integrity is improved on a distributed ledger.
