- Toshendra Kumar Sharma
- December 14, 2018
2018 has been a rough year for cryptocurrency enthusiasts as Bitcoin, and other digital currencies have plummeted to a fraction of their price since the start of the year. Experts in the industry have called this downtrend akin to the bubble being burst, and this has given many investors pause regarding investing in Blockchains. But can the underlying distributed ledger technology survive this steep fall in prices? Let’s take a look at some of the most fundamental drivers of growth in the blockchain space.
Challenges that Cryptocurrencies Face
As with any new and emerging technology, the future of blockchains and cryptocurrencies relies on a variety of factors such as government regulation, network reliability, and adoption. Governments in countries like Japan, Singapore, and Malta are beginning to take a more accepting view of cryptocurrencies as more and more people start to use them as a store of wealth and as investments. With regards to reliability and speed, some of the leading blockchains such as Bitcoin and Ethereum are severely limited in their capabilities due to the excessive overheads of securing the network against 51% attacks. Two of the fasted distributed ledgers in existence right now are the Ripple network and Nano. Both of these cryptocurrencies can handle many orders of magnitude more transactions than Bitcoin. At the same time, these are way greener than Bitcoin because they use a different consensus mechanism that employs crypto-economics to reduce wasteful computation. Even if the basic quirks of these early blockchain platforms can be ironed out, the key to the value of these cryptocurrencies remains that of adoption. It can often be difficult to find merchants that directly accept cryptocurrencies outside of countries like Japan where the governments are taking clear steps to boost the adoption of cryptocurrencies. It means that people end up only holding their digital assets and not spending them which does not add any value to the ecosystem. The high amount of volatility in the prices of cryptocurrencies is another reason that people don’t want to spend them and use them as speculative investments. These are the risks associated with all new markets before the market matures enough to stabilize the prices.
Xunlei Technologies’ Plan for Building Value
CEO of Xunlei Technology, Lei Chen believes that Blockchain Technology companies have enormous promise, even going so far as saying that these companies can be valued at $30 billion. Chen believes that to become so valuable, the platform would need to satisfy three crucial requirements:
- 1 million transactions per second
This is the most important technological breakthrough that needs to occur if blockchains are to gain mainstream adoption. There are several plans for achieving such a high throughput such as Ethereum’s Plasma and Xunlei’s own ThunderChain. At current levels, popular dApps such as Cryptokitties could clog the entire Ethereum network, and therefore blockchains are not viable solutions everyday transactions.
- A unified framework for regulation
Chen believes that giving users complete access to their private information can lead to the creation of marketplaces for data that could parallel intellectual property markets currently in existence. But doing so would require a certain degree of independence of these blockchain platforms to protect against government meddling to ensure long-term growth.
- 10 million daily active users
This brings us back to the point of real-world adoption where users not only use cryptocurrencies as a store of wealth but also use it to make everyday purchases. Having 10 million users for a blockchain platform would ensure that cryptocurrencies are acceptable in all the different parts of the world which would be very useful to bring value to these platforms. According to Metcalfe’s law, the amount of any network is directly proportional to the square of the number of connected users of the system. Bitcoin’s price movements have followed quite closely with the law until now, and therefore having a lot more active users would significantly raise the value of any platform.