Blockchain: technology is improving but regulation still inadequate

With grow­ing interest in vari­ous crypto­cur­ren­cies, block­chain tech­no­logy has seen a met­eor­ic rise in recent years. Yet block­chain still has plenty of room for improve­ment, so what prac­tic­al applic­a­tions can we fore­see for the future?

Sev­er­al scan­dals have ulti­mately hampered its devel­op­ment. “There was so much enthu­si­asm that crypto­cur­ren­cies were obvi­ously in the news,” says Daniel Augot, Dir­ect­or of Research at INRIA and head of the Block­chain Chair. “There has been spec­u­la­tion, fraud, manip­u­la­tion, and exor­bit­ant amounts of money being raised in a com­pletely unreas­on­able way.” This has had the effect of dis­sip­at­ing the enthu­si­asm gen­er­ated, where­as, for the research­er, we need “a bet­ter under­stand­ing of the tech­no­logy to be less seduced by it.”

This tech­no­logy is not lim­ited to crypto­cur­ren­cies. “Block­chain is a tech­no­logy that enables decent­ral­ised infra­struc­tures to be deployed,” explains Xavi­er de Bois­sieu, co-founder of Quad­rat­ic, a con­sultancy and engin­eer­ing firm spe­cial­ising in data sci­ence, applic­a­tion devel­op­ment and Web‑3. “For example, bank trans­ac­tion data is stored on a serv­er belong­ing to an entity, usu­ally a bank, which has free rein to modi­fy or delete it.” This means that you must trust this entity. “In a block­chain sys­tem, this inform­a­tion is held by a mul­ti­tude of entit­ies,” he adds. So, by decent­ral­ising the infra­struc­ture, this sys­tem itself cre­ates trust. 

Accord­ing to Daniel Augot, enthu­si­asm for block­chain is jus­ti­fied. “This tech­no­logy has the poten­tial to revolu­tion­ise our trans­ac­tions. How­ever, it can be con­sidered as still being in its infancy, and sev­er­al lim­it­a­tions have been dis­covered in recent times. First and fore­most, a block­chain provides an unforge­able register that can be used to sup­port crypto­cur­ren­cies. The pur­pose of the fam­ous Bit­coin, for example, was to keep a record of mon­et­ary trans­ac­tions,” he says. “This is what banks do with each oth­er, but they do it in a way that can be altered. They can can­cel a pay­ment, or simply alter what has been done. This is impossible with block­chain, because we want it to be sealed and there­fore impossible to modify.”

The bene­fits are sig­ni­fic­ant, but there are still a few lim­it­a­tions. In par­tic­u­lar, the num­ber of trans­ac­tions per second remains low. Trans­ac­tion latency is slow, so costs are high. The answer to this lim­it­a­tion could be rollups. “Rol­lups allow users to batch pro­cess oper­a­tions for a large num­ber of trans­ac­tions,” con­tin­ues Daniel Augot. “Only a min­im­al trace is writ­ten on the chain. This saves space in the register.” These rol­lups are out­sourced to the block­chain but have the advant­age rein­for­cing block­chain secur­ity. “We have an asym­met­ric­al situ­ation, with a user with very lim­ited com­put­ing resources (a smart­phone) who does­n’t totally trust the serv­er that does the cal­cu­la­tion for him,” he explains. “So, we need a veri­fi­able cal­cu­la­tion that can force the serv­er to provide cryp­to­graph­ic proof through the rollup.”

A second lim­it­a­tion is the need to ensure the con­fid­en­ti­al­ity of its use. Once again, a tech­no­logy has been put in place to address this issue. “Zero-know­ledge is a mira­cu­lous tech­no­logy,” says the research­er, “that allows you to make entries in a hid­den, blind way, while prov­ing that these entries cor­res­pond to val­id oper­a­tions.” This makes it pos­sible to val­id­ate an oper­a­tion without actu­ally see­ing what is being done. 

First of all, there are two main paradigms for deploy­ing block­chain: private block­chain and pub­lic block­chain. “In a private block­chain sys­tem, access to the infra­struc­ture and the role of val­id­at­or are both restric­ted,” notes Xavi­er de Bois­sieu. “With a pub­lic sys­tem, it’s strictly the oppos­ite. Access is glob­al, and any­one can access the inform­a­tion and write to the sys­tem.” Private sys­tems are gen­er­ally used between com­pan­ies. By lim­it­ing access, they offer great­er con­trol and con­fid­en­ti­al­ity. On the oth­er hand, pub­lic sys­tems have the advant­age of trans­par­ency of oper­a­tions. They are often used for crypto-cur­ren­cies and the issue of tokens, such as Bit­coin and Eth­ereum illustrate.

Busi­ness-to-busi­ness block­chain enables a shared, trus­ted infra­struc­ture to be put in place. Once this com­mon inform­a­tion base has been estab­lished, com­pan­ies will be able to build applic­a­tions, which are often digit­isa­tion applic­a­tions, to improve oper­a­tion­al effi­ciency. “When tech­no­logy enables poten­tially com­pet­ing play­ers to cooper­ate, we talk about coo­peti­tion,” adds the co-founder of Quad­rat­ic. “It there­fore enables this type of applic­a­tion to be deployed not on the scale of a single com­pany, but on the scale of sev­er­al com­pan­ies, or even an entire sector.”

This tech­no­logy is already begin­ning to shape the future of our trans­ac­tions. This can be seen in the power that this tech­no­logy is begin­ning to provide to Decent­ral­ised Autonom­ous Organ­isa­tions (DAOs). Xavi­er de Bois­sieu explains: “There are DAOs that have a few bil­lion dol­lars in cash and are going to use gov­ernance to man­age oper­a­tions that can gen­er­ate hun­dreds of mil­lions of dol­lars in annu­al profits. So, we’ve really moved on from the research and exper­i­ment­a­tion stage to set­ting up large-scale coordin­a­tion protocols.”

Pub­lic block­chains, on the oth­er hand, enable decent­ral­ised sys­tems to be cre­ated without the need for a cent­ral author­ity. This improves trust and secur­ity in a vari­ety of areas, includ­ing fin­ance, health­care and sup­ply chain man­age­ment. A clear example of this increased trans­par­ency can be found in the role of val­id­at­ors. “One of the func­tions of crypto­cur­ren­cies is to pay the val­id­at­ors of pub­lic block­chains,” says Xavi­er de Bois­sieu. “This incent­ive ensures that the num­ber of val­id­at­ors on these chains increases. The aim is to have as many people as pos­sible, so that their interests are as var­ied as pos­sible, and to ensure that the block­chains are prop­erly val­id­ated.” This type of sys­tem is not infal­lible when a major­ity of val­id­at­ors, whose role is to val­id­ate and secure an immut­able chain, work in their own interests.

The main uses of pub­lic block­chains there­fore include crypto­cur­ren­cies, smart con­tracts, and trans­ac­tion trace­ab­il­ity. “This involves two aspects,” he adds. “The first is that we have trus­ted pub­lic infra­struc­tures in which we can keep unal­ter­able records. These registers of inform­a­tion can there­fore be registers of val­ues, registers of who holds what. The second is the pres­ence of sys­tems for imple­ment­ing tokens, which enable this value to be trans­ferred almost imme­di­ately and securely.” This type of block­chain is known as the Inter­net of value, giv­ing rise to the suc­cessor to Web2, Web3. “Today, bey­ond the Inter­net of inform­a­tion that we know [Web2],” he says, “there is a new lay­er [Web3] that gives the pos­sib­il­ity of con­vey­ing value on pub­lic networks”. 

“As soon as we can move value from one end of the globe to the oth­er almost instant­an­eously without per­mis­sion, we can see the prob­lems this can cause,” he con­cludes. “We there­fore need a frame­work to reg­u­late this tech­no­logy, des­pite the dif­fi­culties that this entails in view of its rap­id evolution.”

Pablo Andres