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