I’ve been involved in the blockchain/cryptocurrency space since around 2013, more intensely over the past year as the ecosystem has matured. As the price of Bitcoin and Ethereum hits stratospheric highs, public attention is correspondingly peaking leaving many wondering where the line lies between unrealized hype and tremendous potential. Blockchain promises to solve many of the world’s toughest issues with applications in fields ranging from healthcare to finance to shipping logistics, that is, any field in which transparency and audibility are critical. However, much remains to be done in solving pressing problems before blockchain technology can be as seamless as promised, with these problems being both technical and practical.
This past summer, I worked at the US Naval Research Lab analyzing blockchain applications for relevant to the DoD for national defense purposes, with a focus on algorithmic management of centralized resources like satellite spectrum. I coordinated with Navy researchers in identifying Navy needs, and incorporating emerging research in developing mathematically optimized resource allocation models (through mixed-integer programming optimization models and novel constraint cuts). Understanding these needs and potentials, I worked on analyzing where blockchain technology can contribute to advancing Navy missions within this context. Since Navy systems are increasingly automated, blockchain allows for speed and reliability in creating computer-to-computer transactions in these processes. Meanwhile, security is a recurring concern in managing critical systems especially those relevant to national security. Of course, as in any government initiative, appropriate transparency is important to ensure programs are running smoothly and the public is being served efficiently. I looked at how an audible token system allows for transparent cross-chain smart contracts atop a platform like Ethereum, proving valuable when dealing with multiple parties. With centralized resources, blockchain offers dynamic, instantaneous adjustment of spectrum allocation and proof of ownership inherent to the global ledger.
I developed a prototype library of smart contracts programmed in Solidity over the Ethereum testnet to model what these scenarios could look like. Security becomes a more manageable concern as it becomes more-or-less a function of computational power, warding off brute force attacks with the underlying cryptographic algorithms like elliptic curves, shown to be secure for decades to come. Security is nonetheless dependent on the use of proper coding and auditing practices, since unlike the real world, contracts are immutable and there is no court system to right wrongs. This was demonstrated last year with the DAO hack and more recently when $350 million was stolen due to an improperly secured library contract that managed Parity’s multisig wallets. These “hacks” are usually quite simple (someone was just able to press a self-destruct button, essentially) but they reflect a worrying attitude toward security in the blockchain industry. I’d like to research how to promote more intensive code reviews and perhaps even a more fault-tolerant contract language, or one with formal mathematical proof-based verification.
From a financial perspective, while cryptocurrencies have seen wild spikes and crashes with some making comparisons to tulip mania, ultimately, the long-term chart of something like Bitcoin shows a confident uptrend, albeit unprecedented in its rate of growth. Recently, with the proliferation of ICOs, we’ve seen a novel method of crowdsourced fundraising that fulfills both a funding mechanism and an initial userbase for a new technology. However, ICOs have drawn flak for the lack of regulation around them and heady claims. I’m interested in exploring how the regulatory environment around ICOs evolves both in the US and abroad, with the SEC already having issued warning and China having issued bans. Regulatory climate and governments are likely to be major determinants of cryptocurrency valuations as we move forward. Meanwhile, there are some technical and economic factors that are holding back mainstream adoption of cryptocurrencies at the moment. One, of course, is extreme volatility which precludes its use as a store of value. Another is network congestion, limited by block capacities being maxxed at 1 MB, which creates high transaction fees and long confirmation times, hindering use as a medium of exchange for smaller-scale purchases to take on the like of VISA.
Also, how should cryptocurrency exchanges and consumers deal with forks and chain splits? For Bitcoin, Segwit was proposed as a technical solution to the blocksize dilemma, but this led to infighting between developers, creating even more volatility in the cryptocurrencies market. How do we encourage innovative thinking in terms of technical improvements, while minimizing disruption to users and internal conflict within the developer community? Cryptocurrency markets are intimately tied to the technical work underneath. It’s interesting to look at cryptocurrencies like Bitcoin both from a technical distributed networking perspective and through the lens of economics/game theory (consider it a game between miners, investors, and consumers). That is where Satoshi in the Bitcoin whitepaper truly proposes something novel in creating a consensus mechanism that solves the Byzantine Generals Problem.
Just from a back of the napkin calculation, we can see that if even 1/4th of the US GDP was represented in Bitcoin, of which the money supply is fixed at 21 million, the value of a single Bitcoin would be well above $200,000. That is to say, we’re still in early days. Or not, if everything comes crashing down and we were fooled by smoke and mirrors.