With the public beta now live, Johnson believes the Bitsy cryto-exchange app will be generally available sometime in the first quarter of 2019.
Bitsy
The screen that appears after a bitcoin purchase on Bitsy.
Tokenization could usher in new ownership models
Tokenizing assets paves the way for entirely new ownership and service models, but work on those models is nowhere near complete. Nevertheless, they are some of the most innovative ideas put forth using DLT, Bennett said.
For example, automobiles could be tracked through blockchains by creating a unique hash tied to the vehicle identification number or VIN. Even parts that make up the vehicle could be linked via QR codes that cannot be replicated and thus, ensure the authenticity of the maker.
"So, if you also wanted to make sure when the brake discs are being replaced, only original parts are used, that's one way of ensuring it," Bennett said.
Cars could also someday be owned by multiple entities, each holding a certain number of tokens representing a portion of the vehicle's overall worth. The vehicle would then become a service, to be used when needed but not entirely owned by one person or company.
"You would have a tokenized car, where the car itself is owned by different entities. The car overall could be owned by the manufacturer, but in an electric vehicle the battery could be owned and serviced by a different company," Bennett said. "What's delivered to the consumer is a service whereby they can get transportation when they need it."
Digital rights could also be linked to blockchains, where a hash representing an object – a painting or precious gem, for instance – could be maintained in the immutable record, ensuring not only authenticity among sellers and buyers, but tracking the provenance of the item.
Big hurdles remain
Some things, however, cannot be accomplished purely with DLT and cryptocurrencies, Bennett said. For example, you cannot have a high transactional throughput rate with bitcoin and a resistance to malicious attacks.
"It's one or the other," she said. "There is a point beyond which you cannot address latency unless you control some big pipes.... If you have a large network with lots of nodes and all those nodes need to be fully replicated, then no, you cannot have a high throughput rate."
The creator of the open-source blockchain platform Ethereum has been exploring ways to fix the technology's innate performance issue – the inability for processing capacity to effectively scale.
So far, Ethereum is experimenting with two possible fixes. The first, "sharding," would require a small percentage of nodes to see and process every transaction, allowing many more transactions to be processed in parallel at the same time. Sharding is also expected to maintain most of the desired decentralization and security properties of blockchain.
The second solution involves creating data-link layers or "layer 2" protocols that send most transactions off-chain and only interact with the underlying blockchain in order to enter and exit from the layer-2 system, as well as in the case of attacks. Layer 2 protocols transfer data between nodes within a LAN or an adjacent WAN. Data sent "off chain" can be stored in conventional SQL, Oracle or other databases.
While the industry isn't expecting major breakthroughs in 2019, the pace of innovation is such that it won't be the root cause of project failures if the system is properly architected, implemented and run. Agreeing on data definitions, what data to share and with whom, what the process looks like end-to-end, what governance principles apply to the network, will continue to be bigger challenges, Forrester's report said.
Another conundrum facing DLT: data is only as accurate as the person entering it and it's up to a consensus mechanism – a majority of users – to decide what transaction does and doesn't get added to the immutable electronic ledger. That boils down to the need for rules.
"In anything, that involves not just sharing data but using data that has been entered by someone else. What do you do if there's an error? Who's responsible?" Bennett said. "If I cannot rely on data entered by someone else, what's a shared ledger worth?
"I've even seen pilot projects fail, and even ones that had good use cases; they failed because the entities failed to agree on the legal terms of the pilot projects," Bennett added.
Running afoul of regulators
Business and regulatory issues also represent stumbling blocks.
For example, the EU's General Data Protection Regulation (GDPR) targets citizens' personally identifiable information (PII), providing transparency around its use and giving people the right to restrict it or request it be deleted all together. While public blockchains can anonymize participants and even the data entries by representing the information with hash keys, it is possible to infer who a blockchain participant is through metadata, Bennett pointed out.
"It's fair to say public blockchains like bitcoin and Ethereum are completely incompatible with GDPR," Bennett said. "Blockchain is ... not anonymous."
Recent reports have pointed to the ability to glean user location data on Ethereum. For example, the blockchain search engine Etherscan, which is used to look up, confirm and validate transactions on an Ethereum blockchain, can be used to find links between an a user's IP address and their Ethereum address.
Another way DLT technology can be incompatible with regulations such as GDPR is that you cannot exercise your right to be forgotten on a public blockchain. Blockchain, by nature, is not erasable or changeable; it is write-once, append many technology. While there are efforts to make DLT data unobtainable, through cryptographic erase schemes, they are still controversial, according to Bennett.
Accenture, for example, floated an "editable" blockchain prototype that hasn't seen adoption. The prototype was aimed at permissioned, not public, blockchains.
"My advice to companies is PII – personally identifiable information – should never be directly recorded on a blockchain, period," Bennett said.
Even with those issues, DLT platform proliferation will continue and the tools and services will continue to improve, Forrester said in its report.
In 2018, Ethereum/Quorum, Hyperledger Fabric, R3's Corda, Digital Asset Holdings' software and Multichain have been the most prominent live systems or major developments. While the list of players won't change significantly in 2019, more contenders are likely to emerge, as there are a number of well-funded projects under way that promise to address some of the key shortfalls in existing architectures.
Some of the well-funded projects include Hedera Hashgraph, a blockchain governance prototype; RChain and EOS, both of which purport to solve blockchain performance issues; and Cardano, a smart contract platform aimed at protecting user privacy.
"This really is the futuristic stuff," Bennett said. "And, anything around tokenization is long-term strategic work."
While cryotocurrency represents an “innovative leap forward,” it has yet to meet all the criteria for a “true currency,” according to Constance Hunter, KPMG’s chief economist.
“There are still big hurdles to be crossed before they can attain mainstream global adoption,” Hunter said. Adoption of cryptocurrency by traditional institutions – both financial services firms and governments – is necessary for it to achieve legitimacy.
Among the key challenges are a still-evolving regulatory landscape – particularly involving cross-border issues; know-your-customer and asset provenance to verify the identity of customers using cryptocurrency; and tax liabilities tied to the exchange of crypto, much of which is still a large gray area, according to KPMG.
“The institutionalization of crypto will bring new capital into the space and drive a range of innovation that will ultimately benefit all participants,” said Jeff Horowitz, chief compliance office at cryptocurrency exchange Coinbase. “It will drive greater economic choices, innovation, efficiency and opportunity, all of which have the potential to impact billions of people round the globe.”