The increasing number of blockchain patent filings in recent years shows a maturing and steadily growing industry; however, widespread adoption still faces considerable hurdles. The future of the blockchain landscape is likely a cornucopia of blockchains often tailor-made to solve particular problems in particular industries. All of these blockchains face, or will face, problems related to usability, interoperability, scalability, and privacy. Until solutions to these problems are developed, widespread adoption will be hampered.

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What is a Blockchain?

A blockchain is a decentralized ledger of transactions maintained by a network of users that leverages cryptography and incentive mechanisms to secure the information stored in the ledger. The ledger consists of blocks of transactions linked together through cryptography to form a chain of blocks that grows longer over time as new blocks are added to the chain. The blockchain itself is a collection of blocks that contain every transaction on the network that ever occurred.

The properties of the blockchain create real digital scarcity and allow for secure transactions between two parties without relying on a trusted third party, such as Visa, PayPal, or the New York Stock Exchange. Transaction and block validation is handled by nodes in the blockchain network with the node operators incentivized with a potential reward of cryptocurrency (e.g. bitcoin, ether, or litecoin) for their efforts. These validating nodes store a copy of the entire blockchain that is used to verify the particulars of transactions.

To date, blockchain technology appears in user facing products and services, such as wallets and exchanges for holding and trading cryptocurrencies, and in backend test projects designed to replace recordkeeping in the financial, insurance, supply chain, and governmental spaces. As noted above, these early products and services can have several problems.

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Today's Blockchain Issues

The first two problems preventing adoption relate to user experience. Current products and services that leverage blockchain are usually difficult to use, and until the ease of use for the average user is improved, blockchain will not reach widespread adoption. At the moment, development in the blockchain space has been focused on correctly leveraging a blockchain solution to a problem. Realistically though, people will not use a product or service that is difficult to use, no matter the benefits. Blockchain companies should devote more time and attention to user experience if they wish to expand their user base.

The next problem relates to interoperability, or more particularly, the interoperability of one blockchain with another blockchain. Currently, there are hundreds of blockchains and cryptocurrencies that exist on those blockchain networks. These blockchains are not interoperable, and users often have multiple cryptocurrencies that exist in silos unable to talk to each other. For a technology that is touted as a payment solution, this is a problem. There are some solutions on the market that exist, such as ShapeShift, which exchange one cryptocurrency for another cryptocurrency, but much more work should be done.

The next two problems are related to problems that arise in blockchain networks as they gain more and more users. The first problem is how to properly scale a blockchain. For many blockchain products and services, their closest analog is to the existing credit card payment system. Current blockchain implementations are not able to handle large numbers of transactions comparable to the major credit card networks, because blockchains are innately inefficient. For a variety of reasons, as more and more transactions are conducted on the blockchain, the confirmation time for transactions tends to slow down. Conversely, from a user's perspective, credit card transactions are close to seamless and do not require extensive involvement aside from swiping or inserting their card into a reader and then signing off on the transaction. Accordingly, blockchain companies should work together to pursue scaling solutions if they are to replace traditional payment networks.

The other problem facing blockchain adoption is privacy. Namely, users and government officials are under the impression that transactions on a blockchain are anonymous. This is not strictly true. Although some cryptocurrencies allow for anonymous transactions (e.g. Zcash and Monero) the vast majority of blockchains track the sending and receiving addresses for transactions, which allows the movement of funds to be tracked. This visibility may be a benefit or a detriment to a user depending on the use case. Regardless, better public education on this point is appropriate.

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Where Blockchain Goes From Here

There are two recent developments that may help to focus development in the blockchain space. The first is government regulation. Though often spurned by developers and innovators, regulation removes any clouds of uncertainty that may exist surrounding new technology, and establishes a baseline of rules everyone must follow. According to the non-profit Coin Center, there are currently eighteen states that have considered, or passed, blockchain related legislation.

The second development is the creation of blockchain consortia. There is a blockchain consortium for a variety of industries, such as, logistics, finance, accounting, and supply chain. These consortia, most notably HyperLedger and the Ethereum Enterprise Alliance, may foster industry standardization by, hopefully, establishing best practices that help to solve some of these problems.

The first blockchain network, the Bitcoin blockchain, went live over eight years ago. Since that time there has been a tremendous amount of innovation, and considerable amounts of money raised. However, the blockchain space is still very much in its infancy. Once issues related to user experience are improved, and blockchain companies figure out how to handle growing user bases, widespread adoption will surely follow.

Nelson Rosario is an associate at Marshall, Gerstein & Borun in Chicago. Disclaimer: The information contained in this article is for informational purposes only and is not legal advice or a substitute for obtaining legal advice from an attorney. Views expressed are those of the author and are not to be attributed to Marshall, Gerstein & Borun or any of its former, present or future clients.