Despite what he called the “vast potential” of blockchain, Haber says lack of awareness and understanding of how it can be applied is a key challenge, especially in industries outside banking and financial technology, while lack of regulatory clarity is a roadblock for mass adoption.
Haber is a speaker at this week’s Singapore FinTech Festival and commented to Forkast in an email interview. The Q&A has been edited for brevity.
Pradipta Mukherjee: What was your original idea behind blockchain technology?
Stuart Haber: The idea behind the invention was not for specific use in financial systems. Working at Bellcore (Bell Communications Research) back in the 1990s with Scott Stornetta as young cryptographers, our aim then was to create a solution to the problem of authenticating documents and ensuring the integrity of digital records. We thought that the needed method to do so was through time-stamping digital documents with the following properties:
First, one must find a way to time-stamp the data itself without any reliance on the characteristics of the medium on which the data appears, so that it is impossible to change even one bit of the document without the change being apparent.
Second, it should be impossible to stamp a document with a time and date different from the actual one.
This became the prologue that gave birth to our 1991 paper “How to Time-Stamp a Digital Document”, which in many ways, introduced the idea of a chain of hashes to create a total order of commitments to a dynamically growing set of documents.
Mukherjee: Did you imagine blockchain would be used for non-fungible tokens (NFTs), metaverse, GameFi, and other innovations as is happening today?
Dr Haber: When blockchain took off, it was quite an experience for me and Scott, seeing the vast potential it has and to talk to people about our place in history and how it came to be.
Back then, our main goal was just to find a way to ensure the integrity of digital records and documents. But 30 years later, it is exciting to see the evolution and explosion of this technology, not only in financial interests, but also in entertainment, business, and technological innovations.
And as blockchain systems are readily available now and much more widely deployed than 30 years ago, I encourage the new generation to use it and continue innovating and challenging the unknown. Curiosity is always the fuel for great innovations.
Mukherjee: What kind of technology innovations do you foresee for blockchain? What remains unexplored?
Dr Haber: Blockchain technology found its first ultimately successful real-world deployment with the launch of Bitcoin in 2009.
Since then, we have seen how it has evolved and changed the way people transact and interact across industries including health, business supply chain tracking, and gaming and entertainment.
But as we look into the future of blockchain, there is definitely a lot more to explore for its uses specifically in the financial sector.
Specifically, FinTech (finance technology) makes up the lion’s share of the blockchain market. Over the course of the last decade, we saw how digital ledgers leverage a fundamental change in how we send, receive, manage, and store our money.
Interestingly, although we are already seeing the transformative impact of blockchain across the fintech industry — from crypto to DeFi — we are still in the nascent stages.
The untapped potential of blockchain technology in the sector remains huge – from improvements in transaction processing and interoperability, to driving down transaction costs and timelines while increasing transparency and security.
But the bottom line is, we are all living in fast-paced times and with such volatile market and financial conditions, we certainly need a technology like blockchain to increase international transaction speed and reduce costs.
That alone entails a lot of opportunities to push the needle and explore the many possibilities of this technology.
Mukherjee: How can blockchain transform the fintech sector?
Dr. Haber: Blockchain technology revolutionizes the fintech industry in many ways. For example, borderless payments are made possible through cryptocurrencies that use this framework. This can also pave the way to faster payments as it cuts the extra authorization process, becoming more user-optimized.
Another key feature is blockchain’s programmability, which allows users to create and execute smart contracts that help automate businesses in the industry more efficiently.
Mukherjee: What are the challenges the fintech sector is facing with blockchain’s adoption? How can these be solved?
Dr. Haber: While considered a cutting-edge technology, blockchain also has its drawbacks and risks for consumers and industries that intend to use it. Some challenges include:
Lack of awareness and understanding: This is a principal challenge associated with blockchain, especially in sectors outside banking and fintech. As it is still in its nascent stages, there is still a lot of unknown on its use cases. For companies who are thinking of adopting blockchain into their operations, it would be best to pin down whether it is a suitable technology for your organization. If so, companies should think also about its application, what it would mean to the organization and its operations, even on the effect on company culture and how you will educate employees and stakeholders.
Lack of scalability: Scalability, or the ability to manage a large number of users at a single time, is an absolutely crucial challenge. With more and more people utilizing the technology, transactions have also increased dramatically—-and as transactions increase, this entails more computation of complex algorithms that result in a cumbersome system. Of course, scalability is not a brand-new problem for computer scientists; in fact, the study of consensus protocols for distributed systems goes all the way back to early work by Leslie Lamport, the Turing Award winner who more or less invented the field, beginning in the 1970s. Scalability for blockchain systems is an excitingly active field of research now, and there are a number of proposals for safely parallelizing computational processes that may well make a huge difference for practice.
Safety of smart contracts: With the launch of Ethereum, the blockchain world exploded with a wide variety of applications that could be deployed as “smart contracts.” But smart contracts, like all programs, are hard to write well and safely, and we’ve all seen many examples of vulnerabilities in systems, some of them very expensive. There is much more work to be done in the area of tools and mechanisms for buttressing the security of smart contracts.
Regulation and governance: There is also the lack of regulatory clarity, which represents a significant roadblock for mass adoption. Decentralized networks can be much less resilient to market shocks, which can impact participants directly. To overcome this, concerned sectors may need to work within the existing regulations or collaborate with government bodies to create them.
Mukherjee: Many world governments are slow in adopting blockchain and are unsure of risks. What advice do you have for them?
Dr. Haber: Though, of course, many high-tech enthusiasts bristle at governments’ laws and regulations, the caution of many governments in adopting blockchain technology is well-founded. Rather than making specific suggestions, my main advice would be “Be careful!”
Mukherjee: How would you address concerns regarding the rising cost of blockchain implementation?
Dr. Haber: The rising cost of blockchain implementation can be prohibitive. Advances in scalability can improve the situation. But significant investment is needed for operations, licensing, and overall administration of such technology for it to run efficiently.
Therefore, it is imperative to think about the crucial factors in implementing blockchain applications. For example, what are the main drivers of cost of implementing the technology and how can this be shared among participating stakeholders.