It is no secret that despite the increasing number of blockchain projects on offer, the adoption of blockchain services and cryptocurrencies continues to remain limited. One of the reasons for this could be the amount of time it takes to perform a transaction in crypto as opposed to in fiat. According to CryptoVoices, on average, Bitcoin, the most popular cryptocurrency is reported to have two to four transactions per second, with the second most popular cryptocurrency Ethereum reported to have 10-30 transactions per second.
This number appears miniscule in comparison to the transactions in fiat currencies using traditional methods of cash, cards, checks and bank transfers. For instance, VisaNet alone handles 150 million transactions per day – that’s 1,736 transactions per second.
Core Issues Leading to Limited Adoption
Several factors are attributed to the limited adoption of cryptocurrencies.
High volatility in crypto valuations leads to uncertainty in purchasing power, and people don’t want to use cryptocurrency if they don’t know what its value will be tomorrow. However, volatility largely remains outside of the control of any entity and so valuations remain subject to market forces and speculations.
While apprehensions among people with limited knowledge of cryptocurrencies is another major cause of the low adoption, the not-so-good experience of those attempting to give cryptocurrencies a try is compounding the problem. Delays in transaction processing and high transaction costs are major inconveniences for first time adopters.
High transaction costs limit economic activity in the cryptocurrency ecosystem, as they make the small value day-to-day transactions unfeasible. Imagine paying $5 to process a money transfer worth $2. Additionally, long delays in transaction processing also become a bottleneck, as no one likes to wait long in today’s fast-paced world.
The Root of the Problem
Most popular cryptocurrency networks involve an inherent technical process called mining, which is mandatory for authenticating the transactions occurring on the blockchain networks. Depending on the network’s mechanism, the process works differently across various networks. For some networks like Bitcoin using PoW (Proof of Work), large amounts of expensive hardware is needed for mining which also consumes large amounts of power to authenticate transactions, while for those using PoS (Proof of Stake) the power to authenticate transactions is given to the participants in proportion to their cryptocurrency holdings. Although each method has its advantages and disadvantages, the complexity involved in their technical process remains the main culprit leading to high transaction costs and delays.
Fortunately, blockchain projects can attempt to fix such issues by developing new technical mechanisms. Increasing the number of contributing devices on the cryptocurrency network can help fix the problem to a great extent, mining process can be made simpler, and mining can be substituted for other methods of transaction authentication.
Can the Evolving IoT Ecosystem Help?
A growing number of blockchain projects have been launched based on the above approaches, or their combinations. They use the devices working on the principle of Internet of Things (IoT) - the ecosystem of internet-connected smart devices which are embedded in white good appliances and accessories of daily use, and are capable of storing, processing, and exchanging real-time data with other machines and devices. From accessories like smart watches and computer printers, home appliances like washing machines, dryers and refrigerators, to internet connected cars, everything is compatible with IoT. Predictions suggest that more than 30 billion IoT devices will be used globally by 2020.
The IOTW blockchain platform attempts to solve mining issues by increasing the number of contributing devices and simplifying the mining process. It aims to achieve the first by harnessing resources available across commonly used IoT-compatible household goods whose processors and memory modules can be utilized during their idle time for mining activity. Since these devices have low-end components which may be incapable of performing the standard mining operations, they have also altered the mining mechanism to support “micro-mining.” This mechanism allows devices to contribute towards the transaction verification and authentication activity within their limited capacity, while the heavyweight tasks are performed on network servers called full nodes.
The appliance owners can join the network by downloading IOTW firmware onto their device, allowing it to contribute to the network and get rewarded in cryptocoins. Device owners can also benefit by selling their data in exchange for cryptocoins.
IOTW is on-boarding common household appliances to its network during the initial phase, and will later open its doors for allowing compatible industrial devices. It also offers firmware and electronic chips that allows any appliance to easily join its network.
IOTA attempts to substitute the mining process for another simpler method run on their own technology known as Tangle which mandates a transaction issuing participant to authenticate two other pending transactions before their transaction can be processed. This mining-less method increases transaction processing speed exponentially and the more the network grows, the faster transactions get approved. A drawback to this method is that users need to buy hardware and attach it to their IoT device, and a micro-computer with a high-capacity RAM is needed to run a full node, using up a lot of energy and memory from the device.
Hashgraph is another consensus-based platform alternative to blockchain, where each participant node sends the transaction details to a randomly chosen set of neighboring nodes. Each of these nodes collects details received from other nodes and broadcasts them to other sets of randomly chosen nodes. This process helps to convergence information rapidly, leading to all nodes becoming fully aware of a transaction within a short amount time, resulting in faster transaction verification.
A Good Start That May Need Time
The rapidly evolving IoT ecosystem has the potential to serve as the backbone for mass adoption of cryptocurrencies. Though the concept of seeking contributions from commonly used IoT devices during their idle times is great, its success will depend on how many users decide to participate. All such methods attempt to make the processes smoother, faster, more economical, and rewarding for the participants, which may act as a major draw for bumping up the number of active participants as well as contributors on the network.