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Blockchain unchained?

February 11, 2019

The limitations of the blockchain technology

The blockchain technology is probably the most promising innovation of the 21st century. Recently, however, critical voices have become louder and louder. Harald Trautsch, technology expert and CEO of Dolphin Technologies, has been dealing with the topic of blockchain for some time now. In an exclusive interview, he openly talks about its potential, meaningful applications, and also about the challenges of blockchain technology.

Pic of a blockchain teared apart
Critical voices are getting louder and louder: where are the limits of blockchain technology?

Data is the virtual gold of the 21st century - and it is much sought after and therefore in constant danger of corruption, manipulation and theft. The wonder weapon against these threats is called Blockchain. The decentralized technology enables encrypted, forgery-proof and transparent data transfer within a network. This makes the execution of contracts simpler and more transparent, for example in insurance or real estate transactions. In financial transactions, money laundering and corruption can be prevented, and when used in logistics, freight can be better tracked, distributed and transported. The counterfeiting of products is more difficult because the components can be traced back to the origin of raw materials in the supply chain. Blockchain could also revolutionize the management of energy systems or even entire states and largely automate financial markets.

The global blockchain market is growing rapidly

Cryptocurrency was the first broad field of application for blockchain technology. One of the currencies, Bitcoin, became particularly interesting as a decentralized currency primarily because of the initially enormous price increases. Even corporations have long been experimenting with blockchain technologies, which, according to TrendingTopics (www.trendingtopics.at), will increase the global market by 10 billion dollars in terms of volume over the next five years. The open source blockchain platform Hyperledger, managed by the Linux Foundation, is already used by more than 260 banks and corporations such as Deutsche Telekom, Alibaba Cloud, Airbus, American Express, Daimler and Intel. This platform provides codes and tools, webinars and tutorials to help develop this emerging technology.

Pic of a bitcoin as the spokesperson for the blockchain technology
The crypto currency Bitcoin brought the blockchain technology into the interest of a broader public. Photo © CC0 Licence

The Austrian InsurTech company Dolphin Technologies is also moving a part of its "Mobilio" app onto the blockchain. Users who do not use their mobile phone while driving collect points, which can then be exchanged for Mobilio tokens. These tokens can then be used to purchase services from insurance companies and their partners. "Our token is actually a real currency," says Harald Trautsch, CEO of Dolphin Technologies and graduate of the WU Executive Academy's Global Executive MBA. "Bitcoin and Ether are currently less of a payment instrument than a speculative vehicle." Dolphin Technologies uses a public blockchain to gain the trust of the community: "It guarantees that only the tokens actually minted by the users are in circulation," explains Harald Trautsch. This means that there can be no artificial oversupply or shortage of the token.

Critical voices raise concerns

Yet there is not only enthusiastic feedback; the critical voices of blockchain technology are getting louder. The management consultants at McKinsey consider the hype surrounding blockchain technology to be exaggerated and see a very sober outlook for the technology: it is too expensive, too complex and, in many cases, unnecessary (see here). They believe that it will not grow beyond its pioneering status and foresee an uncertain future.

Portrait Harald Trautsch

Harald Trautsch

  • CEO Dolphin Technologies and Global Executive MBA alumnus

Of course, you have to consider carefully whether you need blockchain at all for your business. In fact, a transaction within a public blockchain is very expensive. It costs about one million times more than a regular transaction via a conventional interface.

Does such an expensive system make any sense? That depends on the contractual basis. "Information can be so relevant or a contract can be so important that it pays off," says Trautsch. Another disadvantage: compared to conventional interfaces for financial transactions, public blockchains are very slow. "The Etherum blockchain can currently handle only about 20 transactions per second. Payment providers such as Visa, on the other hand, process around 30,000 transactions per second. In addition, with public blockchains, all data is stored on each individual node. At first glance this sounds highly inefficient and in many cases it is. "A blockchain makes sense if you want to enable a transaction between parties who do not trust each other," says Harald Trautsch. "So-called smart contracts enable certain transactions to be carried out without a middleman, happily accepting the higher costs."

In order to carry out transactions with sensitive content that should not be visible to third parties, it is possible to do so "off-chain" and simply write the transaction verification on the chain. "This is particularly crucial for insurance contracts, where personal data and sensitive data is exchanged," says Trautsch. Of course, data security and protection against manipulation are also important issues. Since the data on blockchains is stored in several places, manipulation is all the more difficult. There is the hypothetical 51% problem that "if someone controls more than 50 percent of the block chain, he could manipulate it," says Trautsch. From today's perspective, however, it is unrealistic in public blockchains that someone can provide more computing power than all other participants together.

Exponential progress

But does this really mean that the blockchain boom comes to an end before it has really started? Alfred Taudes, Scientific Director at the WU Research Institute for Cryptoeconomics, disagrees.

Portrait of Prof. Taudes by Nathan Murrell

Prof. Alfred Taudes

  • Academic Director of the Institute for Cryptoeconomics

E-mail was a new application at the time and it didn't even give us a clue what to expect. Blockchain will also offer numerous completely new applications that will dominate the entire economy. We are only in the trial and error phase.

Harald Trautsch agrees: "Just as the Internet has only become relevant because of its content and services, the adaptation speed of blockchain will become exponentially faster with the number of use cases. It is important to emphasise that blockchain technology must be used intentionally and selectively in business. Then it definitely has a bright future."

Find out more about Blockchain in our new MBA Digital Transformation and Data Science, which will be launched for the first time in autumn 2019. For more information, please click here.


Photos of Prof. Alfred Taudes © Nathan Murrell

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