EU Blockchain Observatory Suggests Way Forward On Scalability, Interoperability

EUBOF believes permissioned blockchains will pave the way.

  • Earlier this month, the European Union Blockchain Observatory and Forum (EUBOF) released a report outlining the steps needed to improve blockchain scalability, interoperability, and sustainability in Europe. The report, produced by ConsenSys using EUBOF stakeholder input, suggests that “permissioned, purpose-built blockchain platforms” aimed at specific use cases and user bases will constitute the first wave of blockchain technology adoption in Europe.

    The report maintains there is much work to be done before the mass adoption of blockchain technology becomes a reality in Europe and around the world and devotes some space to the “trilemma”: “[B]lockchains can generally have only two of the following three properties: scalability (that is, performance in terms of speed and volume), decentralization or security.” While a highly decentralized and secure blockchain platform may not be scalable, a scaled and decentralized platform may not be secure. EUBOF suggests sacrificing a degree of decentralization in order to achieve a secure and scalable blockchain.

    EUBOF’s main concern, then, is that blockchain platforms be interoperable. That is, they should have “the ability to exchange data with other platforms, including those running different types of blockchains, as well as with the off-chain world.” EUBOF believes a small global network comprised of interoperable blockchain platforms will be the “backbone of a Web of Value” for the blockchain industry.

    On the topic of interoperability between blockchain platforms, the report provides two recommendations. It first suggests that trusted communication between two or more blockchain platforms can be achieved by utilizing a third-party “off-chain entity” to validate transactions and information. This party would be responsible for either transferring information between platforms or recording the state of the different platforms – much like a notary service – so that each participant is able to trust the information. The report also suggests that interoperability can be achieved through cross-blockchain bridges and EDCCs (aka “smart contracts“), which can be used to share and verify information. 

    Moving on to sustainability, EUBOF suggests that developers and designers need to move away from the energy-hungry “proof-of-work consensus mechanism” to more energy efficient mechanisms like proof of stake. It also says that designers and developers need to pay close attention to the sources and amount of funding they receive, the quality of government regulations, and the “capitalisation of the token associated with the protocol.”

    Finally, the report gives some advice to policymakers that EUBOF believes will ensure the adoption of blockchain technology in Europe. European regulators should take a “wait and see approach” and let designers and developers “experiment and learn” how to best use blockchain technology before implementing laws and regulations. Policymakers, meanwhile, should be well-versed in blockchain technology and work alongside established participants in the blockchain industry to develop a regulatory and legal framework. 

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