Basic math #1: Reliability of service

Even with IoT devices expected to be in the billions within the next decade, obviously not all of them are going to transact on distributed ledgers or through cryptocurrencies. Let’s therefore have a look at a few potential scenarios for the amount IoT devices transacting on DLTs/cryptocurrencies:

Very low amount of devices

A future with only 20 billion IoT devices, but only 0.2% of them transacting on DLTs every 60 minutes, resulting in 350 billion transactions annually (11,111 transactions per second)

A future with only 20 billion IoT devices, but only 0.2% of them transacting on DLTs every 60 minutes, resulting in 350 billion transactions annually (11,111 transactions per second) Low amount of devices

A future with 33 billion IoT devices, but only 1.2% of them transacting on DLTs every 30 minutes, resulting in 6.9 trillion transactions annually (220,000 transactions per second)

A future with 33 billion IoT devices, but only 1.2% of them transacting on DLTs every 30 minutes, resulting in 6.9 trillion transactions annually (220,000 transactions per second) Moderate amount of devices

A future with 50 billion IoT devices, but only 2.8% of them transacting on DLTs every 15 minutes, resulting in 49 trillion transactions annually (1,555,555 transactions per second)

A future with 50 billion IoT devices, but only 2.8% of them transacting on DLTs every 15 minutes, resulting in 49 trillion transactions annually (1,555,555 transactions per second) Medium amount of devices

A future with 75 billion IoT devices, but only 6.4% of them transacting on DLTs every 5 minutes, resulting in 504 trillion transactions annually (16,000,000 transactions per second)

A future with 75 billion IoT devices, but only 6.4% of them transacting on DLTs every 5 minutes, resulting in 504 trillion transactions annually (16,000,000 transactions per second) Extremely high amount of devices

A future with150 billion IoT devices, but only 20% of them transacting on DLTs every 3 minutes, resulting in 5,256 trillion (5 quadrillion) transactions annually (166,666,666 transactions per second)

Regardless of the scenario that appeals to you, it is obvious that scalability solutions are dearly needed in order to enable adoption of DLTs/cryptocurrencies. Even the scenario with the lowest amount of actuators (0.2% of 20 billion devices, once every hour) would require a transaction capacity that can not be sustained by any DLT currently existing. Even if there would be one with a working solution: what happens if devices wanted to transact on a slightly higher frequency?

Businesses thinking about adopting DLT on a large scale are confronted with the question what would happen if the maximum transaction capacity of todays’ DLT solutions would be reached

Looking at adoption

For obvious reasons it would be catastrophic for businesses if they relied their operations on distributed ledger technology that is unable to process transactions because the maximum throughput has been reached.

It therefore seems reasonable to question which business would take a leap of faith and adopt a cryptocurrency if it i turn means that their operations, and thus their revenue streams, might fail once others do the same and the maximum transaction capacity is reached.

One business “adopting” the technology works out well. Maybe there is enough capacity to sustain the throughput requirements a hundred business. Maybe even a thousand. But if adoption happens as planned (by speculators seeking riches) everything would come to a grinding halt once the capacity limits are reached. Even through everyone knows it, speculators ignore it and highlight any newly emerging PoC as the second coming of christ.

Clogging of the mem-pool of Bitcoin and Ethereum has demonstrated what happens once the capacity limits are reached. When it comes to their revenue, businesses can’t trust on “science will fix it and someone will probably find a solution in time”. It’s simply too risky for them.

If there would only be small scale mass adoption or adoption by non-critical transactions, those wouldn’t justify current cryptocurrency valuations. A sustained transaction volume of, for example a minuscule volume of 1,000 transactions per second (which hasn’t even been reached by any cryptocurrency so far) doesn’t justify a valuation of several hundred million or billion dollars.

But large scale, high volume mass adoption is impossible until the scalability challenge has been solved. Bummer, isn’t it?

Among thousands of cryptocurrencies, there currently isn’t a single one with a working solution to scale, nor is there a single one that is testing a potential (cryptographically secured on-chain) solution. Only a handful are pursuing viable ideas for potential solutions.

The times of uncertainty therefore aren’t over, no matter how many proof-of-concepts, trials or actual low volume, or non-critical applications are (prematurely) interpreted as beginning real-life mass adoption. They don’t prove usefulness of cryptocurrencies and in turn don’t justify their valuation.

On the contrary: the challenge of “scalability” means that, once solved by one or more contenders, there will be a heavy devaluation of those that don’t have a viable scaling solution at least in sight.

The race for scalability certainly is going to be a very interesting period. And it’s not a matter of if but rather when. But we are not there, yet.