Universal Blockchains Buckle Under Real-World Demands

Opinion by: Steven Pu, co-founder of Taraxa

​Across verticals, the same pattern shows up again and again, and it has nothing to do with decentralization. Businesses rush toward solutions to solve their daily operational nightmares — only to discover that Ethereum and Solana can’t actually address them.

​Consider a construction foreman who approved a last-minute design change over a quick phone call, only to get sued six months later when the customer says they never agreed to it. Or consider an equipment leasing company that watches its revenue share evaporate because clients dispute sensor data showing machine usage — data that could have been tampered with before reaching the blockchain.

​We watch this pattern repeat across industries, with disputes being the primary pain point driving adoption. In asset leasing, for instance, disputes arise over how assets are used, what they’re earning and whether sensor-collected data has been altered. In construction, disputes often arise from frequent and urgent changes to pre-approved building plans, which can create confusion and lead to expensive lawsuits later on.

General-purpose blockchains have reached their limits in solving real-world problems. In almost every industry where decentralized networks could be useful, there are clear technical mismatches between what general-purpose chains offer and what specific verticals actually need. Therefore, founders are increasingly building their own specialized layer 1s instead.

Industry-specific disputes need simpler blockchains

In construction and similar industries, disputes are frequent and expensive. An onchain audit trail of “who said what when” can anchor the handshake agreements that happen via informal texts and calls, greatly minimizing the potential for lawsuits.

Audit trails — basically, signed messages — are stateless by nature. Each message added to the network has no effect on previous or subsequent messages. These aren’t financial transactions with balances to track, no double-spend problems to solve and no cryptographic identities to verify. The only properties that really matter are immutability and ordering to establish an ironclad sequence of events.

It matters because appending stateless messages to a blockchain doesn’t need the full verification machinery that Ethereum provides. No need to verify complex cryptographic signatures and smart contracts for every entry; these messages can be committed to a permanent state in parallel.

​As soon as any audit trail use case scales, founders would be wise to build their own specialized layer 1. Most signature verifications can be skipped since there are no assets to steal, resulting in significant savings of processing power. No smart contracts means avoiding Ethereum’s notoriously slow virtual machine. Because stateless messages guarantee no conflicts between entries, they can be rapidly committed in parallel.

​These customizations could dramatically improve network speed and responsiveness — all without sacrificing the security or decentralization that matters for proving “who said what when.”

Financial regulations break general blockchains

While construction needs less complexity, traditional finance needs more control — specifically, regulatory control that general-purpose blockchains weren’t designed to provide.

As decentralized finance becomes mainstream, traditional financial institutions are increasingly placing real-world assets (RWAs) — including fiat currencies and securities — onchain. The trouble is these non-crypto native assets are heavily regulated everywhere around the world, and those regulatory constraints have technical implications that Ethereum can’t accommodate.

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Regulators will increasingly demand foolproof functionalities at the foundational blockchain level to ensure maximum compliance. Know Your Customer (KYC) rules will soon to licensed, offchain KYC providers, ensuring every single address corresponds to a verified identity. Anti-Money Laundering (AML) and sanctions requirements will demand that every wallet and every asset can be blacklisted, blocked and frozen and that all transactions be reversible. Even the computers running these blockchains may be treated as security brokers or money transmitters, requiring specialized financial licenses and making these networks fully private and permissioned.

All of these regulatory functions must be natively integrated into the consensus protocol to ensure maximum compliance. Since none of these are possible on a general-purpose layer 1, financial institutions need to build their own — and they have been, rapidly.

A few notable examples include JPMorgan’s Kinexys for interbank settlements, Stripe’s Tempo for payments and Robinhood’s Arbitrum-based layer 2 for onchain securities. As mainstream institutional adoption grows, these regulated and permissioned blockchains will increasingly become the norm in the crypto space.

Generalized layer 1s are not going anywhere

The obvious question: If every industry builds its own blockchain, don’t these smaller networks become vulnerable to attacks?

Generalized layer 1s, especially those with significant scale, can still play a critical role as security anchors for these industry-specific custom blockchains. A few large-scale networks — Bitcoin and Ethereum — have tremendous numbers of participants, node operators and onchain financial interests that make them very difficult to compromise. This stands in stark contrast to smaller, more vulnerable industry-specific chains.

These specialized networks can use Ethereum, for example, to anchor periodic snapshots that prevent historical rewrites, include ETH as part of their staking requirements or use Ethereum to settle disputes by replaying transaction histories. Think of it as specialized blockchains handling day-to-day operations while periodically checking in with Ethereum for security backup.

This resolves the dispute problem in an unexpected way: Specialized chains can be optimized for their industry’s specific needs — whether that’s simple audit trails or complex regulatory compliance — while still maintaining robust security guarantees by anchoring to established networks.

As mainstream adoption continues to accelerate, tthe bulk of industry-specific use cases won’t be handled by today’s one-size-fits-all layer 1s but they could help bolster the security guarantees of the industry-specific networks.We’ll see an ecosystem of purpose-built blockchains, each solving the precise problems their industries face — from construction disputes to equipment leasing conflicts to regulatory compliance — while relying on Ethereum and Bitcoin to strengthen their security.

​Opinion by: Steven Pu, co-founder of Taraxa.

This opinion article presents the contributor’s expert view and it may not reflect the views of Cointelegraph.com. This content has undergone editorial review to ensure clarity and relevance, Cointelegraph remains committed to transparent reporting and upholding the highest standards of journalism. Readers are encouraged to conduct their own research before taking any actions related to the company.

This opinion article presents the contributor’s expert view and it may not reflect the views of Cointelegraph.com. This content has undergone editorial review to ensure clarity and relevance, Cointelegraph remains committed to transparent reporting and upholding the highest standards of journalism. Readers are encouraged to conduct their own research before taking any actions related to the company.