Though Blockchain is Bringing Revolution, There Are Noted Limitations
Every new technology launched goes viral before anyone can understand its underlying flaws. Same is the case with blockchain. Only after years and years of research and development in this sector, we have come to realize the inherent disadvantages of this technology which might not make most of our dreams come true.
Many applications of blockchain in various industries suffer because of the following limitations:
Though it has been almost ten years since the inception of bitcoin and blockchain, it is still a hard sell for many people.
This can be mapped to the complexity of the concepts and terms involved in the blockchain space. Concepts like Distributed Ledger Technology and Cryptography are not easy for people to grasp in a day.
It takes some effort on the part of the person to find resources, follow the industry and slowly build a robust understanding of the ecosystem. The jargons and the lingo of the community are an added burden for the common man to get a hold of things quickly.
The debates about fraud and associated regulatory concerns have always been a key feature of the blockchain industry.
Since space is highly unregulated, many scams and frauds have successfully got away with millions of dollars of cash from investors.
Investors have often invested in ICOs of “revolutionary” tech only to realize that their money is gone forever. One such case is Onecoin, which claimed to be the “next bitcoin” but instead ran away with all the capital raised.
One may try to avoid such fraud by investing in trusted coins like Bitcoin, Ethereum, Ripple etc, but you are still prone to events like shutting down of the exchange you deal with and hacking of your online wallet. The fraud in the industry majorly stems from the lack of proper regulatory action on the part of the government and institutions.
Excessive miners and the 51% Attack
The job of the miners in a bitcoin-like blockchain is to validate transactions and maintain the stability and the security of the network. Are they actually doing so?
Unfortunately, the answer is, no.
With the passage of time, the number of miners has increased exponentially to hop into the profits. However, the problem is that it does not add additional value to the network as a whole.
The miners, instead of maintaining the network, are competing against each other for the opportunity to mine and get the rewards. This leads to wastage of electricity which can be used for other valuable purposes as well as the purchase and production of machines which can be used for nothing else than mining.
The argument here is that if only 10% of the miners existed, a new block will still be added every 10 minutes and the speed will also not be affected. This would drastically reduce the energy consumed in the mining process.
Also, with miners, there is a possibility of the unavoidable 51% Attack. This means that if a particular group of miners joins hands to control more than 51% of the computing power, then they can rewrite the blockchain as they want, approve fraudulent transactions and allow double spending.
Immutability and Smart Contracts
While the information in a centralized database can be edited in case of wrong input, this is not possible with the use of blockchain.
Once the data is entered into a block and the block is added to the chain, it stays there forever. In such a case, it becomes increasingly important to ensure that the data entered is accurate in the first place.
Another aspect of immutability involves smart contracts. The code that goes into the smart contracts should be thoroughly tested by developers by providing solutions for every possible scenario.
However, there have been cases where flaws have been exploited by hackers to gain huge sums of money. An example of this is the DAO Attack. Such bugs in the code cannot be debugged like any other software and if not written properly, a huge amount of value may be lost forever.
Transaction Costs and Speed
People often like to talk about how bitcoin and other cryptocurrencies which are running on blockchain can outdo banks completely. However, the major aspect not considered by such people is the scalability and the bandwidth of blockchain.
Talking about bitcoin, it can only handle 7 transactions per second, which makes it impossible to be used simultaneously worldwide by millions of people.
Miners usually prioritize transactions with high fees and thus a huge backlog of transaction builds up making the network slower and expensive.
Other applications of blockchain such as gaming and IoT can also suffer due to this problem.
Power in the hands of the “Establishment”
Though blockchain has a huge potential to disrupt multiple industries, it may as well be more beneficial for institutions if blockchain does not live up to its hype.
Banks have long been established as the middleman in all our transactions with each other. The fortune of banks comes from the transactions we do. However, in a situation when we don’t need the trust established by these banks, their profits may also fall significantly.
Thus, a collaboration of banks and governments to not allow blockchain to flourish is also a possibility which can hamper its growth.