Blockchain technology is the subject of a lot of hype right now. While it began as the underpinning technology behind cryptocurrencies, it has shown significant potential for providing a secure, immutable architecture for almost every other sector of the economy and governments.
While there are a number of pilot blockchain projects currently underway, it may be some time before blockchain is widely adopted across most business niches. There are certain challenges that must be overcome before the blockchain will go mainstream.
The Reputation Issue
When Bitcoin was launched, cybercriminals came to see the cryptocurrency and the technology behind is as the perfect venue to carry on illegal transactions. Unfortunately, those still occur today.
A group of researchers at Cornell University published a research that has documented all of the criminal activity that occurs through Bitcoin – buying restricted or illegal products, money laundering, and for accepting ransomware payments. These activities have made legitimate businesses shy away from the technology too.
The public perception of the blockchain today is gradually approving though, especially after the likes of IBM and PwC have released pilot solutions.
Scalability: Issues of Speed and Cost
As the numbers of users of public blockchain increases, scaling to meet the needs for validation and registration of every transaction into a block has become a major bottleneck.
On the Bitcoin blockchain, a new block can be added every ten minutes, limiting the transactional speed to 3.3-7 transactions per second. Ethereum blockchain does a slightly better job and is capable to handle up to 20 transactions per second. Yet, blockchain’s capabilities are rather modest when compared to other payment processors. For example, PayPal averages 190 transactions per second and Visa is capable of handling around 1,600 tx/second.
There is also a limit to the size of each block, and transactions are often “backed up,” waiting in what is call a “mempool” until they can be verified and entered. This is worrisome for those sectors that need immediate transaction recording.
Within the current ecosystem, miners are in charge of confirming and verifying all transactions. When things get backed up, miners can prioritize the transactions they register, and they usually take those that have higher fees, because they make more money. Transactions that come with lower fees can stay in the queue for a longer time.
Transaction approval mechanisms are the subject of lots of research right now, but opinions vary on just how to improve the architecture and then testing and verifying that any scaling method will also provide the same security and immutability that currently exists. The Unicoin Blockchain, for example, is currently working on the new technologies that will underpin a better mining ecosystem - the one that consumes less energy, is less prone to congestions, and requires less starting capital.
Public blockchains use proof-of-work (PoW) protocols for consensus to be achieved and transactions to be entered into a block. The activity involves the use of hardware to solve very complicated mathematical equations.
Unfortunately, this process consumes huge amounts of energy. Right now, in fact, it is estimated that Bitcoin blockchain alone already uses 0.2% of the annual global electricity use. If use increases at the rate it currently is, it is also estimated that by 2020, the energy use will be more than that of the entire planet.
Other methods will need to be developed that consume far less energy. Again, researchers are working on it.
Issues of Privacy and Interoperability
Public blockchains are ledgers that are publicly visible. This is a major issue if transactions or records must remain private e.g., patient information/records, proprietary business records, etc. This means that businesses may opt for private blockchains that, in turn, assume less decentralization and thus, immutability.
Private (permissioned blockchains) can be programmed to provide limited access to transaction creation, approval and viewing.
With private blockchains come unique architectures, and there is then the issue of private blockchains being able to communicate with one another when necessary. Some standardization may ultimately be established.
Blockchain technology is highly secure. Once recorded, transactions, data, documents, etc. cannot be altered. There is, however, something called a “51% attack.” This attack would occur if a group of miners, in collaboration, would gain more than 50% control of the mining power. They could then control all new transaction confirmations and even alter them. This threat, while real, is remote.
The other issue with security is that of key code access. If people with key codes are storing them on their own devices, the potential for theft via hacking is real. Key codes must be housed on external hardware and plugged in only when needed.
The adoption of blockchain by businesses will be slow in developing, but it will be coming. And as the technology evolves with continued improvements, these five challenges will be met and overcome.