The development of blockchain technology was motivated by a desire to find solutions to issues that are inherent to digital currency. A blockchain is a distributed, public, and immutable record of transactions that are linked together via encryption. Blockchains are often shared openly over a network of computers located all over the globe.
The use of blockchain technology offers a great deal of potential for enhancing the accessibility and safety of a wide variety of goods and services across several different markets. However, despite the many potential advantages of blockchain technology, there are also several issues with it that many developers are striving to resolve.
As a blockchain in cryptocurrency expands in size, the fact that copies of it are often stored on several different computers presents a scalability challenge. This is only one of the numerous obstacles that blockchain technology and the developers who are trying to create corporate solutions will need to overcome.
The distributed ledger technology known as blockchain is often hailed as a technology that will change the world. However, contrary to what many evangelicals would have you think, it is not always the answer to all the issues that plague the globe today. Read more about how to buy and sell crypto instantly with Multibank.io.
5 Challenges Posed by The Blockchain Technology
A lengthy blockchain may provide difficulties for an organization since it may have issues scaling to accommodate more users. There are several different elements at play here.
To begin, every computer in the network that is participating in the process of confirming transactions and maintaining accurate records of the blockchain is required to store data beginning with the genesis block and continuing all the way up to the most recent block. These computers, also known as nodes, are required to have the capability of storing the data in question. Because of the redundancy, the system is made safer. Nevertheless, as the network and blockchain continue to expand, the inefficiency of the system increases.
After that, to add a new block to the blockchain, the node that validated the previous transactions is required to send out a broadcast message to all the other nodes on the network. After that, they will be able to validate the transactions and add the block to the distributed ledger. As the size of the network increases, this may use a significant amount of network resources.
The scaling problem might cause nodes in large public blockchains like Bitcoin (CRYPTO: BTC) and Ethereum (CRYPTO: ETH) to demand larger transaction fees to execute transactions on the blockchain. This is one way the scaling problem manifests itself. They must see a satisfactory return on their investment in the computer resources they have acquired.
Utilization of energy resources
Blockchains that employ a proof-of-work method to decide which node gets the privilege to confirm the next block in the chain may become very energy costly. This is because the proof-of-work system requires each node to do a certain amount of work. Proof-of-work is a concept used by both Bitcoin and Ethereum.
In this approach, nodes compete with one another to solve a difficult problem in the quickest amount of time. As the network expands, the number of rivals also rises, and there is a battle for greater computer power, which results in an increased amount of energy consumption. Because in the end, only one node will obtain the privilege to confirm the next block, the usage of energy is incredibly wasteful.
The proof-of-stake mechanism is being put up as a potential solution to the issue of energy consumption that blockchains are currently struggling with. However, such a system in and of itself presents several issues. To start, the amount of complicated code needed to put up a strong proof-of-stake system is far more than the amount of code needed for a proof-of-work system. This may result in an increased number of defects and security flaws.
Second, it could be simpler for one party to acquire ownership of most of the bitcoin that has been staked, which would give that party an excessive amount of power over the blockchain in cryptocurrency. In a model that relies on proof-of-work, the latter vulnerability is less likely to occur since a single entity would need to gain the bulk of the network’s computing power to exploit it. Other parties have the potential to acquire more computing power, which would allow them to seize control of the blockchain while still preserving its decentralized nature.
Despite these shortcomings, Ethereum is transitioning from a paradigm based on proof-of-work to one based on proof-of-stake.
Blockchain transactions are reasonably quick for account-to-account transfers; yet the decentralized structure of blockchain may make it a poor tool for daily transactions. Blockchain transactions are relatively fast for account-to-account transfers.
When you make a purchase with your debit or credit card at a shop and confirm the transaction by swiping the card, the confirmation takes just a few seconds. In the background, a network of payment processors is hard at work transferring money from your account to the account of the merchant. Nevertheless, the whole procedure may really take anywhere from one to two days.
In the interim, the merchant may have faith that the bank that issued the payment card will honour their commitment to pay for the goods or services. The existence of this trust enables payment card networks to conduct thousands of transactions every single second.
There are no assurances on a transaction until it is verified on the blockchain. This is because a blockchain such as Bitcoin’s is totally decentralized. Since the blockchain used by Bitcoin can only handle a small number of transactions per second, this might take a considerable amount of time.
It’s possible that it may take a merchant an hour to find out whether a transaction was successful. Because of this, using blockchain technology for most retail transactions is impracticable, even though there are several uses of blockchain in cryptocurrency that might be valuable in the financial industry.
No Fundamental Norms
Virtually every iteration of the blockchain technology has its own set of challenges and opportunities. That results in a few difficulties for firms and developers working on a variety of application projects.
Firstly, it complicates the process of interoperability between different blockchains. If one firm wishes to exchange data with the blockchain of another company, that company will very certainly need to design extra technologies to enable data to flow between the two blockchains. There are now hundreds of blockchain interoperability solutions in use, but the fact that there is no one solution that can accommodate all use cases underlines the fragmented standards of blockchain implementations.
The second difficulty arises when blockchains have anything added to them by developers (for example, a smart contract or a decentralized finance app). Because there are no overarching standards, a programmer will need to rebuild everything to provide the same product on a different blockchain. As a result of the absence of standards, developers are forced to work on platforms with which they are less acquainted, which might lead to code vulnerabilities.
Blockchain technology was developed specifically for public use. This ensures that anybody with internet access may see the data that is uploaded to the blockchain. All the additional particulars of a transaction may be seen clearly, even though blockchain wallet addresses are employed to keep the information private. Even if no one will notice if you give $20 worth of Bitcoin to a buddy, some transactions and information do need to be kept more confidential.
There are also “private” blockchains, which only allow a select group of users to participate as nodes and see transaction history. One method for a company to make use of blockchain technology without needing to be concerned about sensitive data being available to the public is to utilize a private blockchain.
However, there are a few issues with it. Because of the presence of a governing body that chooses who may and who may not take part in a private blockchain, this kind of blockchain is not really decentralized. People may be less inclined to trust a product that is built on blockchain because of this. The difficulty in protecting users’ privacy is only one example of the compromises that are required by blockchain technology.
The Bottom Line
Although the blockchain technology has several shortcomings, hundreds of people are working diligently to discover solutions to these problems. For more than a decade now, Bitcoin’s white paper has described what blockchain is all about. To some degree, the current options compromise on the original idea. In the future, as the industry and technology evolve, there will be hundreds of new applications for blockchain technology.
Ultimately, blockchain in cryptocurrency has the potential to improve a broad range of processes that require the transportation and storage of data, both in terms of efficiency and security. It seems likely that blockchain technology will be employed in more and more scenarios as our lives become more digital, despite the issues it may now provide.