By Dilip Seinberg
Most blockchains are designed as decentralized databases that act as distributed digital ledgers. Blockchain ledgers store data in blocks of time linked to cryptographic proofs. Blockchain technology has passed its infancy, and companies are now able to use it in its mature form – beyond its obvious applications to financial institutions. Many industries have benefited from the development of blockchain technology, which enhances security in trust-free environments.
Every coin has two sides. For example, block chains require more storage space and are less efficient than traditional centralized databases. Although blockchain technology has advanced significantly since its inception, some challenges need solutions before blockchain is widely adopted for everyday transactions.
Unlike its centralized counterparts, the blockchain has limited scalability. If you have used the Bitcoin network, you are probably aware that the speed with which transactions take place depends on network congestion. In simple terms, the chances of slowing down are higher as more people or nodes join the network. For example, there is a huge difference between Bitcoin and VISA transaction speeds. Currently, Bitcoin transactions are limited to 4.6 per second. However, Visa is capable of 1,700 transactions per second. The solution is to conduct transactions outside the blockchain and only use blockchain technology to store and obtain data. There are also new ways to approach scalability, such as using blockchain solutions with different architectures or licensed networks.
Blockchain databases are stored permanently on all network nodes, which leads to a storage problem. The amount of data that can be stored on a personal computer is limited, and as the volume of transactions increases, so does the size of the database. Blockchain ledgers have the potential to become very large over time. Currently, the Bitcoin blockchain requires approximately 200 GB of storage space. The size of the blockchain appears to be growing faster than the size of hard drives, and the network could lose nodes if the ledger becomes too large for users to download and store.
Blockchain provides greater security than other platforms. However, this does not mean that it is completely safe. There are several ways in which a blockchain network can be hacked, some of which are listed below:
1. In a 51% attack, control of the network is possible if an entity controls 51% of the network nodes. They can then make changes to the ledger and double spending. It is possible on networks with nodes or miners that can be controlled. Thus, 51% of attacks are less likely to occur on private networks and more likely on public networks.
2. Another drawback of the blockchain is double spending. The blockchain network uses Proof-of-Stake, Proof-of-Work, etc. to prevent double spending. Double spending is only possible on networks vulnerable to a 51% attack.
3. During a DDoS attack, nodes are flooded with requests for the same thing, which slows down or shuts down the network.
4. Blockchain encryption algorithm makes it insecure. Quantum algorithms or computing can break encryption. However, blockchain solutions now use cryptographic algorithms that are resistant to quantum computing.
Due to mining, the power consumption of the blockchain is high. One factor that causes this is that once a new node is created, it connects to every other node and builds a distributed and constantly updated ledger. Each blockchain solution works differently. Authorized or private networks with fewer nodes do not have these problems. Since a global agreement is not required, they use consensus building techniques. However, the problem remains unresolved if you are using Bitcoin, the most popular blockchain network. Simply put, licensed networks consume less power than public networks.
The ability of people to act as a bank is essential for decentralizing blockchain technology. However, this raises another issue. Private keys are needed to access the resources or data stored in the blockchain. It is very important to note the details of the private key obtained during wallet creation. In addition, they must make sure that no one else has access to it. If the user loses the private key, they will no longer be able to access the wallet. Blockchain’s reliance on its users is a limitation. This is a drawback because not all users are tech savvy, which increases the potential for errors.
One of the main disadvantages of blockchain technology is the immutability of data. It benefits financial systems and the supply chain. Stability can only exist if the network nodes are fairly distributed. A blockchain network is weak if an entity owns at least half of the nodes. Another concern is that data, once written, cannot be erased. If someone uses a blockchain-based digital platform, they will not be able to erase their record.
Cost and Execution
Implementation of blockchain technology leads to significant upfront expenses. Although most of the blockchain solutions are open source, investing in them is relatively expensive. Hiring developers, managing a team that excels in various aspects of blockchain technology, paying for a blockchain solution, etc., are all expenses. Also, consider maintenance costs. Enterprise blockchain projects can cost over $1 million to implement. Therefore, companies that love the concept of interoperability Another disadvantage of blockchain technology is its lack of interoperability. There are many types of blockchain networks, each operating differently and trying to address the DLT issue in a particular way. It results in interoperability issues as these strings cannot communicate effectively. Interoperability remains an issue for both traditional and blockchain-based systems. Emerging blockchain technologies offer superior solutions compared to previous blockchain technologies. For example, Ethereum has addressed its shortcomings by switching to a more efficient blockchain technology solution that allows for automation through smart contracts. It has also implemented Proof of Stake (PoS), which is slightly more efficient than Proof of Work (PoW). Despite its flaws, blockchain technology offers some distinct benefits and is undoubtedly here to stay. Blockchain enthusiasts and developers will undoubtedly find a way to circumvent these hurdles in light of the technology’s attractive benefits. We are still far from widespread adoption, but companies and governments will be actively experimenting with new applications of blockchain technology over the coming years.
The author is the founder and CEO of MuffinPay