Major Problems Associated with Blockchain
Although Blockchain is revolutionary and uses the spectacular properties of distributed consensus algorithm and cryptographic techniques to offer a transparent, accountable, synchronized, immutable and secure ledger platform that is being maintained by a group of users across a geographically distributed network that doesn’t need middlemen or any trusted authority, there are few problems associated with it.
The interests of various governments, nature of different businesses, and changing needs of various organizations have to be addressed in a way that would make it possible to overcome the following problems associated with blockchain in order to enhance user experience, further reduce cost, and improve the quality service the technology offers:
1. Environmental problems as a result of maintaining blockchain security
Complex algorithms are used to maintain blockchain security and keep the blockchain running, and the operation of the complex algorithms—especially to direct or control cryptocurrency platforms such as Bitcoin—requires large amounts of fossil fuel and coal to generate sufficient computing power; as a result, a lot of energy is being used up and the environment ends up being polluted just to maintain blockchain security.
As blockchain technology continues evolving, the need will arise to design and produce more efficient hardware that would use less energy—especially renewable energy—instead of fossil fuel and coal which are believed to have caused a lot of global warming.
2. Slow and expensive blockchain transactions as a result of maintaining blockchain security
Blockchain secures itself in a way that makes it difficult for hackers to alter or tamper with its network, but maintaining the blockchain security comes at a cost for the users too: it makes blockchain transactions slow and expensive.
For instance, to increase payment security for millions of users worldwide, Bitcoin-blockchain transactions are recorded only once every ten minutes, and the Bitcoin-blockchain network is only capable of processing a maximum of seven transactions per second.
If everyone in the world has to make a transaction, just imagine the delays that would occur as a result of doing what is necessary to maintain the level of security in the blockchain network: recording transactions only once every ten minutes and processing a maximum of seven transactions per second.
Fortunately, transactions could become faster and less expensive if each block size in the blockchain is increased beyond the fixed limit which is one megabyte. If the block size becomes bigger, it will be possible to increase the number of transactions processed per second.
For example, the current maximum number of transactions processed per second can be doubled if the current Bitcoin block size, which is one megabyte, is increased to two megabytes.
3. Fraudulent activities due to the hype surrounding blockchain
Because blockchain is decentralized and involves mostly anonymous users, there are concerns that the platform could become increasingly exposed to illegal activities such as money laundering, fraud, and impersonation.
In order to target and scam investors, fraudsters have often capitalized on the hype and excitement around blockchain, especially in regard to cryptocurrencies. In addition, scammers have often posed as legitimate cryptocurrency websites and defrauded unsuspecting cryptocurrency owners who usually don’t know what is going on until they have been duped.
Even legitimate companies could make statements or announcements to mislead investors and make them take decisions that can increase the stock or price of a cryptocurrency that’s tied to blockchain and its network.
In the past, the Securities and Exchange Commission took action against companies that made deceptive and false statements about blockchain in order to influence investors and increase the price of a particular stock or commodity tied to blockchain technology.
4. Detrimental political decisions due to the self interests of various governments
Unlike banks and brokers which are controlled and regulated by governments and make a lot of profit from using middlemen, blockchain technology doesn’t make use of middlemen; it doesn’t even need them.
It is widely believed that some governments—or “establishments”—are interested in seeing blockchain fail because it poses serious danger to their business, due to the mere fact that blockchain is decentralized and doesn’t need the services of middlemen.
A decentralized framework like blockchain might not be able to meet most governments’ regulatory requirements because of political play by the governments. In addition, over-regulation by governments, establishments, or regulators may impede blockchain developments and acceptance.
In countries where banks and brokers exert enormous influence on governments, legislators, and politicians, established financial institutions could dramatically remove, restrict, or reduce blockchain’s availability in order to gain an advantage.
If for any reason governments are interested in influencing the value of price or value of any stock tied to blockchain technology, they could make certain decisions; for example, in 2017 when China decided to halt trading activities on several platforms, the price of Bitcoin plummeted.
In 2018, within 24 hours after various governments in Asia made announcements concerning expected regulatory changes, there was around a hundred billion dollar drop in the cryptocurrency market.