Currently, the latest buzzword in the finance and technology field is “Blockchain”. Several organizations are into developing their specific blockchain-related applications to run on them. In various industrial sectors, a great number of different chains are developed by organizations meeting different models. These subdue the need for distributed ledgers, fail to tackle the network effects and may be less efficient in the current scenario.
Challenges Associated with Blockchain
The main challenge linked with blockchain is the absence of awareness about this technology particularly in other sectors aside from finance and banking; and the lack of knowledge about how it is implemented. Let’s discuss a few challenges associated with blockchain –
Decentralization is one of the biggest challenges that involve the Bitcoin blockchain. Blockchain can be represented as a complete shift from doing things the traditional way, even though few industries have already seen remarkable evolution from digital technologies. Further, it places authority and trust in a decentralized framework instead of a strong central institution. Altogether, this loss of power can be deeply disturbing.
Blockchain works well with a small group of users. But, there is a question of what will happen when there are large numbers of users in the network. Bitcoin and Ethereum have the largest number of users on the framework, and they are having a difficult time dealing with this scenario. Succinctly put, when the number of users increases on the network, it takes a longer time to process the transitions. Consequently, the costs of transactions are higher than above and this also limits a large number of users on the network.
One of the important topics around blockchain is security. Everybody is well aware that blockchain technology prides itself on Security. Yet, like other technologies, it also comes with a few disadvantages. The 51 percent attack on the network can be considered as one of the security flaws. Hackers can take over the network by this attack and can manipulate it in their way. Hackers can tamper with the transaction process and can limit other people from constructing a block.
More than 2,300 cryptocurrencies and several thousands of projects are being leveraged on distributed ledger technology and many blockchain networks have been implemented. Some of these blockchain works in Silos and not communicate with other P2P networks. Moreover, there are no specified standards that permit seamless interaction along with these blockchain projects.
Speed and Cost
The speed at which the blockchain networks execute peer-to-peer transactions comes invariably at a high cost, which is higher for various types of blockchain compared to others. Hence, decisions about executing blockchain applications should be carefully carried out. Further, the returns to individual processing nodes, be it organizations in a wide sector blockchain or individuals on a public blockchain might diminish as the network expands.
One of the most important parts is that regulations had struggled to keep pace with advances in this technology. There is a strong dispute that for applications concerning blockchain, it should work with the current regulatory system or outside them; yet it also means regulators in almost all industries should understand this technology and its effects on the business.
Bearing in mind the cryptocurrencies like Bitcoin provides Pseudo anonymity, which means transactions in Bitcoin are tied to wallets instead of individuals, many applications of the blockchain need smart contracts and transactions to be linked to well-known identities. This raises necessary questions like the security and privacy of the data stored and to be accessed in the shared ledger.
Suffice to say, there are many more blockchain adoption challenges to be encountered to see the change by using this technology. Companies should inevitably follow and closely watch and should be ready to adjust to the changes in this technology to see the results. Even though there are few reservations that blockchain technology will play a very important role in the private and public sectors, its future still looks unclear. The blockchain adoption challenges which are mentioned above clearly stated the need for technological enhancements.