Blockchain is frequently hailed as a technology that will change the world, and in many respects, it has. However, contrary to what many preachers would have you believe, it is not always the all-encompassing answer for the world’s ills.
Here is a breakdown of critical blockchain-related problems that people are more likely to overlook.
1. Blockchain has a substantial cost
At least, it does in the context in which it is used now. Blockchain relies on encryption to create consensus over a distributed network and to offer security. This effectively means that complicated algorithms must be conducted, which requires a lot of computer resources to “prove” that a user has the authorization to write to the chain.
This has a price, of course. Using Bitcoin as an example, the most popular and widely used blockchain, it was asserted last year that the computer power necessary to maintain the network consumes as much energy as 159 of the world’s nations consume.
Yes, because Bitcoin’s blockchain is a precious network with a market valuation of over $170 billion at the time of writing. This requires sophisticated security that requires a lot of computational power.
Smaller blockchains would need a tiny fraction of that, like those that an organization may use internally to monitor and record business activity securely.
However, it is a crucial factor, and the energy costs and the environmental consequences cannot be disregarded.
2. Lack of regulation creates a perilous environment
This primarily affects Bitcoin and other value-based blockchain networks. But the reality is that it’s a highly volatile market. This is because many people who have just invested in Bitcoin or other cryptocurrencies for the first time have discovered their cost.
Scams and market manipulation are widespread due to the absence of governmental control. One of the well-known examples is Onecoin, which was recently exposed as a Ponzi scheme and is thought to have defrauded millions of dollars from investors who thought they were getting in early on the “next Bitcoin.”
Legislators, like many other sectors of technology in recent years, have mostly fallen behind innovators (or con artists), creating ripe opportunities for those looking to profit from “FOMO.” – the “fear of missing out.”
Even if you decide to stick with relatively established cryptocurrencies like Bitcoin, Litecoin, Solana, Polygon, or Ether as a speculative investor in cryptocurrencies, there is always a chance that the exchange or online wallet where you store your coins will be hacked, closed down by governments due to shady practices, or simply disappear with your coins.
In addition, this results from the absence of regulatory oversight throughout the entire sector.
3. Its complexity means end users find it difficult to appreciate the advantages
Blockchains are difficult to understand by the “man on the street” without extensive reading.
Blockchain’s revolutionary potential becomes evident once one understands its encryption and distributed ledger principles.
A number of middleman services supplied by the financial sector are being discussed as potential replacements by tech experts.
However, many believe that banks offer this service reasonably well and at what appears to be a minimal cost to the customer.
It’s no surprise that the first blockchain, Bitcoin, came to public attention right after the financial crisis of 2008. This is because media coverage and popular sentiment reflect general unhappiness and widespread mistrust of traditional financial institutions and instruments.
Is there still a desire to completely demolish financial services and recreate them from scratch ten years later and with no immediate threat of a repeat?
Naturally, the past catastrophe was entirely unanticipated, and who can predict what would happen next? Global events may rekindle people’s desire for change, but until they do, many people may find it challenging to embrace blockchain technology.
4. Blockchains can be slow and burdensome
Again, due to their complexity and distributed, encrypted nature, blockchain transactions can be more complex and take longer to complete than “conventional” payment methods like cash or debit cards.
The idea that you can use bitcoin to pay for a cup of coffee during your lunch break has fundamental limitations.
This is because transactions can take several hours to complete unless the vendor is willing to assume some risk. And wasn’t it something that blockchains’ “trustless” nature was supposed to take out of the picture?
Theoretically, the same idea applies to blockchain networks utilized for purposes other than serving as a repository of value. This includes recording interactions or transactions in an Internet of Things context.
These chains, essentially just computer files, can become slow and cumbersome as they get more giant machines to access and write to the network.
Hopefully, this is a problem that will be resolved as engineering and computing capabilities develop, but it is still a concern for the time being.
5. The “Establishment” has a stake in blockchain failing
Let’s face it, despite the established financial industry’s enormous interest in adopting blockchain technology, the underlying message of most of what is stated about it is that “it would probably be best if it just quietly disappeared.”
Banks profit greatly from acting as a middleman, and since the expense is shared among millions of their clients, end users typically pay very little individually.
In 2015, a former Barclays boss labeled the seeming enthusiasm and interest in his industry as “cynical,” saying it was motivated by a desire to exert control over or even prevent the usefulness of the developing technology.
Banks have a significant influence on lawmakers and government officials. It’s possible that, if they decide it’s in their financial interests, the established financial services sector might severely limit blockchain’s availability and drastically impair its usefulness, if not kill it.
Final Thoughts
Despite the possibility that these five problems will present significant obstacles, blockchain technology will likely advance over the next few years. After all, progress in technology has a way of navigating around hurdles that were intentionally put in place, just like in nature.