Intro
Blockchain technology was first introduced as a research idea in 1991. The idea was to have a decentralized data storage platform. Say there is a transaction, the blockchain will call upon every node(computer) within its network to verify the exact time and information of the transaction. Once the transaction is verified and authenticated across all nodes, a new block is cemented into the chain. I used the word cemented because of the implication that it cannot be edited, altered, or deleted. The first application of this technology was the development of bitcoin in 2008. As of 2018, a Gartner study found that only 1% of CIO’s claimed adoption of blockchain technology and only 8% stated they were experimenting with blockchain within their short term strategic goals. I want to refer to Aly’s recent post “The current state of blockchain implementations” as a guide to understand the current applications of blockchain technology in massive industries. Here, however, I want to take an objective look at the limitations of full-scale blockchain adoption and the key obstacles developers must overcome in order to advance blockchain applications.
Speed and Scalability
In order for a blockchain to grow, literally, you need to add another block. In order to do so, all nodes of a blockchain must validate each transaction. When a blockchain is growing and the number of transactions increases, it causes congestion within the blockchain and slower speeds. For example, bitcoin can only process 4.6 transactions per second. In comparison, VISA can perform up to 1700 transactions per second. In order for blockchain technology to compete with these high transaction speeds, it must scale. There are different layers of scaling options but many of them leave a blockchain vulnerable in terms of security. For instance, if you delegate or segregate duties of nodes for specific instances, you can leave the entire blockchain susceptible to security concerns. There are 51% attacks. If one entity holds 51% of the nodes within a network, it can validate specific transactions that best serve its interest. All in all, there are scalability options, but blockchain developers are in the early stages of implementing those options with less understood risks.
High Implementation Costs
It is estimated that a blockchain application can cost hundreds of thousands of dollars. Not only are the financial costs significant, but the entire transformation of a legacy system into blockchain technology is almost unprecedented. Many companies are still in the process of making high level digital transformations, however, these companies have little information as to the nature and success of a blockchain transformation.
Privacy, Security, and Anonymity
Once something has been validated by the blockchain, it is permanent. There is no way of recovering funds or changing a transaction that was made by mistake. This is a fundamentally secure way of finalizing transactions, but comes with great implications if there were to be a mistake. One transactional mistake could risk the integrity of the entire blockchain system for a large enterprise for example. This is counter to good programming practice such as low coupling. Privacy is also a novelty for those involved with blockchain technology. The only identifier or primary key is a wallet address that does not give details of the party during the transaction. For government and large entities, stakeholders require transparency in all financial transactions. This is a major issue when we think of large scale adoption.
Conclusion
Here, I have briefly touched on some of the challenges of large scale blockchain technology adoption. Blockchain is a very technical and new technology that ideally has limitless applications. However, there are some key limitations that currently exist that are preventing blockchain from launching full scale across all industries. The speed and scalability of blockchain technology is not only an issue, but has a very long way to go before competing with standard transaction, operation, and data storage systems. High implementation costs with unrealized benefits hinder large organizations to adapting to blockchain. Privacy, security, and anonymity are also large areas of concern with regard to full scale implementation. Although the blockchain is advertised as completely decentralized and secure, very technical entities are actively exploiting that claim through coordinated attacks such as the 51% attack. Anonymity is ideal for individual transactions but is counterintuitive in regards to large enterprises and organizations. How blockchain investors and developers can address these concerns along with others will be key to the growth of blockchain technology in business.