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.
I am going to comment as I read because blockchain is a very difficult concept for me to grasp. I am excited to learn more. Great referencing back to others’ posts. Scale and speed: who are leaders in the creation of blockchain? What companies have their hat in the ring? Hmmm. Curious if AWS could bring it to scale and fill the gaps that are missing here.
Hi Maddy, right now Coinbase dominates the industry with a company worth of 5 billion with the second highest company in worth being right under 1 billion. They primarily work with blockchain implementation in the financial industry. Interesting fact I found after your mention of AWS, currently, 25% of all Ethereum workloads run on AWS so they are definitely bringing scaling solutions to blockchain technology.
I think there are huge opportunities within companies to utilize blockchain for security purposes, where scalability won’t be as necessary. That way, if there are any data breaches or tampering they would be easily recognized. However, on the global scale, I just see it as unrealistic until quantum computing can be fully implemented to reduce the latency and the computing power required. I think that blockchain could have serious environmental impacts as well with the high levels of energy consumption.
Hello Pierce! As I also researched blockchain implementation for my post last week, therefore I was excited to read your points on the topic. The challenge of matching the speed and efficiency of VISA is a very important thing to look at. This makes it really hard for the need to switch to blockchain as a standard payment technology as it does not have advantages in that factor, besides the safety and security aspect.
Hi Aly, I think your point on the safety and security advantages of blockchain is very important to think about. I am interested to see what other industries and use cases implement blockchain technology as it is balancing game between speed/volume and safety/security.
Very interesting post, Pierce! When I first researched the subject, the first thing that came to my mind as I thought of blockchain’s commercial application is its ability to scale and be implemented. Any type of significant change to the internal infrastructure of a company, such as an overhaul of its legacy systems is neither easy nor cheap. Personally, I do not think that Blockchain has not proven itself to be the next shift for industries to implement just yet. Though it has made significant progress, blockchain implementation is still far from reality. Blockchain does seem promising with the benefit of added safety and security but it can prove that it can process the number of transactions needed to meet the demand of today.
The blockchain is still a mystery to me as of now. It’s pretty crazy to see that bitcoin can only do 4.6 transactions a second compared to a traditional model like Visa. The boom of blockchain made a large impact in tech with NFTs and crypto but did they know that the blockchain was this inefficient when the boom was going on? I can’t wait to see where the blockchain goes with legitimate commercial applications and how long it takes to bring genuine value to companies.
Interesting. Where’d you get the 1991 date for the dawn of Blockchain? Most people peg it to the 2008 Satoshi Nakomoto paper on Bitcoin. THere may be other antecedents that people are referring to, though.
I first came across this on wikipedia, then did a little more digging. The co-invention of blockchain is widely attributed to Stuart Haber and his colleagues, who published their paper “How to Time-Stamp a Digital Document” in 1991. Although Satoshi Nakomoto’s paper on bitcoin is considered the first conceptualization of blockchain, Satoshi cites the work of Haber and W. Scott Stornetta as influential to their ideas. In 1995, Haber and Stornetta established a company called Surety, which provides time-stamping services based on blockchain technology. This predates the creation of bitcoin by 13 years.
Here are a few sources:
https://usatales.com/what-is-the-longest-running-blockchain/
http://www.nysscpa.org/most-popular-content/inventors-of-blockchain-explain-project's-humble-beginnings-sound-warnings-about-its-future-102919#sthash.oNAMVV4s.dpbs
https://en.wikipedia.org/wiki/Stuart_Haber
hey Pierce! It was a great blog post! I am someone who has dabbled interests in the realm of Blockchain, so I knew I had to go ahead and click on your article! It was very interesting to see how many roadblocks are really keeping Blockchain from being integrated at a much faster pace than it has been. I just believed that it was due to most people being resistant to change, but all of the other factors you mentioned could easily slow down the integration process even if the world was ready for its application.