Blockchain problems exist. Or to put it another way, limitations exist in what blockchain offers.
Whenever a new technology emerges, expectations skyrocket as to what it accomplishes and how it changes the world. Personal computers brought digital technology to the masses, yet large corporations continue to depend on mainframes. The internet connected everyone, but as a result, no one keeps their privacy.
In The Beginning
Satoshi Nakamoto invented blockchain in 2008 as the technology underlying Bitcoin. Blockchain provides a decentralized mechanism where transactions occur without any of the parties needing to trust each other. Asymmetric cryptography ensures security and privacy.
Even in the context of the Bitcoin network for which it was created, blockchain problems exist. The rigid monetary policy of Bitcoin limits transaction completion to once every 10 minutes. Modern business demands faster results.
Vitalik Buterin identifies scaling as a primary concern that needs to be addressed in blockchain technology. He made the following comments in September 2017 in an interview with Naval Ravikant at the Disrupt SF 2017 conference:
“Bitcoin is currently processing a bit less than three transactions a second; and if it goes close to four, it’s already at peak capacity. Ethereum over the last few days, it’s been doing five a second. And if it goes above six, then it’s also at peak capacity. On the other hand, Uber on average — 12 rides a second, PayPal — several hundred, Visa — several thousand, major stock exchanges — tens of thousands. And if you want to go up to IoT, then you’re talking hundreds of thousands…”
Show Me The Money
Consequently, the purpose of Bitcoin evolved from Satoshi’s original vision. He titled his white paper “Bitcoin: A Peer-To-Peer Electronic Cash System“, but these days you hear more talk of Bitcoin being a store of value like gold rather than electronic cash. A store of value does not require the speed of electronic cash transactions.
This also introduces blockchain problems in the form of tribal warfare. One tribe argues for the purity of Nakamoto’s original vision, and another tribe argues for innovation. Consequently, various blockchains proliferate. This blockchain does this, and that blockchain does that, and another blockchain does something else again. All this creates a mass of confusion about who knows best and which way to go forward.
Assume the future holds a multitude of various blockchains you use, just like you currently visit a variety of different websites. The decentralized nature of blockchain demands you host some version of a network node on your computer or device. How many nodes will you need? When will the storage requirements burden your system? What other pitfalls await you in this scenario?
Peter Picked a Peck of Wallets
And cryptocurrencies require wallets for storage, but no single wallet stores every cryptocurrency. You need multiple wallets. How many wallets will you need to keep track of? You lose a wallet, and you lose your money. What if your wallet crashes but you lost the seed? What happens if you die but your heirs have no way to access your wallets?
In processing transactions, blockchains store data, but blockchains don’t replace databases. Blockchain provides a platform for decentralized computing, yet it remains to be seen whether blockchain proves capable of replacing cloud computing.
The Decentralization of the Universe
Blockchains provide decentralization, but decentralization resides in the eye of the beholder. Decentralization exists in the Bitcoin technology, but without mining, Bitcoin transactions halt, and a relatively few Bitcoin miners control the system. So Bitcoin mining fails decentralization. And common sense tells us that the majority of Bitcoin wealth resides in a relatively few affluent early investors. So Bitcoin wealth distribution fails decentralization.
Conversely, Bitcoin enthusiasts look at Ethereum and claim it fails decentralization. Vitalik Buterin leads the Ethereum Organization, so leadership constitutes a failure of decentralization.
Beyond decentralization, blockchain provides an immutable record of truth. This provides value to blockchain as a transaction system. Blockchain documents every transaction clearly and forever. This entails the downside of rigidity. When errors occur, they too live forever.
Many blockchains provide smart contract capability. Smart contracts exist as units of code that live on the blockchain. And since they live on the blockchain, they live forever. Any bugs they contain remain forever. And if the smart contract contains any security vulnerabilities, those remain as well. Consequently, this creates blockchain problems.
Knives and Forks
Software requires regular updates. Whether you use Linux or Windows, you notice the system needs regular updates and upgrades. Your smartphone may update itself every night. But as an immutable record of truth, blockchain resists update. Updates potentially invalidate earlier data.
Instead of updates, blockchain technology implements forks. These may be hard forks or soft forks.
A hard fork means a permanent divergence in the blockchain where nodes that do not upgrade are not able to see the new blocks as valid. When a hard fork happens, one block will have two children rather than the usual one child block. So the blockchain now represents two separate projects. As an example, Ethereum (ETH) represents a hard fork off Ethereum Classic (ETC).
A soft fork means the blockchain upgrade such that nodes that do not get updated still see the new blocks as valid. For instance, assume the smart contract language adds new additional features. Old nodes still run the old features of the code, but new nodes have the new language features to use as desired.
Nothing limits the number of hard forks possible, so theoretically, projects could proliferate multiple incompatible projects by an order of magnitude. As a user, a blockchain disadvantage arises when you have to determine which one to follow?
Listen, Do You Want To Know a Secret
Blockchain depends on asymmetric cryptography to maintain privacy of participants. Asymmetric cryptography functions perfectly well for the computing power commonly available today. However, this form of cryptography fails against supercomputers or quantum computers which possess enough power to determine a user’s private key from the public data. When more powerful computing becomes readily available, the privacy ensured by today’s blockchains disappears.
And the anonymity of today’s technology presents blockchain problems of its own. Anonymity itself encourages illegal and questionable behavior, and blockchain problems such as money laundering exist. And sometimes people think they have more anonymity than really exists. Bitcoin, for example, provides anonymity on the blockchain, but investigators use traffic analysis and network address toidentifyy this person paid that person in this transaction.
Look at All the Little Piggies
The banking/financial sector alone constitutes a 7 trillion dollar industry. Blockchain intends to disrupt this industry. Don’t expect a 7 trillion dollar industry to roll over and play dead as a newcomer arrives on the scene. Adoption alone presents one form of destruction available. If the industry adopts blockchain but alters aspects like decentralization and transparency, blockchain survives in one form but not the original desired form.
Similarly, governments held issuing money exclusively. As blockchain cryptocurrency threatens the power of governments, expect pushback.
Scams on the Lam
New technologies that generate lots of money serve as magnets for scams. Blockchain problems include scammers impersonating blockchain celebrities on social media and attempting to extract cryptocurrencies from unsuspecting victims. Some scams involve people presenting themselves as experts and attempting to push questionable product. Others include unstable companies generating money from ICO’s then fading away into the shadows.
Blockchain constitutes an emerging technology in its early stages of development. The curtain rose, the play began, but the final act remains a mystery. Part of the process of development includes discovering how to eliminate the bad while strengthening the good. Blockchain problems may give users headaches, and they won’t disappear overnight, but blockchain disadvantages should resolve over time.
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