The last couple of years have brought digital currencies into the mainstream, granted the huge media exposure, government policies and massive price increase. As you may already know, cryptocurrencies are based on an underlying system, known as the blockchain network. Many times over, companies and individuals have talked about the infinite potential of the technology, and how it likely is one of the greatest innovations of our days.
Blockchain has numerous use cases in a wide variety of industries, including finance, energy, supply chain management, health, data storage and more. Despite this, the technology remains in its nascent stage, and therefore has not started effectively affecting people throughout the world yet. While the time factor must be kept in mind, there are a couple of challenges that need to be solved before we can see blockchain adopted at a mainstream level, in most industries.
This article will cover six of the main challenges that blockchain technology is dealing with.
Lack of an Universal Use Case
When the Internet was created many decades ago, its purpose was simple – allowing computer owners to access a worldwide network, filled with information. Blockchain, however, doesn’t have a universal purpose yet. Yes, it can be used for facilitating digital currency transactions, but so can other technologies as we’ve seen in the world’s history – after all, cash and banks have been around long before. Therefore, blockchain does not yet have a primary application, or an industry of its own. Rather, it attempts to disrupt existing markets by improving them. The appearance of a market that relies entirely on blockchain technology may boost its approval rating throughout the world. Given the current technological advancements, it is possible that the new industry will unite three existing ones: blockchain, artificial intelligence and the internet-of-things, to create something revolutionary.
Ease of Use
Innovative and mass-adopted technologies need an easy learning curve. At this moment in time, using blockchain technology for any purpose entails users to following a set of steps which seem complicated. Of course, the learning curve will reduce as the technology becomes more widespread, yet, for instance, making a crypto transaction via the blockchain network is bound to be quite complicated. From transaction addresses that consist of random strings of letters, to mnemonic phrases, private keys, transaction hash, confirmation times, and transaction fees, using cryptocurrencies can be quite complicated for a novice.
To encourage innovation, design of blockchain networks should be primarily based on ease of use. With this in mind, blockchain networks and the afferent applications would need to adopt a plug-and-play infrastructure, as this will not only encourage more users to join, but also increase setup speeds for new networks.
Ease of use also pertains to education and public awareness. Currently, many of the people who have heard about digital currencies and blockchain technology are misinformed. The industry should strive towards educating the public and raising awareness – this will encourage mass adoption, but also determine individuals to come up with their own innovating ideas concerning the technology. Apart from this, many of the existing information sources only focus on the advantages of cryptocurrencies and blockchain technology – however, it is essential for the public to also consider the shortcomings and other downfalls of the tech, to further encourage innovation and problem solving.
Worldwide adoption of blockchain means that most people will be using the technology on a daily basis. This translates into a huge number of users, and blockchain networks have often failed to accommodate an increasing number of users, and transactions.
For instance, Bitcoin and Ethereum, which are the world’s biggest blockchain networks, have dealt with increasing transaction confirmation times and higher transaction costs, due to the substantial increase in users brought by the 2017 crypto boom. These issues have encouraged the market to actively seek solutions to improve the scalability prospective of blockchain networks – for bitcoin, this has led to hard forks, and the creation of entirely different chains based on different protocols. In other words, the public hasn’t yet reached consensus on what the best method to deal with scalability is. Despite this, several companies are developing blockchain networks, which are advertised to support billions of transactions on a daily basis.
At this moment in time, the standard of speed for blockchain networks is situated between the 1-5 transactions per second rage. While this is enough for the current state of the market, transactions would need to be processed much faster, especially since there are times when transactions can take a few hours, or even days before they are confirmed. For instance, payment protocols such as VISA are capable of processing over 24,000 TPS, which is the way to go.
The need of future-oriented technological design
Chances are that you have heard about Ethereum-based smart contracts, and their huge potential. They allow users to leverage the advantages of blockchain technology in the real world, yet it has been shown that many decentralized applications and smart contracts have vulnerabilities present in their coding. So far, there is a lack of blockchain-related coding standardization. Its appearance will make software and smart contracts more stable, and less prone to vulnerabilities. While blockchains in essence are fairly secure, dapps and smart contracts are a form of third party, capable of registering transactions – therefore, if they fail, the blockchain is also bound to fail in recording transactions.
Additionally, the bitcoin blockchain records and includes extensive amounts of data for each transaction. Some of it is important, but some isn’t – thus leading to the ledger becoming slower and less efficient. With this in mind, design must be more streamline among the industry, and developer standards should be imposed to ensure the security and adaptability of the technology.
Energy Consumption Debates
The last couple of months have brought along numerous debates concerning the energy usage of the bitcoin blockchain and other ledgers. Research groups have estimated the consumption of Bitcoin to approximately 67.91TWh on a yearly basis, which is more than Chile’s.
This means that blockchain networks are prone to high energy consumption, therefore having the technology adopted at a worldwide scale may entail environmental harm. Because of this, researchers need to find methods of reducing consumption – this can be done through new-age consensus algorithms such as Proof-of-Stake rather than Proof-of-Work, and more efficient methods of data transfer.
You can’t process a smart contract sanctioning the sale of a house, if real estate sales can only be done on paper at a notary, according to the law. Therefore, the world’s legislative bodies need to open up to the technology, and figure out regulation that encourages innovation, but also protects consumers from risks such as fraud, theft and more. This also entails the creation of worldwide regulatory standards, similar to those of the internet.
At this moment in time, governments throughout the world are actively looking for ways to regulate digital currencies granted their evolving popularity. It is believed that in the future, the focus will also shift to blockchain technology, given its wider array of use cases.