Blockchain technology is a decentralized, distributed ledger that records transactions on diverse computers in a secure, transparent, seamless, and tamper-proof way. It creates a network where users can interact with each other without the need for middlemen.
Despite its numerous breakthrough potentials, this technology is confronted with several blockchain adoption challenges and limitations which the developers would need to address for the technology to attain its fullest potential. We would look at the major challenges in this article.
The major challenges for blockchain adoption include:
Security Issues
Although blockchain’s security measures have been held in high esteem, it is not without loopholes.
There has been reported cases of security breaches, hacking attacks and malicious infiltrations on blockchain networks which can result to participants losing some money or getting their identity stolen, thereby leading to a distrust and damage to the integrity of the blockchain systems.
The systems are still vulnerable to 51% attacks, Flash loan attacks, Coding loopholes, and Centralization of information.
51% Attacks
This occurs when a single entity or group of entities control more than 50% of the network’s mining hash rate which gives them the access to manipulate the network and potentially exercise control over it.
Decentralized blockchains are more vulnerable to 51% attacks than centralized ones which could cause problem for crypto investors who prefer to store their assets on decentralized chains.
The actors, exploit an integral loophole in decentralized systems that allows users to control a chain by exerting over 51% of the processing power, which typically happens on networks operating on the proof-of-work model.
A 51% attack also known as a majority attack usually evades the blockchain’s security protocol by disrupting the order of new transactions thereby causing delay in the confirmation of transactions and storage, this way, they get to rewrite parts of a blockchain and reverse the transactions.
The mining power of the attacker determines how severe or trivial the consequences and damages of the attack turn out to be. Another factor that determines how critical the attack can be is the hash power of the attacker.
The possibility of attacking the system successfully can also depend on if the attacker has a higher percentage of hashing power, this means that blockchain systems like the permissionless types with low hash rates are liable to these attacks since the hash rates are not expensive.
There are also examples of the attackers causing double-spending. Through this, the hackers tap funds from a network without having to hack fixed crypto wallets.
In recent years, Bitcoin Cash ABC (BCHA), Bitcoin Cash (BCH), Vertcoin, Bitcoin Gold (BTG) and Ethereum Classic have all gotten their fair share of 51% attacks.
However, in order to mitigate the risks, some blockchain networks have mounted measures in an attempt to enhance their security. These security measures include: formal verification of smart contracts to aid in the identification of potential liabilities, using multi-signature wallets for storing and handling digital assets.
Also, on the PoS model, the 51% attack is handled by locking a certain percentage of funds to prevent majority control and guarantee network security.
Flash Loan Attacks
Flash loan attacks are possible given the unique nature and features of blockchain systems. In a flash loan attack, a malicious attacker takes out a loan from a DeFi platform that uses a smart contract, and then uses that loan to manipulate the price of funds and assets. The attacker then goes ahead to repay the loan with a single transaction and profits from the price manipulation.
Due to the fact that smart contracts are self-executing programs which permits the automatic execution of complex financial transaction without the need of intermediaries, any vulnerability can be exploited by a hacker leading to the manipulation of the price of an asset and then successfully laundering money.
Notable flash loan attacks on smart contracts include: Beanstalk where a total of $181M was exploited, Cream Finance ($130M exploited), Pancake bunny ($45M was looted), Fei rari (a total of $80M was exploited) and so many exploitations in other system that led to the loss of millions of dollars. This calls for smart contract developers to articulately audit their code and build in safety measures such as multi-signature wallets, time locks, and rate limits.
Coding Loopholes
Blockchain systems are not immune to coding loopholes as it has become one of the security challenges.
Centralized blockchains, that usually have centralized entities are more susceptible to coding loopholes as all attackers’ need do is to target and destabilize particular points of failure.
The attackers usually target entities holding the blockchain keys e.g., private keys which if gotten can give the attackers access to launder cryptocurrencies or assets from native wallets.
Centralization of Information
The centralization of information especially in blockchain systems that rely on external sources raises, another security problem. We see cases of this when some networks import the help of Oracle Cloud Infrastructure (OCI) systems to determine pricing on their ecosystems which could in some instances has led to significant losses.
Due to these price inconsistencies, platforms could lose millions of dollars. An example would be what happened on the Compound DeFi in November 2020, when the protocol lost close to $103 million dollars due to price inconsistency.
Centralized blockchain systems are also vulnerable to rug pulls. Rug pull is a kind of crypto exit scam which involves developers, abandoning a project and absconding with investors’ funds.
Malicious developers entice investors with potential projects to rope them in, and then disappear with the gathered funds, leaving the investor with valueless assets.
Fraudulent activities such as these are not new in the crypto space, if adequate and effective actions are not taken towards fixing the cracks, these issues are likely to become a norm in the system.
These challenges have caused economical and ethical problems like money laundering, identity theft, tax evasion etc.
Low Scalability and Interoperability Challenges in Blockchain Technology
The inability to serve many users is one of the major challenges of this technology. Blockchain networks can be slow and ineffective due to high computational requirements needed to authenticate transactions.
Scaling the technology for applications that require fast transaction and processing speed becomes difficult. Simply put, Scalability is the capability of a system to remain responsive even as the user load surges over time.
This remains an on-going challenge as blockchain network continues to experience increase in use-cases. The two most popular networks, Bitcoin and Ethereum has their fair share of scalability problems.
Satoshi Nakamoto did not intentionally limit the block size during the early days of Bitcoin. With some people thinking that an excessive block size limit is a waste of computing resources and would make the system vulnerable to DDOS attacks, Nakamoto set the block size limit at 1MB to ensure the security and stability of the Bitcoin network.
Bitcoin users back then were a handful which means small transaction volume, hence no network congestion. Right from 2013 up to date, bitcoin’s price keeps rising continuously with an ever-increasing number of users.
Problems such as network congestion and rising transaction fees began to pop up, this led to the community looking at scaling bitcoin by updating its underlying code thereby increasing its capacity to shoulder transactions.
It is on record that over 80% of blockchain projects are based on the Ethereum network which has caused substantial scalability issues. Issues such as network congestion which drastically lead to slow speed and high gas fees are observed.
Ethereum developers launched the ‘London hard fork’ to execute the switch from a proof-of-work mechanism to a proof-of-stake mechanism, which has aided the network to reduce network usage.
By introducing a technique known as “Sharding”, the Ethereum upgrade is set to enhance scalability by increasing the number of transactions handled per second.
This technique is said to increase processing rates from 30 transactions per second to over 100,000 transaction per second through dispersing data loads across the chain.
Some projects have moved over to more efficient networks such as the Binance Smart Chain due to slow network speed and high gas fees which has proven to be a worthy opponent to the Ethereum blockchain.
Side-Chains: A Solution to Blockchain’s Scalability Issue
Sidechains provide a platform for scaling solutions. It allows the main chain to be relieved of a particular amount of traffic which directly improves transaction and processing speed while reducing gas fees.
Ethereum’s layer 2 scaling solution Polygon is based on this concept.
Interoperability issues steams from the inability of several different blockchains to work well with each other especially for organizations that want to use blockchain technology to connect difficult systems.
Side-chains also endorse interoperability by supporting exchange of data with different blockchains which facilitates a seamless navigation across different projects. Examples of side-chain protocols include: Plasma, Rootstock (RSK), Child Chains etc.
Energy Consumption Blockchain Challenges
The process of validating transactions on a blockchain network requires a substantial amount of computing power which in turn requires a lot of energy that has led to a lot of discussion about its environmental impact and greenhouse gas emissions.
Bitcoin for example, requires a lot of energy for every time miners solve complex problems prior to a ledger being updated with new transaction. Approximately, it is reported to use up to 100 terawatt hours of electricity yearly.
The Ethereum community in its upgrade has opted for a transition to the proof-of-stake mechanism which consumes less energy.
The environmental concern is alarming in most countries, prompting regulatory authorities to take actions. China, Qatar, Saudi Arabia, Egypt for example have prohibited crypto mining for many volatile reasons which the environmental impact is part of.
Some other countries like Kazakhstan known as a popular crypto mining hub after the ban in China, faced their own share of nationwide dilemma due to the excessive demands on its energy grid given the rise in crypto mining.
In the US too, there is an increasing concern about these energy-hungry cryptocurrencies as they could disrupt the nation’s attempt to combat climate change. State legislators are on the move to craft restrictions on mining and compelling crypto agencies to focus on renewable energy sources as crypto mining is producing more air pollution harms local air quality.
With all these environmental challenges caused by mining, some crypto networks have considered shifting to a more-eco-friendly system, example, Ethereum’s transition to proof-of-stake has resulted to the network using 0.0026 TWh annual energy consumption.
Following the transition, Ethereum became a green-house blockchain.
Low Workforce Availability
Over the last few years, the blockchain industry has witnessed rapid development and an increasing number of users. The rise of projects like the nonfungible token (NFT) and DeFi platforms has led to labor market issues.
The demand for blockchain talent and developers has increased by over 300% according to reports. The shortage of developers in the industry has taken another turn for the worse due to competition between major tech firms with highly attractive payment packages and huge compensations all in a bid to retain their staff, and gather the most brilliant developers for their companies.
Reports have shown that some businesses in the crypto space pay more than $1 million dollars per year to developers and software engineers in specific areas. The hunt for coders to fill in the blockchain talent gap is on the rise.
It’s everywhere, job openings on top firms like Amazon, Goggle, Goldman Sachs and even conventional firms like Walmart etc. are all utilizing blockchain technology to manage their projects, collect data, validate data and handle transactions, these firms have joined the talent hunt for blockchain specialists, which has led to some sort of labor shortage.
Some blockchain based companies’ example, Coinbase, hire up to 500 people per quarter.
Applications like LinkedIn and Zip recruiter has over 6,000 to 15,000 listed job posts relating to the blockchain industry and cryptocurrency. With the higher percentage pay, people are tempted to exit their conventional jobs for blockchain related ones.
The existing insufficient manpower for work indicates a major challenge that has clouded the blockchain industry. This has resulted to several companies facing issues of meeting their hiring demands.
This has explicitly led to slower development of proposed projects in the blockchain sector because of the increasing number of qualified people sealed in job contracts.
They should look at upgrading their existing workers rather than seeking for more workers, they should also focus on training their workers to have the skills they are looking for.
Is Blockchain Difficult to Implement?
This Burgeoning technology has potential wide-range applications in several sectors beyond cryptocurrency, with an ever-increasing investment in the industry.
The blockchain hiring problems has led to implementation challenges of the technology in most sectors like in healthcare, banking etc. Most business owners are keenly interested in adopting blockchain technology but the implementation requires vastly-skilled specialists.
This revolutionary technology is already changing the way business owners work and will potentially introduce more in the nearest future.
Some of the promising implementations of blockchain enthusiasts are looking forward to which includes: Web3 platforms with its decentralized form of the internet, are still in their premature stages.
