Blockchain technology has shown that it has a lot of potentials to speed up traditional validation processes that need to be scalable and open. But there are a lot of problems with how blockchain is being used, and that’s what this article is all about.
Key obstacles to the use of blockchain (Adoption)
In the sections that follow, we’ll talk about some of the problems with using blockchain.
Security issues
As the blockchain ecosystem grows and more use cases come up, organizations in all fields will face a wide range of complicated and potentially contentious problems and new dependencies.
Blockchain has many problems, and security problems are one of them. So, what are some of the security flaws of blockchain?
51% attacks
For example, there are different ways to build blockchain technology. Some people feel safer than others. For example, 51% attacks are more likely to work on decentralized blockchains than on centralized ones. This has caused a few problems for crypto fans who prefer to keep their assets on decentralized chains.
If you want to know how 51% attacks work in more detail, they take advantage of a flaw in decentralized systems that lets users control a chain if they have more than 51% of the processing power. This often happens on networks that use the proof-of-work (PoW) standard.
These kinds of attacks are most likely to happen on permissionless blockchains with low hash rates. If a 51% attack is successful, hackers can undo transactions, make new transactions invalid, and change new blocks.
Hacker schemes are often set up by bad people who want to spend money twice. Because of the anomaly, hackers can steal money from a network without having to hack into the crypto wallets that are already there.
In the past few years, Bitcoin Cash ABC (BCHA), Bitcoin Cash (BCH), and Ethereum Classic have all been attacked by 51% attacks.
Still, some blockchain ecosystems have put in place powerful ways to stop 51% attacks. This includes adding blind signatures to systems that use proof-of-work (PoW). On proof-of-stake (PoS) systems, this problem is solved by locking a certain percentage of funds to prevent majority control and keep the network safe.
Flash loan attacks
Flash loan attacks are the other security risk that blockchain networks have to deal with. Most of the time, these kinds of attacks are used against smart contract DeFi ecosystems because they offer loans without collateral. Know Your Customer (KYC) rules are also pretty loose on most networks. As a result, attackers can use arbitrage loopholes to change the value of tokens and move profits to other networks, which is the same as washing the money.
The PancakeBunny hack attack in May 2021 was one of the most well-known flash loan attacks. It caused about $200 million worth of cryptocurrency to be lost. Alpha Finance and Spartan Protocol were also attacked similarly, costing them tens of millions of dollars.
Programming holes
In addition to being vulnerable to hacking, blockchain systems can also have bugs in their code. Most of the time, centralized blockchains are more vulnerable because hackers only have to attack certain points of failure. In many cases, those who hold the blockchain keys (like private keys) are the ones who are targeted.
If hackers can get their hands on the blockchain keys, they can move assets from wallets that are built into the system.
Putting all information in one place (Centralization)
The fact that information is centralized is another security issue with blockchain, especially in systems that get information from outside sources. Some networks, for example, use oracle systems to decide how much to charge for their ecosystems, which has led to big losses in some cases.
For example, in November 2020, users of the Compound DeFi protocol lost a total of $103 million because of a difference in the price of DAI, which is the native currency of the Compound protocol. The platform pulled the wrong market price information from Coinbase Pro. Because of the mistake, prices went up by 30%. As a result, short sellers with lots of borrowed money lost a lot of money.
The other big problem with centralized blockchains is that they are easy to pull the rug out from under. Rug pulls are sneaky ways to get people to invest in a project by spreading the word about it. When this is done, the founders take the money and run.
This kind of thing happens a lot in the crypto-verse, and it’s likely to keep happening because there isn’t much regulation. They have used blockchain technology to do things like avoid paying taxes and washing money.
Low scalability and interoperability challenges in blockchain technology
Because there are now more ways to put blockchain technology to use, the underlying technology has evolved over time to become more scalable. The first blockchain network was created by Satoshi Nakamoto to serve as a backup for the Bitcoin network. The Ethereum network, which was the second decentralized network, was initially established by Vitalik Buterin.
The Ethereum blockchain was one step ahead of the Bitcoin network because it supported programmable money, which is a term used by industry experts. The network was designed from the ground up to support both a high volume of cryptocurrency transactions and the operation of decentralized applications.
However, both the Bitcoin and Ethereum networks are experiencing difficulties expanding their capacity. The Ethereum network is currently the one that the majority of blockchain developers choose to work with.
It is estimated that over 80 percent of blockchain projects are built on top of the Ethereum blockchain. The number of projects hosted on the network has increased alarmingly rapidly over the past few years, which has resulted in significant scaling issues. They are inefficient and have high costs for fuel.
With the London hard fork, which took place in August of 2021, Ethereum’s developers initiated the transition from a proof-of-work (PoW) protocol to a proof-of-stake protocol (PoS). It assisted in bringing the excessive use of the network down to a more manageable level. During the preceding months, the Ethereum network was operating at approximately 98% of its capacity, which brought the blockchain dangerously close to being stopped.
The Ethereum 2.0 update will increase the total number of transactions that can be processed in a single second. Because of this, scaling it will be much simpler. This will be accomplished through the use of a technique known as “sharding.” By distributing data loads across the chain, sharding will increase processing speeds to over 100,000 transactions per second (TPS), up from the current best of approximately 30 transactions per second (TPS).
Some projects have been forced to switch to more efficient networks such as the Binance Smart Chain as a result of slow network speeds and high gas prices (BSC). The BSC network is able to handle a greater volume of transactions at a lower overall cost for gas. On the BSC network, you can also use the Ethereum Virtual Machine (also abbreviated as EVM). This indicates that it is capable of running applications that have been developed for the Ethereum chain.
The BSC network has emerged as a formidable competitor to Ethereum’s blockchain. There have been instances in which it has outperformed the more established cryptographic ledger in certain respects, such as the total number of transactions that it has successfully processed.
Side-chains are an answer to the scalability problem that blockchains face.
A number of different blockchain projects are currently under development to address the issues that prevent large networks from expanding. The Polygon network is one example of a side-chain that operates in conjunction with Ethereum. The solution for layer-2 scaling (TPS) can process more than one thousand transactions simultaneously.
Transactions are grouped together and processed all at once thanks to the utilization of commit chains by this system. The entirety of the items are inspected simultaneously before being returned to the primary chain. The primary objective of side-chains is to support applications that work with the main chain by making those applications more efficient and lowering the gas fees those applications incur.
Side-chains contribute to interoperability in another way by enabling the transfer of data from one blockchain to another. There are a few additional side-chain solutions, such as Orbs, Ark, and the Loom Network.
Energy use poses problems for the blockchain.
Ethereum and Bitcoin are two of the most well-known blockchains currently in use. However, these are proof-of-work systems, which require a significant amount of computing power and rely on mining to validate blocks and transactions. The concept is a little bit outdated when one considers the amount of power that they consume.
It is estimated that Bitcoin mining uses approximately 100 terawatt-hours of electricity each year on its own. This is significantly more energy than is utilized in a nation such as Finland.
Estimates suggest that it generates approximately 97 metric tons of carbon dioxide every year, making its overall impact on the environment quite significant. The individuals who are in charge of regulating things have expressed significant concern regarding this issue. As a result of this, significant nations like China have passed legislation that makes it illegal to mine cryptocurrency. This is due to the fact that mining causes damage to the environment that is not only pointless but also of very poor quality.
Some nations, such as Kazakhstan, which is a leading data centre and crypto mining hotspot, are having difficulty putting blockchain regulations into place because miners from China and other nations are moving there because the power is cheap. Kazakhstan is a leading data center and crypto mining hotspot.
At the beginning of this month, the government stated that miners were causing capacity problems. They disconnected the power supply to the cryptocurrency mining operations in an effort to solve the issue. A confrontation between the police and people who mine cryptocurrency ensued as a result of the move.
Eight lawmakers from different parts of the United States have recently written letters to companies that mine cryptocurrencies in order to inquire about the processes involved in doing so. They include the amount of power that is used, the agreements that are already in place with local electricity supply companies, the plans that they have for scaling up, and the direct and indirect costs that are incurred by local consumers.
The most recent adjustment occurs as a direct result of increased conversation regarding the environmental impact of cryptocurrency mining. A number of legislators have already proposed bills that, if passed, would make it mandatory for cryptocurrency businesses to source all of their energy from renewable resources. With the implementation of this strategy, the current administration in the United States would be able to accomplish its objectives regarding climate change.
As a result of this turn of events, some cryptocurrency networks are considering switching to systems that consume significantly less energy. Ethereum already has an upgrade to a proof-of-stake protocol in the works, which will make it possible for this to happen.
It is estimated that Ethereum consumes approximately 73.2 terawatt hours (TWh) of power annually. When the rollout of Eth2 is complete, it is anticipated that the amount of energy consumed will drop by 99.5%.
A low number of workers available
The nonfungible tokens and DeFi projects that have proliferated in the blockchain industry over the course of the past year have contributed to the difficulty that currently exists in the labor market. The most recent data suggests that the demand for blockchain talent has increased by more than 300% as a result of both large corporations and small startups competing to hire the most qualified individuals.
Major corporations such as Google, Amazon, Goldman Sachs, the Bank of New York Mellon Corporation, and DBS Group have already hired hundreds of blockchain specialists, making it difficult to find work in the field. It is said that other blockchain-focused companies, such as Coinbase, hire more than 500 people every three months.
A cursory examination of the job posting results on LinkedIn reveals that there are currently more than 6,000 positions available in the fields of blockchain and cryptocurrency. The fact that employment websites such as Indeed and ZipRecruiter each list more than 15,000 blockchain jobs demonstrates that this is only the tip of the iceberg.
According to Bloomberg, a significant number of individuals who are enticed away from their regular jobs are receiving pay raises of at least fifty percent. People who work in the cryptocurrency industry typically receive a wage that is at least twenty percent higher than that of people who work in other asset classes.
The issue is caused by companies that are in competition with one another and offer extremely competitive pay packages in order to attract and retain employees. As a consequence of this, certain businesses in the cryptocurrency industry regularly pay their employees in certain job categories more than one million dollars annually. These are the conclusions that can be drawn from the data that was presented by Team Blind.
According to the report, the average annual salary for software engineers working in the industry is over $900,000. It has been reported that their pay is comprised of both cash bonuses and stock-based compensation.
Large businesses want to hire blockchain experts for a variety of reasons, one of the most important of which is the growing necessity to use blockchain technology to speed up processes. For the management of freight carrier invoices and payments, for instance, Walmart is currently utilizing blockchain technology.
Both Google and Amazon, two of the largest technology companies in the world, have recently joined the blockchain bandwagon and have established teams that are dedicated to the development of blockchains. Google has just made the announcement that it will be forming a team that will be known as the Digital Assets Team. This team will collaborate with customers who make use of blockchain-based systems.
On the other hand, Amazon already possesses a service that is compatible with private blockchain networks and is referred to as Amazon Managed Blockchain. It is compatible with well-known decentralized ledger frameworks such as Ethereum and Hyperledger Fabric and can be used with either one.
The widespread application of blockchain technology can be seen in managing collateral on exchanges, collecting and validating data, and disclosing information along the supply chain.
The fact that there are not enough people working on blockchain projects right now is evidence that the industry has a fundamental issue. As a result, many blockchain companies cannot find the qualified candidates they require for open positions. Because of this, blockchain projects move forward at a much slower pace than they otherwise would due to the fact that a large number of qualified people are currently employed.
The problem is not going away, even as the bearish crypto season drags on for an extended period of time. The need to scale blockchain projects that will take advantage of future price increases has not caused the hiring frenzy to slow down even though Bitcoin and other major cryptocurrencies have lost more than a third of their value in the past few months.
Is it hard to implement blockchain?
At the moment, blockchain hiring problems are affecting a lot of different industries. Because of this, it has been hard to use blockchain in banking, healthcare, and accounting.
This is because putting blockchain technology to use requires experts with a lot of training. On the other hand, more money is being put into the blockchain industry. In 2021, it was said that spending on development had gone over $16 billion. Capital flows are sure to rise as more innovative blockchain technologies come to the fore.
Some interesting ways to use blockchain technology are still in their early stages right now. This includes Web3 platforms that are meant to make the internet more open and let people make money in different ways.
