Blockchain — Challenges and Limitations

The blockchain industry is coming on ten years now since the release of the Bitcoin whitepaper and in this time a lot has happened. Bitcoin is considered as first generation blockchain while Ethereum and the rest of the major altcoins qualify for the second generation tag. Currently, there is a crop of third generation blockchains that are introducing innovative features that overcome some of the limitations inherent in both the first and second generations.

Even with this level of innovation, some believe that blockchain is overhyped and cannot deliver on its promises. A lot of interest has been directed into the distributed ledger as several individuals and organizations look into the space to find a solution to their problems. However, blockchain is still in its infancy and most of these individuals are getting utterly disappointed. Current offerings are highly limited and suffer a lot of challenges. Researchers have looked into the blockchain phenomenon and identify some of the main issues plaguing the industry that are arguably the reasons why the technology is yet to go mainstream. This article briefly describes these challenges and their contribution to the future of the industry.


Vitalik Buterin, the visionary and lead programmer of Ethereum has identified a scenario where anyone designing a blockchain has to decide between three properties. These are scalability, decentralization, and security. The current blockchain designs all suffer from this limitation in that developers have to sacrifice one property to achieve the other two and not a single solution can effectively claim to have incorporated all three properties. Vitalik calls it a ‘trilemma.’ In order to be scalable, the developers of the blockchain have to sacrifice either security or decentralization and vice versa for the other properties.

Scalability is, however, the biggest challenge, especially for the first and second generation blockchains. Bitcoin and Ethereum are the largest networks by market capitalization and have found the largest adoption but they are not scalable. They are secure and arguably decentralized but they have not achieved scalability. For instance, Bitcoin can process as much as five transactions every second while Ethereum can manage to process 15 transactions every second. In comparison to legacy systems, these are extremely low figures. Visa and MasterCard are capable of processing between 25,000 and 50,000 transactions every second. Blockchain has a long way to go. Third generation blockchain solutions are more focused on solving this issue in particular and some are claiming figures of as close to 10,000 transactions per second but their adoption is yet to go mainstream of even gain acceptance within the overall crypto community.

Security Vulnerabilities

As mentioned earlier, security is part of the trilemma and this especially plagues the more recent projects as opposed to the first and second generation blockchains. Bitcoin is considered the most secure blockchain partly due to its design and the size of the network. However, in Satoshi Nakamoto’s Bitcoin whitepaper, he highlighted a security vulnerability he termed a 51% attack on the system. His description was that the blockchain is vulnerable to a majority of miners colluding to attack the network by either altering the ledger or allowing the manipulation of the network.

This kind of attack is, however, less likely with the growth of the network and the Bitcoin network is pretty large. This vulnerability does not, however, escape the lesser blockchain projects that use the Proof of Work consensus algorithm. Several networks have come under the 51% attack in the recent past from which some have been unable to recover.

Ethereum, the most popular platform for deploying decentralized applications has introduced a new vulnerability. Smart contracts that allow these applications to run on the platform are more often deployed without effective security measures taken into consideration. More often than not it is usually the designs for the network that are to blame but it nonetheless insecure. In 2016, for example, an Ethereum dApp came under attack and lost as much as $50 million that had been collected from investors. This attack was possible because the smart contract had a vulnerability that the attacker exploited.

Limited Technological Design

Bitcoin, the oldest and largest blockchain network was created with limitations by design to ensure the security of the network. Decentralized applications and smart contracts cannot run on top of the Bitcoin platform. Ethereum, however, solved this problem. Ethereum ushered in a proliferation of real-world use case applications. For every world challenge, there is some developer looking for a way to apply the blockchain to make the industry more efficient. The only challenge with this view is that there is limited technological innovation to support this level of blockchain adoption. There are limited programming languages and the entire ecosystem is still being developed to cater to a varied application interface. Therefore, thus far the current designs, especially in large platforms such as Ethereum’s virtual machines, only a limited set of applications that are not too complex, can be deployed.


There is a huge misconception in the general public that cryptocurrencies and their underlying platforms offer the privacy of transactions. At least this used to be the case until this misconception was proven inaccurate in 2013 when the founder of the infamous Silk Road website, Ross Ulbricht was identified by the FBI as the individual running the site. Reports about the arrest revealed that the FBI followed all the addresses within the website and finally managed to link the Ulbricht’s identity to one of the Bitcoin addresses used on the website.

Most blockchain networks are similar to Bitcoin’s network in that they are completely public and at the very least offer pseudonymity as opposed to anonymity. Individual identities are hidden behind addresses. However, if an individual’s addresses are linked to their real identity, then their entire transactions can be traced. This is, however, not a problem to some privacy-focused cryptocurrencies such as Monero and Zcash but it is a problem for most.

The lack of privacy in some of the large networks such as Bitcoin and Ethereum limits their application in industries that thrive under privacy such as medical care, government facilities, and the financial industry.


This is not a conclusive list of all the challenges that plague and hinder widespread adoption of the distributed ledger technology but they are arguably the main. Some other challenges such as the creeping environmental challenge that bitcoin mining is posing, network transaction costs and the constant association of cryptocurrencies to illicit activities do deserve a worthy mention. Industry experts agree that the future of blockchain technology looks bright but in order to take the technology mainstream, most of these challenges have to be solved.