Limitations of Blockchain Technology
Most of us know about the positive aspects of blockchain technology, however, it is just as important to know what flaws and limitations burden it too. Read more to learn about the limitations of blockchain technology.
With both Bitcoin and Ethereum once again on everybody’s mind, thanks to their incredible bullish runs recently, much content has been released regarding the benefits of cryptocurrencies and by extension blockchain technology.
Blockchain technology has many real and practical benefits such as security, decentralization, openness, transparency, etc. that can be applied across many sectors and industries from banking and finance to logistics and development. However, there are some notable drawbacks to this technology everyone should be aware of. Blockchain technology isn’t some magic pill that can fix all of the world’s existing problems, as many marketers and salespeople will have you believe.
Below we have compiled three pressing limitations that blockchain technology in its current state still must deal with.
For the most part, immutability is one property that blockchain technology boasts that has been held up and praised by many in the blockchain and technology community.
In essence, immutability means any object or dataset that cannot be changed or modified. Blockchain is able to achieve superior immutability by having all nodes secure and maintain one chain. If the data of a block in the blockchain has been altered or tampered with in any way, all preceding blocks become invalidated. This means that your copy of the blockchain will not be accepted by other nodes in the network, thus ensuring immutability on the decentralized network. In a way, this is good because transactional data, records, and sensitive information recorded on the network cannot be tampered with or hacked to change the value. This leads to more trust in the records of the blockchain network.
But, this feature can easily be considered a limitation of the technology due to a couple of important reasons. For example, in the case of traditional payment services and platforms that still operate on centralized databases the reversal of transactions is a relatively easy and simple process. This becomes especially useful in cases of theft, obtaining money via fraudulent means, or other similar cases where funds fall in the hands of an unintended recipient. On blockchain technology, however, this is impossible. Because the blockchain is immutable it is therefore impossible to reverse transactions that have been added to the blockchain.
Immutability is also a cumbersome feature when applied to smart contracts (contracts that may exist on a blockchain that automatically execute actions according to the terms of the contract). In the real world, circumstances change all the time, which sometimes leads to the terms of a contract having to be changed or amended to suit the needs of one or all parties involved. But because of the rigid and immutable nature of blockchain, terms and conditions on a smart contract are extremely difficult to change, which in and of itself becomes a significant flaw in certain cases.
Blockchain technology is able to provide a high level of security while maintaining its decentralization because all transactions and data must be recorded on a single chain by all nodes on the network. Only when this process is complete can a new block be added to the blockchain.
The process of validating and adding blocks to the blockchain is a timely process, this is especially true when compared to many digital payment services such as Visa or Mastercard, that process transactions effectively instantly. Most blockchain networks that work on a Proof of Work consensus algorithm process an obviously insufficient number of transactions per second. For example, Bitcoin and Ethereum can only process 7 and 15 transactions per second respectively. This means that as the network becomes more popular and more people begin transacting on the network, queue times to confirm transactions will only lengthen unless the network is able to increase its throughput.
This process of adding new blocks to the blockchain is necessary to maintain security, especially on an open and decentralized network, such as a blockchain. Nonetheless, this is a very slow process that is hindering the adoption of blockchain technology.
A Waste of Resources
Mining is one of the key elements that allow a blockchain to run as a decentralized network without an intermediary. This is done by forcing miner nodes on the network to perform a costly and time-consuming process in order to ‘mine’ the block before it can be added to the blockchain. The miner then receives a reward for completing this task with newly minted coins, which is also the process responsible for adding new coins to the network. A more detailed description of what exactly the mining process is can be read here.
The mining process itself has many merits, the foremost being security. For a malicious actor to take over the network, they would have to control over 51% of the computing power that is in the network. This is virtually impossible on established blockchains such as Bitcoin or Ethereum.
However, because the block reward goes to the first miner node in the network that completes the costly mining process, it creates competition among miners. Every miner is always looking to be the first node to complete this process and in an attempt to do so, spend more resources to increase their computing power. In essence, the more computing power you have, the higher your chances of successfully mining that block first.
As of the time of writing, experts estimate that it costs miners between $7200 and $8000 to mine 1 Bitcoin on the Bitcoin network. The current block reward per Bitcoin is 6.25 BTC, which is mined approximately every 10 minutes. This means that collectively, miners from all around the world spend approximately $6,840,000 per day to mine Bitcoin. This amount of money is spent on electricity, manpower, mining rigs, equipment, and other costs associated with mining to compete with each other. As a result, the majority of the resources that have been spent will go to waste, as only the miner who completes the process first receives the reward.
Blockchain technology is still a relatively new technology, that is receiving more attention and growth every year. There will, of course, always be some drawbacks to any kind of technology, but that must be balanced by the benefits it is able to bring. As it stands, blockchain technology is still one of the most trusted and practically applicable technologies that have emerged recently.
As time progresses, different blockchain projects and protocols will offer different solutions to the issues that have been outlined in this article, along with other issues that have not been mentioned here. The Jax.Network project is currently in its final stages of development of its blockchain protocol that will dramatically improve the scalability and therefore speed at which transactions can be confirmed. All this, while maintaining a high level of decentralization and security. Visit the Jax.Network website to find out more about the project or read the Jax.Network whitepaper to delve into the technology behind our claims.