Even though the challenges in the Blockchain Technology sector have been soaring and have become very promising, there are many problems ahead of them. The problem of scalability is still the main one, as several blockchain networks often cannot process many transactions quickly enough. Security issues, such as being hacked and fraudulent activities, are the causes of threats to trust: the users and the investors. Regulatory ambiguity is the direct cause, among others, of the slow spread of governments’ adoption of the frameworks worldwide. That seeks the chosen balance of innovation and protection (the main challenge to innovators). Besides, the lack of interoperability between blockchain platforms hinders fluid communication and partnership possibilities.
Environmental concerns, particularly the high energy consumption of blockchain activities, become another issue for the industry. Solving these problems is vital for the long-term development of the technology. Blockchain technology has improved the speed of traditional procedures that require transparency and scalability. Thus, it has shown excellent growth potential. The paper’s content describes the technology and the barriers to blockchain adoption that the authors point out.
Critical Challenges in Blockchain Technology
Some of the difficulties associated with using blockchain technology are detailed below.
Security issues
Blockchain adoption in all industries will mean that companies must deal with complex and contentious situations in the mature blockchain ecosystem and develop new applications simultaneously. Blockchain is not without flaws, and some of them are related to security. What, then, are its security weaknesses?
51% attacks
Blockchain design architectures vary diversely, for example. Indeed, not all of them are secure. For instance, decentralized ones are easier targets for 51% of attacks than centralized blockchains. This has raised some issues for crypto enthusiasts who prefer to keep their funds in decentralized chains.
In a little more depth, the attack provides the means and ways for a minority faction of the users that own more than 51% of the hash rate to control. The distributed ledger is indeed a flaw in a decentralized system. Networks built on the proof-of-work (PoW) protocol sometimes folks find this way of interfering with the integrity of the network.
These illegal activities and misuses expose the permissionless blockchain systems with small amounts of hash power. If the 51% attack goes through, the hacker can control the ledger, pull funds out of the blockchain, and introduce new transactions. The black hats among the hacker crews sometimes want to dupe you into spending twice. The exceptional situation lets hackers siphon money from a network without breaking embedded crypto wallets. Among the blockchain networks attacked by 51% are Ethereum Classic, Bitcoin Cash ABC (BCHA), and Bitcoin Cash BCH $391 in the last few years.
On the other hand, some blockchain ecosystems have made it 51% safer against cybercrimes. One such solution is the introduction of blind signatures in proof-of-work (PoW) protocols. Proof-of-stake (PoS) systems get money bound to the specific authorized users and thus prevent majority control.
Flash loan attacks
Another problem that blockchain network security faces is the high number of flash loan attacks. Smart contract DeFi ecosystems are usually the objects of such attacks as lending being based on collateral-free base(s). However, KYC (Know Your Customer) regulations are also very mild in some of the networks. Thus, it becomes gravely simple for hackers to double-sell. The same tokens are on multiple networks and get away with profit laundering.
The most known case of a flash loan attack is the May 2021 hack on PancakeBunny. Cryptocurrency worth approximately $200 million was lost. Equally successful assaults took place, costing Alpha Finance tokens and Spartan Protocol millions of dollars.
Coding loopholes
Blockchain systems can be hacked and overrun with code vulnerabilities. Hackers usually manipulate the information at a single point of failure of centralized blockchains. Thus, they are more prone to attacks. The objects that have the blockchain keys, like the private keys, are constantly subjected to attack and can be further attacked. In case the attackers get hold of them, they can snatch the funds from the wallets of the system that have the native currency.
Centralization of information
Information centralization is another blockchain security issue, particularly for systems that depend on third parties. Some networks use Oracle systems to set prices for their ecosystems, sometimes resulting in huge losses.
An example is the $103 million Compound DeFi protocol users lost in November 2020 due to a price disparity involving DAI, the native currency of the Compound protocol. Unfortunately, the program had retrieved inaccurate market pricing data from Coinbase Pro. As a result of the error, prices surged by 30%, leading to enormous losses for short sellers who were using leverage.
Another big issue with controlled blockchain systems is that they are easily manipulated. Project publicity used as a “rug pull” to entice investors is an example of deceptive tactics. The founders will then disappear with the money. Because there is currently no regulatory framework, incidents like this will persist in the crypto-verse. Due to their influence on blockchain technology, tax avoidance and money laundering problems have arisen.
Blockchain’s Scalability and Interoperability Issues
As the number of use cases for blockchain technology grows, so does its scalability. Satoshi Nakamoto created the first blockchain network to enable Bitcoin. Vitalik Buterin developed the second decentralized network, aka Ethereum, into the world.
The Ethereum blockchain surpassed the Bitcoin network due to the so-called “programmable money.” Apart from enabling decentralized applications, the network was structured to accommodate many crypto transactions. Yet, the Bitcoin and Ethereum networks are suffering from scaling issues. Ethereum is the clear winner in terms of the number of blockchain developers.
The Ethereum blockchain is estimated to be behind over 80% of blockchain projects. As a result of the recent expansion of network projects, there have been significant scalability issues, including the cost of gas and the slow speed.
Starting the transition from proof-of-work (PoW) protocol to proof-of-stake (PoS) protocol on Ethereum in August 2021 with the London hard fork was the primary aspect for developers. It has been used to lower it once the network utilization reaches alarming levels. The blockchain was practically coming to a halt in the months before, as the Ethereum network used almost all its capacity – about 98%.
Ethereum 2.0 Scalability and BSC Advantages
With Ethereum 2.0, the network can process several transactions per second instead of the current ones, making it more scalable. Sharding is a radical approach to achieving the final amount of transactions. Sharding means spreading the data loads across the chain, which increases processing rates from 30 TPS to 100,000 and above.
Because of the reduced network performance and the high gas fees, specific blockchain projects need to move to more efficient networks like Binance Smart Chain (BSC). The BSC network is distinguished by reduced gas costs and increased transaction throughput, which are only two of the critical features of its operation. Ethereum Virtual Machine (EVM) support is also provided on the BSC network. Consequently, the Ethereum chain applications can be run using this method.
Sidechains and Environmental Challenges in Blockchain Networks
The BSC network became a strong competitor to Ethereum’s blockchain, with users and other performance indicators sometimes exceeding that of the older cryptographic ledger. Sidechains A solution to blockchain’s scalability Sidechain projects have been developed to handle the issues of scalability faced by extensive networks. The Polygon network is a sidesidechainEthereum. Layer-2 scaling can performssidechainPS of more than 1,000.
The system is run by a series of commit chains, where the transactions are made in bulk. Before main-chain reversion, they are subject to massive verification. Applications compatible with the main chain benefit from efficiency and decreased gas prices for side chains. Further, the sidechain’s ensidechainsnteroperability feature allows asisidechains to communicate between blockchains.
However, these systems do the mining instead of validating the blocks and transactions, which, in turn, takes a lot of power. Examining them regarding energy consumption, the concept feels a bit last. Bitcoin mining has more power to use than countries such as Finland per year, and the estimated consumption is around 100 terawatt-hours.
Carbon dioxide emitted in a year is projected to be approximately 97 metric tons; thus, it is a significant climate change factor. Authorities entering the cart in terms of regulations are very concerned over this. Crypto mining is a fact that, in some ways, causes significant and unnecessary damage to the environment, making big countries like China prohibit it.
Energy Consumption Blockchain Challenges
The digital currency mining challenges in Kazakhstan that affect the country’s electricity balances are very similar to those of China in implementing the blockchain law. Additionally, other countries like Kazakhstan have also had their pikes in cryptocurrency. This is because the miners of the Chinese and other countries choose Kazakhstan for its affordable energy.
According to recent reports, the authorities accused the Miners of damage to the capacity issue earlier this month. The authorities have tried to fix the problem by curtailing electricity to crypto mining activities,,s there,,y the miners got at loggerheads with the authorities.
Eight US politicians have written letters to the companies that mine crypto to inquire about their business. Their operations include electricity consumption, influencing the local usage accounts, operating in expansion mode, and supply agreements with local electricity companies.
Questions about the impact of cryptocurrency mining on the environment have been raised only recently, giving rise to this new situation. Some senators said that in the foreseeable future, the laws will compel crypto companies to adopt measures switching to green energy. Such a measure for the United States government would also meet the targets for climate change.
Such emergence might eventually lead some cryptocurrency networks to migrate and use more energy-efficient devices. This changeover is underway through a system update pointing to proof-of-stake in Ethereum. Ethereum, the existing proof-of-work system, devours a massive 73.2 TWh of power each year. With the final implementation of Eth2, energy use will be reduced by 99.95%.
Low Workforce Availability
Due to the enormous development of nonfungible tokens and decentralized finance (DeFi) projects in the blockchain sector last year, workers are now absent. Data reveal that long-standing and new companies compete for the same “A” level of blockchain professionals, inflating the demand for blockchain professionals by over 300 percent.
Leading corporations like Google, Amazon, Goldman Sachs, DBS Group, and Bank of New York Mellon Corporation lack qualified blockchain candidates as they recruit hundreds of people yearly. Coinbase and other businesses oriented to the blockchain use more than 500 employees every three months.
Right now, over 6,000 blockchain and cryptocurrency positions are advertised on LinkedIn. The fact that ZipRecruiter alone has more than 15,000 blockchain-related job listings is Just the tip of the iceberg. Bloomberg elaborates on how many people lured from their conventional jobs get as much as 50% or even more salary increases because of the allure of being in these new positions. Cryptocurrency sector workers are usually 20% richer than all the others in other asset classes.
Blockchain Experts High Salaries and Growing Demand
This is all because rival businesses give people who work in technical jobs what looks like meager pay to attract and retain staff. For this reason, according to employers, some employees in cryptocurrency make over a million dollars per year; specifically, I am interested in the data released by Team Blind. The study revealed that software developers in this field can receive over $900,000 in annual salaries. First, they said that this includes cash bonuses and stock-based compensation.
Among other things, commercializing these already adopted technologies is one reason mainstream companies’ recruitment of blockchain experts is gaining momentum. As a case in point, Walmart successfully deployed blockchain technology for invoicing and payments to deal with freight carriers better. In addition to large tech companies like Google and Amazon, blockchain development teams have also risen recently. Last, Google introduced the Digital Assets Team, which aims to help clients with or use blockchain solutions.
Blockchain Challenges Skill Shortages and Market Decline
Furthermore, Amazon’s managed service, Amazon Managed Blockchain, ensures scalability by linking private networks. Moreover, it supports Hyperledger Fabric and Ethereum, the two most utilized decentralized ledger platforms. More people are interested in blockchain implementation in traditional sectors due to attributes such as supply chain transparency, data validation and collection, and collateral management on security exchanges.
One of the main reasons that have put the blockchain business at stake is the lack of skilled workers. Many blockchain companies suffer from a shortage of qualified candidates. Consequently, many professionals end up being trapped in employment contracts, and therefore, the progress of blockchain projects is hampered.
The problem will continue as long as the crypto bear market does. Moreover, the price of Bitcoin and other major cryptocurrencies has declined by more than one-third in the past three months. It seems, however, that the hiring boom has not stopped as blockchain activities are on the rise, and thus, the companies can benefit from potential cost-saving moves if the price is up.
Is Blockchain Difficult to Implement?
At present, the most critical sectors have been through the art of blockchain hiring challenges. This, in turn, has made it difficult to use blockchain in such industries as accounting, healthcare, or finance.
In reality, the reason is that blockchain technology can only be effectively used by people who have received in-depth training in the area. Blockchain, on the other hand, is gaining more and more support. The spending on the development was reportedly over $16 billion in 2021. With the advent of additional disruptive blockchain technologies, the scenario remains one of investment inflows being the sole winner. Among them are some inspiring applications of blockchain technology that are presently in the prototype phase. A few of them are the concepts of Web3, which is about democratizing the Internet and decentralizing monetization.
FAQs
How does scalability affect blockchain networks?
Scalability issues arise when networks struggle to process many transactions quickly, leading to slow speeds and high fees.
What is a 51% attack in blockchain networks?
A 51% attack occurs when a group of miners controls over 50% of a blockchain’s hashing power, allowing them to alter transaction records or double-spend coins.
How does environmental impact relate to blockchain?
Blockchain, especially proof-of-work systems, consumes significant energy, contributing to environmental concerns and prompting a shift toward more energy-efficient models like proof-of-stake.
Why is there a shortage of skilled workers in blockchain development?
The rapid growth of the blockchain sector has led to a high demand for skilled professionals, creating a shortage as companies compete for qualified candidates.
