Blockchain Technology. Despite its rapid growth and transformative potential, the blockchain industry faces several challenges. Scalability remains a significant issue, as many blockchain networks struggle to handle many transactions efficiently. Security concerns, including vulnerability to hacking and fraud, pose risks to user trust and investment. Regulatory uncertainty creates hurdles for widespread adoption, with governments worldwide grappling to create frameworks that balance innovation and protection. Additionally, interoperability between blockchain platforms is limited, hindering seamless integration and collaboration.
Environmental concerns about the high energy consumption of blockchain operations further complicate the industry’s progress. Addressing these challenges is crucial for the sustainable advancement of blockchain technology. Blockchain technology has shown great promise in enhancing the efficiency of traditional validation procedures that demand transparency and scalability. This article focuses on the technology and discusses the many obstacles to blockchain adoption.
Key Challenges in Blockchain Technology
Some of the difficulties associated with using blockchain technology are detailed below.
Security issues
Organizations in all industry sectors will face a complicated and potentially contentious array of difficulties and new dependencies as the blockchain ecosystem matures and additional use cases arise. There are numerous problems with blockchain, including security issues. So, what are its weaknesses in terms of security?
51% attacks
The architectures of blockchain technology designs vary, for instance. You can’t say that all of them are safe. For instance, decentralized ones are more vulnerable to 51% attacks than centralized blockchains. This has created a few issues for crypto fans who would rather store their funds on decentralized chains.
Going a little further into the specifics, 51% of attacks use a flaw in decentralized systems that lets users take control of a chain if they control more than 51% of the processing power. Networks that use the proof-of-work (PoW) standard often experience this.
These assaults compound the vulnerability of permissionless blockchain systems with low hash rates. If a 51% assault succeeds, the hacker can undo transactions, render new ones null and void, and even alter blocks. The bad guys behind hacker schemes sometimes aim to make users spend twice. The anomaly enables hackers to drain assets from a network without compromising embedded crypto wallets. Ethereum Classic, Bitcoin Cash ABC (BCHA), and Bitcoin Cash BCH $391 are among the blockchain networks targeted by 51% of attacks in the past few years.
However, certain blockchain ecosystems have implemented 51% of attack mitigation strategies. One example is using blind signatures in proof-of-work (PoW) protocols. As a solution, proof-of-stake (PoS) systems lock a specific amount of cash to safeguard the network and avoid majority control.
Flash loan attacks
Another issue with blockchain networks’ security is the prevalence of flash loan assaults. Smart contract DeFi ecosystems are frequently targets of these kinds of assaults because they provide loans without collateral. Know Your Customer (KYC) regulations are also somewhat loose on most networks. Because of this, malicious actors can exploit arbitrage vulnerabilities to manipulate token values and launder their gains to other networks.
A prominent example of a flash loan attack is the May 2021 hack on PancakeBunny. About $200 million worth of cryptocurrency was lost as a result. Similar assaults cost Alpha Finance and Spartan Protocol tens of millions of dollars.
Coding loopholes
Blockchain systems are vulnerable to hacking attempts and code vulnerabilities. Hackers typically need to target specific areas of failure in centralized blockchains, making them more susceptible to attacks. The entities that possess blockchain keys, including private keys, are frequently the targets of attacks. If hackers obtain them, they can steal funds from the system’s native wallets.
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 huge 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.
Low Scalability and Interoperability Challenges in Blockchain Technology
As the number of use cases for blockchain technology grows, it has become more scalable. Satoshi Nakamoto built the first blockchain network to support Bitcoin. Vitalik Buterin’s Ethereum network was the second decentralized network.
Due to what is known as “programmable money,” the Ethereum blockchain outperformed the Bitcoin network. In addition to allowing decentralized applications, the network was designed to process a high volume of cryptocurrency transactions. The Bitcoin and Ethereum networks, however, are experiencing scale problems. Among blockchain developers, Ethereum currently has the upper hand.
According to estimates, the Ethereum blockchain forms the basis of more than 80% of blockchain initiatives. Due to the recent expansion of network projects, there have been major scalability issues, including the high cost of gas and the slow speed.
Developers on Ethereum began switching from a proof-of-work (PoW) protocol to a proof-of-stake (PoS) protocol in August 2021 with the London hard fork. The network utilization had risen to alarming levels, and it helped bring it down. The blockchain was on the verge of stalling in the months leading up to this, as the Ethereum network was operating at about 98% capacity.
With the next 2.0 upgrade to Ethereum, the network should be able to process more transactions per second, making it more scalable. Sharding is the method that will be used to accomplish this. By distributing data loads across the chain, sharding will boost processing rates from the ideal 30 TPS to more than 100,000 TPS.
Certain projects have had to switch to more efficient networks like Binance Smart Chain (BSC) because of sluggish network performance and excessive gas fees. Reduced gas costs and increased transaction throughput characterize the BSC network. Ethereum Virtual Machine (EVM) compatibility is also available on the BSC network. Because of this, it is capable of running Ethereum chain applications.
With the volume of performed transactions and other indicators often surpassing those of the older cryptographic ledger, the BSC network has emerged as a strong rival to Ethereum’s blockchain.
Side-chains: A solution to blockchain’s scalability issue
Numerous blockchain projects have been created in response to the scalability issues experienced by prominent networks. The Polygon network is one example of an Ethereum side-chain. More than 1,000 transactions per second (TPS) can be processed by the layer-2 scaling method.
It uses commit chains to execute transactions in bulk. Before being reinstated to the main chain, they undergo mass verification. Applications that work well with the main chain can take advantage of side chains’ increased efficiency and decreased gas prices. Another way that sidechains encourage interoperability is by allowing users to exchange data with different blockchains. Orbs, Ark, and the Loom Network are among other sidechain options.
Energy Consumption Blockchain Challenges
Two of the most well-known blockchain platforms are Ethereum and Bitcoin. Nevertheless, these systems rely on mining to validate blocks and transactions, which consumes much energy. Considering the power they consume, the concept is a little worn. Cryptocurrency mining consumes more energy than countries like Finland each year, consuming an estimated 100 terawatt-hours.
The amount of carbon dioxide it produces annually is estimated to be around 97 metric tons, making it a major contributor to climate change. Authorities in charge of regulations are really worried about this. Because crypto mining causes substantial and unnecessary environmental damage, several big nations, including China, have prohibited it.
China has its share of problems when enforcing blockchain legislation, and other countries, like crypto mining Kazakhstan, have their fair share of problems. This is because miners from China and other nations go to Kazakhstan for its cheap power.
Earlier this month, the authorities held the Miners responsible for the negative impact on capacity. Authorities attempted to address the issue by cutting electricity to crypto mining activities, which sparked a confrontation between the miners and the authorities.
Eight US senators and representatives have written to cryptocurrency mining companies requesting information about their business practices. These practices include power usage, influence on direct and indirect costs to local customers, plans for scaling, and agreements with local electricity supply providers.
Concerns about the effects of cryptocurrency mining on the environment have recently come to the fore, prompting this latest development. According to some lawmakers, crypto companies could soon be required by law to switch to renewable energy. This technique would allow the US administration to achieve its climate change goals.
Due to this development, some cryptocurrency networks are considering switching to more energy-efficient devices. This is already in the works for the Ethereum network as part of an update to a proof-of-stake system. Ethereum consumes approximately 73.2 TWh of power each year. After the Eth2 rollout, energy consumption will decrease by 99.95%.
Low Workforce Availability
Nonfungible coins and decentralized finance (DeFi) projects have increased in the blockchain industry in the last year, leading to a shortage of workers. Statistics show that established companies and startups are vying for the same pool of top-tier blockchain expertise, driving up demand for blockchain professionals by more than 300 percent.
The blockchain industry is experiencing a severe scarcity of qualified candidates as major corporations like Google, Amazon, Goldman Sachs, DBS Group, and Bank of New York Mellon Corporation hire hundreds of people in this field every year. Rumor has it that Coinbase and other blockchain-centric startups employ more than 500 workers every quarter.
More than 6,000 blockchain and cryptocurrency positions are currently advertised on LinkedIn. Indeed, ZipRecruiter alone has more than 15,000 blockchain-related job listings, so this is just the tip of the iceberg. Bloomberg reports that many individuals enticed out of their traditional jobs allegedly receive 50% or higher salary increases. Workers in the cryptocurrency industry typically earn 20% more than those in other asset classes.
This is all because rival businesses give enticingly low salaries to entice and keep employees. Consequently, certain positions in the cryptocurrency industry pay over a million dollars annually to certain employers. This is in line with the data that Team Blind has made public. According to the research, software developers in this field can expect more than $900,000 in annual salaries. It has been stated that their compensation package includes both cash bonuses and stock-based compensations.
One key reason mainstream organizations seek to recruit blockchain experts is the increasing demand to implement blockchain technology to simplify operations. Walmart, for instance, now employs blockchain technology to manage invoices and payments to freight carriers better. Google and Amazon, two of the largest tech companies in the world, have also formed blockchain development teams. In a recent announcement, Google introduced the Digital Assets Team, which will assist clients using blockchain technology.
Instead, Amazon’s managed solution, Amazon Managed Blockchain, assists private blockchain networks. It is compatible with Hyperledger Fabric and Ethereum, two well-known decentralized ledger platforms. Mainstream auxiliary use cases for blockchain technology include supply chain transparency, data validation and collection, and collateral management on exchanges.
A major issue that has engulfed the blockchain business is the scarcity of qualified workers. Many blockchain companies are facing a shortage of qualified candidates. As a direct result, many competent individuals are stuck in employment contracts, which slows down the development of blockchain projects.
As long as the bearish crypto season persists, the issue will persist. Even if the value of Bitcoin and other major cryptocurrencies has dropped by more than a third in the last three months, the hiring frenzy has been unabated due to the necessity of expanding blockchain initiatives to capitalize on potential price increases.
Is Blockchain Difficult to Implement?
At this time, blockchain hiring issues have affected key industries. This has made it harder to apply blockchain technology in industries like accounting, healthcare, and finance.
The reason is that blockchain technology can only be effectively implemented by individuals with extensive training in the field. Blockchain, on the other hand, is seeing an uptick in investment. Spending on development reportedly exceeded $16 billion in 2021. With the rise of additional ground-breaking blockchain technologies, investment flows will only get stronger. Some exciting uses of blockchain technology are now in the prototype phase. Web3 platforms aim to democratize the Internet and decentralize monetization.
