If you are following the blockchain technology scene, you will see the trend of positive articles and information about blockchain. Almost every publication sells terminology to promote blockchain adoption among business users, learners, and developers.
However, that is only half of blockchain technology. Just like any other technology, it comes with its own limitations, i.e. downsides. Trends speak for themselves. Companies are looking for blockchain talent because it’s so demanding.
In this article, we will explore those pain points and understand blockchain technology in a much better way.
Table of Contents
#01: Lack of adoption
As an APQC survey, lack of adoption by other companies was the biggest hurdle to blockchain adoption. Blockchains are ecosystems that require broad adoption to work effectively. For example, track-and-trace capabilities in supply chains would not only require an organization to adopt a blockchain network, but for its suppliers to do so as well. Yet APQC has found that only 29% of organizations are piloting blockchain or have fully deployed it. Without widespread adoption, the effectiveness and scalability of blockchains will remain limited.
Yet there are good reasons to be optimistic that adoption of blockchain will grow. Organizations are increasingly coming together and forming collaborative blockchain working groups to address common pain points and develop solutions that can benefit everyone without revealing proprietary information.
#02: Low scalability
The foremost issue in blockchain scalability refers to the limitations. In the event of processing a new transaction, each node adds information regarding the transaction in the ledger. As a result, the increasing transaction history could topple the overall system. In addition, blockchain networks must maintain all data with accuracy to safeguard the levels of trust.
Furthermore, blockchain also experiences issues of limitations in terms of hardware. Most of the issues in blockchain scalability problems arise due to hardware limitations.
As the blockchain network expands further, it is difficult to set up and maintain the hardware required for operating nodes.
The next critical factor which leads to major scalability challenges in blockchain refers to the high transaction fees. The growing popularity of blockchain networks has led to more complexities in processes for validating transactions due to the demand for higher computation power for mining. Users have to pay a specific fee for the verification of their transactions. With the continuously expanding blockchain networks, users are eager to pay higher transaction fees for the verification of their transactions. However, it is also important to note that many other transactions remain in the queue without processing for a long time.
Block size is also a notable aspect for understanding why scalability is an issue for blockchain. The increasing number of transactions in blockchain networks leads to a time-intensive process for executing transactions. For example, every block in the Bitcoin blockchain network had the size of 1 Mb in the initial days and they contained almost 2,020 transactions. On the other hand, the growing number of transactions in the network has led to increasing block size thereby affecting scalability.
All transactions in the blockchain network should pass a validation process. Generally, transactions have to wait for long periods of time for validation, considering the number of transactions in the queue. For example, the Bitcoin network implies the need for almost 10 minutes for building a new block. The wait time for transaction validation increases during peak times. The response time is directly related to high transaction fees as one of the notable factors resulting in the blockchain scalability problem.
Therefore, the prominent factors which lead to the blockchain scalability challenge imply that the growing number of transactions and users is definitely problematic for blockchain networks. If networks cannot expand in terms of capacity for accommodating the new transactions and users, then they can risk a lot in terms of possibilities for widespread adoption. So, the search for blockchain scalability solutions has been increasing profoundly in recent times.
Promising Solutions for Blockchain Scalability
The different challenges for blockchain scalability alongside the scaling trilemma present many critical setbacks for blockchain adoption. However, it is possible to address the various scalability challenges in blockchain with the following solutions.
Better Consensus Mechanisms
One of the most commonly recommended solutions for the blockchain scalability challenge refers to improving consensus protocols. Renowned blockchain networks such as Bitcoin presently use the Proof of Work consensus protocol. Even if the Proof of Work consensus mechanism offers reliable security, it is considerably slow.
Therefore, many blockchain networks are looking towards the Proof-of-Stake consensus mechanism as a promising solution for blockchain scalability issues. The PoS consensus mechanism does not require miners to solve cryptographic algorithms by using massive computational power. On the contrary, it ensures consensus through the selection of validators according to stakes in the network. The adoption of PoS consensus could substantially boost the capacity of Ethereum networks alongside improving security and decentralization.
Sharding
Sharding is one of the conventional choices for addressing the blockchain scalability problem as an on-chain scaling solution. Based on distributed databases, sharding is presently one of the notable layer-1 scaling solutions for blockchain networks. Sharding involves breaking down transactions into smaller data sets which are referred to as ‘shards’.
The network then processes the shards simultaneously in parallel, thereby enabling sequential work on multiple transactions. With the help of sharding, the information could be divided among different nodes while ensuring consistency of information. Shards serve as proof for the mainchain while ensuring interaction with each other for sharing addresses, general state, and balances by leveraging cross-shard communication protocols.
Nested Blockchain
Another promising answer for resolving scalability challenges in blockchain would refer to the nested blockchain. It is basically a decentralized network infrastructure leveraging the main blockchain for establishing parameters for the larger blockchain network. In addition, it also ensures the execution of transactions over an interconnected network of secondary chains. Nested blockchain is one of the promising entries among layer-2 solutions aimed at resolving the blockchain scalability problem.
While it is good to hear about promising solutions for blockchain scalability, the solutions are still in the experimental stages. It is quite clear that scalability is a profound limitation for blockchain networks. Developers are trying to resolve the problem of scalability through different perspectives.
For example, increasing block size could increase scalability. However, such principles have not found mainstream popularity. At the same time, the addition of another layer over the existing blockchain network with layer 2 solutions is also a promising solution for scalability. On the other hand, it is too soon to round up conclusions regarding the most feasible solutions for scalability.
#03: Cannot be modified — Data is immutable
Unfortunately, we don’t have the solution for this because this is the main feature of Blockchain. The immutability of data has always been one of the biggest downsides of blockchain. It is clear that many systems benefit from it including supply chains, financial systems, etc. However, if you consider how the network works, you should understand that this immutability is only possible if the network nodes are distributed fairly.
What I mean is that a blockchain network can be controlled by an entity if he owns 50% or more of the nodes — making it vulnerable to attacks.
Another problem it has is that the data once written cannot be erased. Everyone on earth has a right to privacy. However, if the same person uses a digital platform running on blockchain technology, then he will not be able to remove its trace from the system when he does not want it there. Simply put, there is no way he can erase his tracks, leaving privacy to shreds.
#04: Finance resources
Implementing blockchain is not free, and for many organizations the pandemic and disruption of 2020 have left budgets tight. However, one other lesson learned from the pandemic is that organizations, and IT departments in particular, can change faster than previously thought possible.
A closer examination of this barrier shows that it is connected to an underlying lack of organizational awareness and understanding of blockchain. We’ve found that as awareness of new technologies becomes more widespread, the ability to effectively make a business case for their adoption improves accordingly. This will be true of blockchain as well, provided that blockchain advocates focus on building a business case that demonstrates how the benefits of the technology will offset the resources needed for implementation.
The solution for this pain point depends on the Blockchain platform that you use. However, each platform has their own disadvantages and advantages. In a word, you can choose the suitable platform based on your business’ objectives.
#05: Energy consumption
Blockchain technology was introduced with Bitcoin. It uses a Proof-of-Work consensus algorithm that relies on miners to do the hard work. Miners are encouraged to solve complex mathematical problems. The high power consumption is what makes these complex math problems less than ideal for the real world.
Every time the ledger is updated with a new transaction, miners need to solve problems which consume a lot of energy. However, not all blockchain solutions work the same way. There are other consensus algorithms that have solved the problem. For example, private or licensed networks do not have these problems because the number of nodes in the network is limited. Also, since there is no need for global consensus, they use efficient consensus methods to reach consensus. However, if you use the most popular blockchain network, Bitcoin, the problem still exists and needs to be solved.
To sum up, permissioned networks are efficient when it comes to energy consumption while public networks can consume a lot of energy to keep them running. This is also solved by techniques and the variety of platforms.
REFERENCES:
Article: 5 challenges with blockchain adoption and how to avoid them by Marisa Brown
Article: Blockchain Scalability Problem — Why Is It Difficult To Scale Blockchain by Diego Geroni
