Challenges Associated with Blockchain

Technology
Blockchain technology has undeniably shown tremendous potential, offering a promise
of systems that are more decentralized, transparent, and tamper-proof systems.
Additionally, it serves as a timely solution for concerns regarding scalability and
transparency. However, you may have noticed that there are challenges that are still
persistent.

We shall focus on the different challenges that continuously hinder the adoption of blockchain
technology.

Permissioned and Permissionless Blockchains

Blockchains function as the simplest decentralized way of storing information. Each block in the
blockchain network consists of transactions. Every time a new transaction occurs, a record of
such is added to every participant’s ledger. As such, this type of decentralized database is
called distributed ledger technology (DLT). Blockchain operates as a type of DLT, and
transactions are recorded through a hash (Cryptographic signature).

DLTs encompass a variety of technologies and frameworks that allow for a distributed design.
Two paradigms that are key here are permissionless and permissioned blockchains.

What is a Permissioned Blockchain?

They comprise a type that is closed or has an access control layer. As such, some level of
security only allows participants to perform their authorized actions.

Simply put, one has to have permission from the network owner to read and write information on
the blockchain if given access.

They are also called private blockchains, as they are considered partially decentralized. This is
because the network is distributed across known participants.

What is a Permissionless Blockchain?

On the other hand, the DLT paradigm is the permissionless blockchain in which significant
cryptocurrencies like Bitcoin operate. Permissionless blockchain allow for participation and
access to the information in a blockchain for any individual in the network.

However, the openness it offers to the public may often lead to slower transaction speeds
compared to permissioned blockchains. This is because permissioned blockchains have a
restricted number of participants.

Despite the many positive aspects that blockchain technology has for us, it faces several
challenges.
Challenges of Blockchain Technology
Since its inception, blockchain technology has been instrumental in developing smart contracts,
non-fungible tokens (NFTs), and decentralized finance (DeFi). However, along with blockchain’s
advantages come some significant challenges.

For the space to reach its full potential, these issues need to be overcome.

Blockchain Trilemma
It is also known as the scalability-security-decentralization trilemma. It constitutes the challenge
blockchain networks face in simultaneously optimizing the three critical aspects of scalability,
security, and decentralization.

Scalability
Scalability involves the ability of a blockchain network to process transactions, store data, and
reach consensus as additional users are added to the network.

Many networks have a high computational requirement as users are flooding the digital space.
This leads to a surge in the number of people, transactions, and applications. As a result, the
blockchain network becomes strained when trying to process and validate the surge in a timely
manner.

In the world of cryptocurrencies, blockchains like Bitcoin and Ethereum rely a lot on consensus
algorithms such as proof-of-work and proof-of-stake. The catch here is, these mechanisms are
known for their slow processing speeds and demand a lot of resources to operate. .
Consequently, the networks face transaction throughput challenges, leading to congestion and
high transaction fees.

There are attempts to try to overcome scalability issues. One such step has been scaling
systems to create off-chain channels that allow faster and more cost-effective transactions.

Massive progress has been made in the steps towards achieving scalability. However,
achieving scalability, efficiency, and decentralization for blockchain networks remains an
ongoing challenge.

Security
Blockchain’s security measures have often been touted as key strengths of the technology.
However, the move to secure blockchain networks is also faced with several challenges. You
may have encountered a number of reported security breaches and hacks in the space. Such
cases always result in instances of losses and compromise to the integrity of the overall
network.

As a response, companies are continuously trying to incorporate several security efforts to

mitigate risks. Such measures include using multi-signature wallets to store and manage digital
assets and formal verification of smart contracts to help identify potential vulnerabilities.
As the space continues to evolve, it is necessary to ensure users' security, assets, and
transactions.

Decentralization
It mainly refers to how control is dispersed from a centralized authority to several participants or
nodes across a network. As such, it means that no single entity has absolute power, be it a
government or company.

In terms of blockchain technology, it means that individual nodes have control rather than a
singular authority. Many believe that blockchain is not yet in a position to attain a desirable level
of decentralization.

Interoperability
Interoperability encompasses the ability of a variety of blockchain networks communicating and
interacting with one another. The space has been crowded with many blockchain platforms,
each with its protocols and standards.

When interoperability becomes an issue, there may be concerns of inefficiencies within the
network. This may come from the decision of individuals and companies moving to navigate
multiple platforms and use a number of tokens or cryptocurrencies to interact with different
networks.

The division that comes with this may mostly deter collaboration and harm innovation while
preventing the seamless exchange of data and value between different blockchain ecosystems.

Energy Consumption
When any user in a blockchain is trying to validate transactions, there must be a lot of
computing power involved. Such computing powers often means that there must be an intensive
amount of energy needed.

Many people have the concern on carbon emissions as well as an increase in the focus of
assessing the environmental impact of blockchain technology.

Some blockchains have been able to substitute their usual consensus mechanism with those
that consume significantly less energy, such as the proof-of-stake mechanisms. For instance,
the development of Ethereum 2.0 aimed to reduce the energy consumption of Ethereum’s
network.

Low Workforce Availability

The blockchain industry has recently experienced some spark in the DeFi and NFTs projects,
directly impacting the labor market.

Top blue-chip firms, including Google, Amazon, and DBS group, have hired blockchain
specialists by the hundreds, creating labor shortages. As a result, many blockchain firms need
help to meet their hiring needs. As a result, blockchain projects have slower development as the
high number of qualified people are locked in job contracts in other companies.

Final Thoughts
We may not know how the blockchain industry will turn in a few years. However, one thing's for
sure, it is here to stay as it has revolutionized many industries. However, the technology is still
in its infancy levels and continues to evolve. Therefore , it is important to note that the
challenges it faces may yet be fully addressed.

It will be an interesting industry to watch, as capital inflows will increase as more innovative
blockchain technologies take center stage.