Limitations and Issues of Blockchain

Current issues and limitations of the blockchain technology in terms of scaling, privacy, storage, security and consensus

We have already talked about advantages of blockchain and what is is used for, however, the question of its disadvantages is still open. In this article we'll provide an overview over the key problems and limitations of blockchain.

Blockchains are the new way of establishing decentralized trustless communication and interaction, and their potential is far from being fully explored. However, they are not perfect. They have their inherent limitations and issues that we have yet to find solutions for.

Scaling

Public blockchains, such as Bitcoin or Ethereum, need their every node to verify each transaction. This explains the overall slow processing of transactions and leads to occasional bottlenecks in the system. Relative to other common payment systems, cryptocurrencies are at a big disadvantage. Bitcoin, for example, can process as few as seven transactions per second, which is not at all comparable to Visa, Mastercard, and Paypal standards. There are, however, various solutions proposed and being implemented to address scalability issues, such SegWit, second-layer protocols, and blockchain sharding.

Privacy

It may seem as though public blockchains are private in a sense that no real identity is tied to an address. However, the transaction history of each address is entirely open for public examination. Thus, it is not at all impossible that someone can observe transactional patterns and link your identity to the address. Some cryptocurrencies, such as Monero and zCash, offer privacy by using stealth addresses, ring signatures, and zero-knowledge cryptography.

Storage

Another inherent limitation of blockchains is storage constraints. Most blockchain networks require their full nodes to have the entire history of transactions on their computers. And it has to be always up to date in order for the node to be able to verify new transactions. So if you want to become a full bitcoin node, you will have to have at least 165 Gb (as of July 2018) of space on your disk. And as blockchains grow, it is only going to be harder for regular people to participate. Hopefully, it is only a matter of time until we come up with a solution, which does not destroy the whole principle of decentralized control.

Security

No central point of failure proves to be the blockchain’s advantage over server-client architectures. However, blockchains are not without their own security flaws, such as the 51% attack. The truth in a blockchain network is established by the majority of nodes. If more than half the nodes collectively decide to tell a lie, the lie becomes the truth, and there is nothing the rest of the nodes can do about it. The threat of a 51% attack becomes only more potent, as major mining pools gain more computing power. According to blockchain.com, the four biggest mining pools have 60.3% of bitcoin’s total hashrate (as of July 2018). If they decided to join together, they could make a big mess and bring down the biggest cryptocurrency there is.

Consensus

Bitcoin, as well as many other cryptocurrencies, use the Proof-of-Work consensus. This means that their nodes have to expend a lot of electricity during mining. This raises big ecological concerns as there has to be a lot of coal burnt to serve the blockchain industry. Some blockchain projects are now coming up with new environment-friendly consensus algorithms, such as Proof-of-Stake, Proof-of-Capacity, Proof-of-Authority, etc. Ethereum recently has made a big step in this direction by adopting Casper, a hybridized Proof-of-Work, and Proof-of-Stake consensus protocol.

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