Navigating the Hurdles: Challenges and Limitations of Blockchain Technology

Author: Sanjana Mandavia

Blockchain is a decentralised digital ledger system, which enables secure recording, storing and sharing of data across the network of computers referred to as nodes. It is based on the principles of transparency, immutability, and cryptographic security.

A blockchain is composed of a chain of blocks, each containing some sort of transaction or data record. The blocks are arranged in a chronological order, which leads to continuous chains. In order to ensure the integrity of the entire chain, each block contains a unique cryptographic hash of the previous block.

What are the challenges and limitations of blockchain technology?

Scalability: As the number of blockchain networks grows, it becomes a major problem to scale them. The current blockchain platforms are often unable to cope with the high volume of transactions, leading to slower processing times and higher costs.

Energy consumption: significant computational power is required to validate transactions on some blockchain networks, particularly those using Proof of Work consensus mechanisms such as Bitcoin, leading to high energy use and environmental concern.

Speed and delay: Depending on the consensus mechanism of the network, the time it takes to validate transactions and insert them into a blockchain may differ. For applications that need to process transactions fast, this delay may be a limitation.

Governance and regulation: The decentralised nature of the blockchain presents problems in governance and regulation. It may be difficult to define legal frameworks, resolve disputes and enforce compliance in decentralised networks.

Interoperability: The various platforms on the block chain are increasingly using proprietary protocols and standards, making it difficult for networks to work together. This makes it difficult for data and assets to be transferred across the various Blockchain ecosystems in a smooth manner.

Privacy and security: Maintaining user privacy can be a challenge because of the inherent security features offered by decentralization technologies, e.g. immutability or transparency. The privacy concerns, particularly with regard to sensitive information, are raised when private blockchains store transaction data on the Internet.

Adoption Hurdles: There are a number of obstacles to widespread adoption, including lack of awareness, technical complexity, regulatory uncertainty and traditional industry resistance despite potential benefits from the use of blockchain technology.

Smart Contract Risk: Bug, vulnerability and exploitation risks are present in clever contracts that self execute the terms of an agreement directly laid down in code. Financial losses and legal disputes may arise as a result of these risks.

Data storage and accessibility: Because of the replication of data between all nodes within the network, it can be costly and inefficient to store massive amounts of data on a Blockchain. Moreover, as the size of the ledger grows, it may be difficult to access historical data stored on a blockchain.

Impact on the environment: The energy intensive nature of certain consensus mechanisms such as PoW contributes to carbon emissions and environmental degradation, which raises concerns about the sustainability of blockchain technology.

In order to continue the development and use of cryptocurrencies in different sectors, this challenge and limitation will have to be addressed.