Blockchain technology is “not there yet”. Here are five obstacles on the road to mass adoption.
Blockchain technology deals with trust management in a largely digital global economy. Every little perk that makes our lives more efficient and enjoyable is a product of a complex international trade system composed of innumerable hubs and spokes. Some provide logistics support, others provide legal services, yet others deal with risk management and insurance.
All of them, however, deal with trust.
In order for even the most simple business transaction to take place, trust between the parties involved must be present. Usually this trust is vested in an external, third party that can interfere as needed and settle any conflicts (and must also be trusted).
That has been the standard approach for the last couple of thousands of years mainly due to the absence of suitable technology. The issues of trust (or the lack of it) were solved by vesting trust in various legal entities, institutions and private individuals.
With the development of more advanced technology, however, it becomes possible to solve at least a part of these “trust issues” with transparent math algorithms based on game theoretic assumptions, and physics-based protection. That is the fundamental value proposition of blockchain technology.
The idea is that by employing blockchain technology, we can change the trust paradigm and by doing this, we can transform society: from financial services and trade, to democracy and decision-making — just blockchain it!
This assumption is, however, yet so controversial and largely untested, that it simply sounds like science fiction to many.
Especially those who have spent decades either getting accustomed to or thriving from the inefficiencies of the current system — their position (“keep the status quo”) is further fortified by the deficiencies plaguing the first blockchain iterations.
At present, businesses that try to implement blockchain face a number of challenges. The process of infrastructure inversion is never easy.
The emerging business models natively based on blockchain tech might not experience the same obstacles, but incumbents have to go through the painful process of adaptation. For many, it will not make economic sense to do so.
Here are some of the most significant challenges that current blockchain platforms must overcome in order to become more attractive for entrepreneurs and businesses:
1) Limited Scalability and Low Performance
Many of the business use cases where blockchain technology could provide significant advantages require fast transaction processing systems that are able to provide reliable services at scale. This is not possible with current blockchain solutions — or if it is, there are significant drawbacks (usually, centralization or high cost of use). Blockchains are currently orders of magnitude slower than the centralized legacy systems, and will potentially become even slower with scale. Until processing speed matches that of legacy systems as to not have a negative effect on the user-experience, businesses will continue using the solutions that fulfill their needs more efficiently. It’s quite likely, however, that blockchain performance issues will eventually be solved by the unceasing evolution of decentralized consensus mechanisms, off-chain scaling solutions, and generally, more advanced engineering as the technology matures.
2) Lack of Interoperability and Standardization
One of the appeals of the emerging blockchain industry is that competing projects are trying to solve the same problems, so it is the free market that can decide what the most effective solutions are. While this competitiveness is great for the technology, since eventually the best solutions should prevail, it presents a complication for businesses.
The lack of standardization does not allow the different networks to interact with each other, which means that the businesses trying to implement this technology have to place a sizable bet on one of the competitors.
This introduces risk for them, because if that particular network ends up falling behind in the race, their product or service will suffer as a result. However, if they could interact with different networks with ease, this risk is mitigated. The good news is that there are already a number of interoperability-focused blockchain protocols that are being developed. Examples here include Cosmos, Polkadot and the InterLedger Protocol.
Standardization in the blockchain industry will help businesses validate solutions together, collaborate with each other on application development, and make integration with the existing systems easier. That’s a crucial part of the process of mass blockchain adoption.
3) Low Level of Security and Robustness
Blockchains draw much of their appeal from being immune to data tampering. This security is, however, conditional to the size of the network.
Networks with lower hash rates are vulnerable to double-spend attacks, malicious forks, and/or other types of malignant activity. Those could prevent transactions and computations from being executed on the chain, essentially making the network unusable.
In addition, compared to the relatively short existence of the technology, there is a long history of hacks and major bugs. Those were primarily related to second or third layer infrastructure and did not affect the core protocols. However, all decentralized apps (business use cases) are being developed on precisely these layers.
Finally, many of the advantages of blockchain come from their decentralized, or partially decentralized operation and development. This is also a double-edged sword since this development approach leaves a considerably high margin for human error. However, since almost all public blockchain platforms are open-source, there are also more eyes looking into the code.
The adoption of more sophisticated security measures, such as formal verification in smart contracts and employment of automated testing, could help prevent a sizable subset of these issues.
æternity is working on the former and has already implemented the latter.
4) Lack of Methods to Limit Risks of Bugs
The lack of tools to verify the soundness of blockchain code is a major impediment to businesses adopting blockchain. Undoubtedly, blockchain software needs to utilize code with an extremely high degree of reliability, similarly to software in the medical or aviation industries. If such code has even minor bugs, then a lot of monetary value and potentially human lives are potentially at risk.
Currently, most blockchain projects are deployed without any way to prove the reliability of the code. The blockchain industry needs to adopt a culture of rigor similar to the medical and aviation industries.
The way to achieve this could be through formal verification of code and smart contracts, as well as the implementation of thorough testing and simulation environments. This will significantly limit the associated risks of using blockchain networks.
5) Lack of Regulatory Clarity
The lack of a clear regulatory environment is a very obvious hindrance. Lack of regulation creates a risky environment for businesses, as it introduces additional uncertainty coming from volatile regulatory environments.
Many of the newer technologies, including smart contracts, are not covered by the existing regulatory frameworks because they present a completely new paradigm.
An additional problem unique to this industry is that decentralized networks that run on a number of nodes scattered around the planet do not really fit into the existing regulatory framework. Add to that the immutability of data records in a public blockchain and you could have a GDPR disaster (for businesses in the EU). Clear regulations made in close collaboration with industry experts must be established to enable businesses to flourish.
So far, smaller, more flexible administrations such as Liechtenstein, Malta and Estonia, are able to react more swiftly to the requirements of this new industry.
They will also reap the highest benefits in terms of tax revenue.
Currently, incorporating blockchain technology into your business may not be the best idea. There are also a number of good reasons why you shouldn’t, but that is a topic for a future article that we have in queue.
The good news is that all of the above-mentioned problems are being addressed by a constantly growing community of developers and entrepreneurs.
The ideas and requirements coming from entrepreneurs and businesses are essential for blockchain developers. They help devs prioritize their work and focus on the tools and development kits that are most urgently needed by businesses.
In a few years, the results of advanced engineering, better funding mechanisms, and the dedication of the global blockchain community will become much more tangible than they are today.
The teams that persevere and manage to introduce real-world applications, solving real issues will become the architects of a new global economy — one immune to central points of failure and enormous concentrations of data and power.
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