The blockchain is the technology behind Bitcoin (and other cryptocurrencies) which is currently dominating the headlines, due to its meteoric rise over the past month, and the equally massive plunge it has taken this week. Bitcoin is nothing but volatile.
Blockchain tech, on the other hand, is a transparent, distributed digital ledger, that is inherently secure. It has the promise to revolutionize many diverse sectors, including musical digital rights management, secure digital voting, storage of healthcare records, and digital ‘smart’ legal contracts – to name but a few applications. The blockchain is frequently referred to as a disruptive invention, even compared to the very invention of the internet itself.
While blockchain technology offers many advantages, including a high level of security against fraud, and potentially cost-effective transactions, it may not become a storming success and sweep the world off its feet as soon as you might think. As with most fresh technological innovations, it faces an uphill battle towards adoption.
Here are some of the current obstacles that are ‘blocking the blockchain’, as it were.
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1. Energy wastage
Bitcoin and cryptocurrency mining are highly dependent on GPUs and ASIC miners for profitability. Anyone who has built a computer is aware that GPUs require a robust power supply to function, with a greater amount of power on tap being ideal for stability.
Also note that the security of the Bitcoin blockchain is obviously critical, and must mean that any effort to defraud the system isn’t worth the while, as that effort would be better directed at simply mining the next Bitcoin, as this would be more profitable.
Now, as of December 6, 2017, the energy consumption of Bitcoin mining reached 32.36 Terawatt-hours per year (opens in new tab), which is a ridiculous amount of power, and is actually higher than the energy usage of 159 individual countries according to one estimate.
With all this in mind, maintaining data in a blockchain – and keeping it intact and free of fraud – is an inherently energy-inefficient process. In the current era of 6W processors for laptops, deep sleep states for electronics, and solar panels, all aimed at greater energy efficiency and independence, the high energy consumption of blockchain technology and virtual currency mining flies in the face of this.
2. Data woes
Generally speaking, the internet is fairly efficient when it comes to the transmission of data. The user requests information, and the server transmits back the piece of data requested with only a small amount of additional data required to get it there.
However, the blockchain, in order for it to be preserved, as well as to prevent hacking, needs multiple copies distributed across many nodes. And the blockchain then requires a large amount of storage – for example, Bitcoin’s blockchain was nearly 150GB in size as of last month, and it’s getting bigger all the time.
Furthermore, transmitting so much data for the blockchain each time also consumes additional electricity, making the blockchain quite inefficient. In a time where efforts are being made to compress video further to decrease the data required for a download, blockchain’s bulkiness makes little sense.
3. Time for adoption
While blockchain technology may ultimately work for some sectors, its wider adoption may be a sluggish process, particularly when it comes to industries which are notably set in their ways.
Some sectors – like legal and healthcare – have only just started to move away from paper records, and in some cases still maintain them as backups. They are unlikely to jump to a cutting-edge solution such as the blockchain overnight.
The technology will need to clearly demonstrate advantages and gain a proven track record before this happens, and that could potentially take decades. After all, remember that stock markets held onto their old ticker tapes in the 1970s, after using them from 1867, and the last telegram in the world was sent in 2013.
4. Centralized may be a good thing
Bitcoin was developed to be a decentralized cryptocurrency that allows for peer-to-peer transactions. However, this can be a disadvantage, such as when governments cannot track funds easily, and risk losing on the tax side of the equation (which may, potentially, mean that the average taxpayer ends up paying more). It also makes things more challenging when users experience fraud, and recovering funds can be difficult.
5. Slow transactions with cryptocurrency
Some tout Bitcoin as the future of currency, and the promise is that peer-to-peer transactions can happen in a fast and cost-efficient manner that can compete with traditional credit cards.
However, Bitcoin transactions are painfully slow, with transactions occurring at the glacial pace (at least in the world of finance) of multiple hours for each transaction in some cases. One of the current reasons for this bottleneck is that each transaction has to be confirmed by six miners.
Obviously enough, this process needs to be sped up significantly for Bitcoin to realistically become a true rival to established methods of buying goods.
6. Private problems
Many of the advantages of the blockchain come from its public use – anyone can download the entire blockchain, and mine for additional currency, which democratizes this process.
It also keeps it immune from hackers – with such a large legitimate group dedicated to mining, any fraud attempts would effectively have to ‘out-mine’ the miners, a process that would take a colossal amount of computing power for a popular cryptocurrency. This type of blockchain is known as a public blockchain.
So what about a private blockchain? Well, the same blockchain tech can be applied as a storage medium, and if a company doesn’t want anyone to download the entire blockchain – and no one is going to mine it – then this is kept as a private blockchain. It is also held in a handful of private nodes, rather than distributed across thousands of public nodes as is the case for a public blockchain.
With a private blockchain, while it is more carefully controlled, and far less likely to be hijacked or hacked, it also flies in the face of the whole fundamental idea of this technology – losing the advantages of transparency and wider distribution that make the blockchain tech intriguing in the first place.