The blockchain concept that underlies Bitcoin, Ethereum and other popular cryptocurrencies has enormous potential, but that potential is not unlimited. The blockchain may have the potential to change the world, from altering the way we pay for goods and services to making elections more secure, but it is essential to understand the limitations as well as the enormous advantages.
So what are the limitations of using blockchain technology, and how might those restrictions impact the cryptocurrency market, the financial world, and other important industries? It is easy to get caught up in the hype surrounding Bitcoin and other cryptocurrencies, and many people have bought into the thought that the blockchain has unlimited potential. Unfortunately, that is not the case. There are significant challenges and limitations to the blockchain concept, and understanding those limitations is critical.
While the blockchain has powerful implications for many industries, its use could be inappropriate and even counterproductive in a number of digital interactions. These limitations are not always readily apparent, and many of them have been learned the hard way – through trial and error.
A Complex System
One of the most significant problems with the blockchain concept is its inherent complexity. The blockchain concept is difficult for people to grasp, and its use of arcane jargon and industry-specific acronyms just adds to the difficulty.
The size and distributed nature of the blockchain system is another of its limitations. Like all distributed systems, blockchains are not totally immune to hackers and other nefarious actors. Instead, these distributed networks are better able to respond to attacks and grow stronger as a result. That makes the blockchain more resilient, but it does not isolate it from online attacks. In fact, many cryptocurrency exchanges have already fallen victim to hacks, thefts, and denial of service attacks.
Bitcoin, in particular, has suffered extremely high fees during periods of above-average network load, making the movement of small amounts of money difficult and expensive. The issue with blockchain technology as it stands is that the speed of the network is not enough to keep up with demand. This lack of speed means that network fees have to be increased to reduce demand temporarily.
Slower Network Speeds
As mentioned above, the speed of the network is also a severe limitation. As of 2016, the Bitcoin network was only able to process about seven cryptocurrency transactions each second, a slow rate by modern standards. While the speed of these blockchain networks is improving, for now, network speed remains a serious obstacle to growth and widespread adoption.
Last but not least, there are serious political implications to the use of blockchain technology for nonmonetary transactions. Some governments have expressed an interest in storing voter data in blockchain form, and proponents say the move could lead to more secure elections and less voter fraud. Others worry that storing voter data in this manner could make the blockchain a tempting target for hackers and other bad actors.
It is clear that the blockchain concept holds great promise, and that it will have powerful implications for all kinds of industries. It is also clear that the blockchain is not a cure-all, and that its current issues could place severe consequences for future growth and adoption.