Top 10 Problems with Blockchain(2023)| Will it fail?

Blockchain has been considered one of the most revolutionary technologies of all time. It has brought changes across various domains and has proved itself by delivering promising results. It has been adopted by nearly 81 of the top 100 companies worldwide, and the number is growing.

But there are instances where blockchain hasn't been the best solution to a problem. There are many challenges that blockchain has to overcome for it to be implemented effectively across many sectors. Being relatively new compared to other technologies, it still has a long way to go. Here we'll look into the problems/challenges in the blockchain industry if there is any reason why blockchain can fail, and if it is here to stay.

What exactly is blockchain?

• Blockchain is a decentralized distributed ledger technology(DLT) that consists of a growing list of ordered records, called blocks. The blocks in a blockchain are bound together using cryptography. You can think of it as a chain of blocks storing some kind of data.
• Each block includes a cryptographic hash of the preceding block, a timestamp, and data related to transactions.
• Blockchain is used to facilitate the process of recording transactions and tracking assets.

Some features of blockchain include:

• Smart contracts
• Immutable records
• Distributed ledger technology

While there is a lot of hype about the benefits blockchain technology brings to the table. There are also tough challenges that come with it. Some of the advantages that blockchain brings also come with many drawbacks. There are many use cases in which blockchain should be avoided as of now, and there are other technologies that play as a better option.

The top 10 problems with blockchain technology.

1) Crypto crashes

• A major use of blockchain as of now in the crypto market. Although cryptocurrencies and blockchain aren't synonyms, crypto crashes certainly have an impact on the blockchain market. Also, many people conflate the two and draw an inappropriate conclusion. Crypto crashes draw attention toward crypto and blockchain. But people who don't understand blockchain tend to misjudge it.

2) Scams and Criminal activities

• According to a CNBC, article criminals have made over $10 billion in 'Defi' scams and theft in 2021.
• After the FTX crypto scandal, the crypto market is facing trust issues. Many investors are skeptical about funding future crypto businesses.
• FTX's FTT tokens: Many crypto platforms have their own digital tokens that people use to access perks and other services offered by the platform. Bitcoin's blockchain project relied on many computers competing with each other to create a distributed system. But not all digital tokens or cryptocurrencies work the same way.
• FTT was a token created by FTX, that was created by a single entity and given as a reward to the users. FTT was less transparent than other tokens, making it difficult to track how many tokens were created.

• Many scams in the market offer fake investment proposals. Many fake companies and fraudsters claim to be a part of a genuine organization and offer fake investment proposals, or ask for payment. For example, You might have seen scammers put a suspicious link in youtube comments claiming they are someone else or a channel owner.
• These fake links and proposals can also be sent via phishing emails or websites.
• Criminals turn to cryptocurrencies for money laundering, drug trafficking, human trafficking, fraud, scams, cyber crime, Terror funding, etc.

3) Lack of trust

• Investors began pulling funds from Crypto.com, questioning the exchange’s handling of a $US400 million transfer after the collapse of FTX.
• A PWC’s Global Blockchain Survey found that 45% of companies investing in blockchain believe lack of trust is the biggest obstacle in blockchain technology adoption. The increase in crypto scams and criminal activities has reduced trust in blockchain technology.
• One of the reasons for the lack of trust lies in one of the advantages of blockchain i.e decentralization. Because there is no central authority governing blockchain, there is no one making sure that everything is fine, scam-free, and that there is no risk to the data stored on the blockchain. There is no authority that you can hold accountable after a Bitcoin exchange gets hacked or if there is a bug in the smart contract's code.

4) Lack of adoption

• The technology is complex to understand and grasp. Simplifications are required to make it adaptable worldwide, so people who are new to the technology take an interest. Many also doubt learning and implementing blockchain because of a lack of trust and clarity.
• There are no specific regulations or rules while implementing blockchain because of this many doubt if it's secure. Lack of awareness is also the cause of less adoption.

5)Lack of Awareness

• Blockchain is a fairly new technology and is still in the improvement phase. The majority of people are unaware of its existence, and even if they have an idea about it, they are unaware of its use cases. It has only come into the limelight with the hype created around cryptocurrencies.
• There are not many platforms providing education on blockchain technology. However, this will change gradually.

6) Scalability issues, Slow and low TPS(Transaction per second)

• One of the main issues of blockchain is scalability. Scalability refers to the capacity of a system to handle increasing amounts of transactions or data.
• Scalability issues are also because of consensus that requires all participants to agree on which transactions are valid. The performance of blockchain servers is also low as compared to non-blockchain servers because of processing a huge amount of transactions per second.
• As of Bitcoin, the TPS(transactions per second) is 7 TPS, and Ethereum is about 30 TPS. Comparing this to Visa, which is around 1,700 TPS, Bitcoin and Ethereum seem to be way behind. (source)

• There are several solutions to solve this issue, however, some of those solutions come with a price of either compromising on security or decentralization.

Some of the solutions include:

1. One solution was to increase the block size limit or double the number of transactions. But the flaw here is that when it fills up, you need to do it again. Another solution includes reducing the strain on blockchain by grouping similar transactions.
2. The blockchain community is constantly working on solving blockchain's scalability issue, and there have been significant improvements. Hopefully, there will be a day when blockchain can be implemented on a global scale.

7) Security challenges

• Blockchain provides security in a way that every block on the network has a connection with the block before and after it. As a result, it becomes difficult for anyone to modify the data in the network. In case of any modification participants on the network will be alarmed by the potential changes.
• Cryptography in blockchain also makes sure every participant on the network has their unique private key. These keys work as a digital signature.
• Security seems to come as one of the benefits of blockchain, but is it secure? Well, there are many cases where there are cyber attacks on blockchain as well.

Cyberattacks on blockchain include:

1) Cryptojacking refers to the unauthorized use of someone's computer resources to mine cryptocurrencies.

2) Phishing attacks have been one of the most common, old ways to obtain user credentials or information. This works on blockchain as well. Scammers send convincing emails to wallet owners posing as an authoritative source. Such emails contain fake hyperlinks.

3) Rug pulls are when crypto developers and criminals attract investors to put in the money but withdraw support or abandon a project and run away with investors' funds. According to comparitech, as of now, $25 billion has been lost to cryptocurrency and NFT rug pulls and scams. (Rug pulls report)

4) 51% attack is an attack on a cryptocurrency blockchain by a group of miners who control more than 50% of the network mining hash rate. The attackers can prevent confirmations of new transactions, halt payments between users, and reverse transactions. (source)

5) Routing attacks can involve any third party on the forwarding path eavesdropping, modifying, delaying Bitcoin messages, or injecting malware without alarming the participants on the network. Although, it is challenging for an attacker to perform routing attacks on Bitcoin but is possible.

6) Private key issues - A private key is a unique key used in cryptography which is used to verify transactions and prove ownership of a blockchain. The problem associated with a private key is that, if you lose it, you lose all the data and the assets forever. An attacker can have access to all the assets by having access to the private key. Therefore, properly handling a private key is crucial. ($300K of Stablecoin Hacked After Victims Left Wallet Keys in Evernote)

8) Energy consumption issues

• Proof of work is a consensus algorithm that is used to determine which node wins the right to confirm the next block in the chain.
• Nodes compete to solve complex equations, which require large amounts of computing power. As the network grows there will be a fight for computing power.
• According to research, the average electricity used to mine Bitcoin in the year 2017 surpassed the annual energy usage of some 159 countries.

It is estimated that between mid-2021 and 2022 the industry will be responsible for 27.4 million tons of carbon dioxide (CO2) (source).

9)Interoperability

Interoperability describes a blockchain's capability to interact and connect with other blockchains. Challenges with interoperability include,

• No defined standards - Because there are no defined standards it becomes difficult to implement.
• Blockchain uses multiple encryptions, therefore securely transmitting data between different blockchains seems challenging.

10)Not suitable for all use cases

Blockchain has many use cases apart from cryptocurrencies. Data on the blockchain is immutable, therefore it is not suitable for every use case.

Some other challenges with blockchain involve.

• Partitioning attacks
• Sybil attacks
• Delay attacks
• Privacy leakage
• Double spending attacks
• Flash loan attacks
• Attacks due to exploited Code
• Bitcoin endpoint vulnerabilities
• The Raising cost of implementation
• Lack of regulations

Conclusion:

All of the above are some critical issues or challenges that blockchain has to overcome. Blockchain still has a long way to go to become the technology of the future. However, the blockchain community is growing and is constantly working on solving the challenges in the blockchain space.