Challenges in blockchain and Distributed Ledger

Bitcoin

May 28, 2018//-A utopian view of blockchain technology often glosses over potential drawbacks. In the cryptocurrency market, various blockchain networks are constantly making changes to the code to show they can improve performance and handle the massive scale required to process millions of transactions.

The process of aggregating and verifying data on a public blockchain is inherently complex and requires many resources.

Some of the drawbacks of public blockchain technology include the following:

– Scalability – Most blockchain systems have trouble achieving massive scale because of the process of using “proof of work” and distributed cryptography to verify. As the network grows, more computing process power is needed to keep up with the number of transactions.

– Transaction speed – A finite number of transactions can be added to a block per minute. The average block in the Bitcoin network takes an hour to process. Individual transactions have no defined time frame; the time depends on how busy the network is as well as variables such as mining availability and the transaction fee.

– Governance – A distributed ledger system such as a blockchain can pose regulatory and legal questions: Who’s in charge? Where do you go to complain or regulate? Where is the legal governance of data?

– User complexity – Blockchain systems can be complex and require management of cryptographic keys and addresses.

– Cost – In many blockchain systems, fees must be paid to incentivize the verification to process transactions. Fees are applied in various ways, depending on the system. This can be costly.

The use of blockchain as an underlying technology has not yet been proven to be cost-effective. How much will organizations such as banks or governments have to commit to get a return on investment?

– Power – In a proof of work system such as Bitcoin, computing power is the currency of the network. Computing strength consumes enormous amounts of power, which has both an economic and environmental cost. This is driving the development of some blockchain networks that rely on proof of stake, rather than proof of work, to decrease the dependence on power to drive the system.

 Culled from a book titled ‘ Blockchain Technology, Use Cases and Challenges’

 

 

 

 

 

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