Major Challenges and Disadvantages of Blockchain Technology

We have talked about blockchain in the previous article. We discussed its history, how it works, and many other interesting points related to it. Blockchain has revolutionized the fintech industry in the last few years. A lot of things that were not possible before have become possible because of blockchain. As per some experts, the future will be decentralized, and needless to say, blockchain will play a significant role in it. The biggest reason blockchain has become popular is because it gives financial efficiency and improved security.

Don’t get confused – the focus of this article is on covering the limitations and disadvantages of blockchain. We will not only talk about the disadvantages of blockchain but also learn the underlying concept. So let us get started. 

blockchain limitations

Limitations and Disadvantages of Blockchain:

Blockchain is Complex:

One of the primary reasons why blockchain became popular was because it was complex. What we mean is – since it was complex, it was difficult to hack. Blockchain works better if there are more parties in the chain. In the initial days, this was not the case as there were limited nodes in the blockchain. Now, with popularity, the issue is resolved, and it is also a lot more cost-effective. You must be wondering – where is the problem then?

The issue lies in creating a used case for it. For example, most banks want to use blockchain technology. Since it is too complex, they are adopting it in parts. As you know, it is a decentralized network, so when banks implement it partially, they end up having a mix of centralized and decentralized networks. It further increases the complexity of their system. 

A subject matter expert is needed if any industry or business wants to implement blockchain technology in their business, even if the application is small.

The next big issue is reusability. Unlike other technology, wherein, if you want to use a particular functionality, it is possible to some extent. For example, a society maintains the records of residents and has a product to manage them. Then, there is an insurance company that also maintains records of all its customers. Along with it, they want to put different indicators against each customer. Even though we are talking about different industries, the society application can be duplicated and modified to create applications for an insurance company using technology X. 

With blockchain, it is not possible. There is a drastic difference in the approach for different industries. For this reason, small and medium-sized businesses are not getting into blockchain.

The 51 Percent Attack:

To understand this concept, we need to understand a bit about the working of blockchain. 

There is something called Proof of Work in the blockchain. It is basically an algorithm that confirms a transaction and post-confirmation, create a new node in the chain.

Whenever a transaction happens, it does not directly get added to the blockchain. It is kept on hold as unconfirmed transactions. To add the transaction into the chain, a miner has to solve a puzzle. The puzzle is highly complex and needs high computational power. When the miner finds the correct answer, he broadcasts the solution to other miners (more on mining later).

On the other hand, a miner who wants to take advantage of the system (let us call him Mr. X) keeps the solution to himself.

Mr. X continues to create solutions and not publish them. 

Here is an interesting point to know  – The blockchain is designed in a way that it always follows the longest chain – the system considers the longest one as the right one. In other words, whoever has the highest computing power adds more blocks to the chain faster and has the chance of creating the longest blockchain, which in the end will be legitimate.

Mr. X keeps working hard on the solutions and attains the threshold (51%). It makes his chain the longest. What happens next?

As per blockchain design, as soon as Mr. X’s blockchain is marked as genuine (since he has the longest chain), the transactions on the other chain will not be included and will be reversed. Mr. X will get a refund of the bitcoin spent in the other chain as they are now illegitimate.

If you got the impression that Mr.X is the guy next door, and the 51% attack is simple to execute, you are highly mistaken. To reach the 51% threshold, Mr.X needs to have computing power higher than millions of other miners doing the same. However, it is not impossible, the attack has been performed in the past (three times last year), and hence it is one of the limitations of blockchain.

limitations of blockchain

The Energy Problem:

One of the popularly used cases of blockchain and also the oldest one is Bitcoin. Do you know how much energy and memory is needed for Bitcoin mining? Bitcoin core needs 200 Gigabytes of space in every node and very high energy to mine. As per a study, it is estimated that Bitcoin mining consumes more energy than entire Switzerland. If you are looking for the numbers, here it is –  Bitcoin consumes around 110 Terawatt Hours per year. It is equivalent to 0.55% of global electricity production. If you don’t believe it, you can go ahead and let us know. We will cover it in detail in upcoming articles. 

This is a disadvantage of a blockchain, and hence it is not accepted by a lot of countries. Also, social activities are against the implementation of the blockchain in too many areas.

Limited Transaction Per Second:

Payment networks like MasterCard and Visa are popular today because they can process millions of transactions in a day (150 million approximately). Bitcoin, on the other hand, is nowhere close. It can do 4.6 transactions per second which means 4 lakh transactions per day roughly, not even half a million.

The transactions in the Bitcoin network are completed depending on the congestion the network has. The problem does not end here. As more nodes join the network in the future (which they will), there is a high chance the system will become even slower.

Hence many scientists have discarded blockchain technology for real-world applications where you need to have millions of transactions in a day.

The Private Key Issue:

We have discussed earlier the concept of public and private keys in the blockchain. If you are a user and want to access your assets stored in the blockchain, you need to have your private key. Your private key comes to you when your wallet is created. As a user, it is your responsibility to take proper care of your key. If someone else gets access to your key, you may end up losing your asset. 

A serious problem, right? It is a blockchain disadvantage, especially for people who are not from a technology background.

blockchain challenges


You must be wondering – there are so many disadvantages of blockchain and so many limitations, then is there a point of studying it, and what will be the future of cryptocurrencies (your most interesting area)? 

Well, the truth is most of these limitations are only for time being, and just like the internet evolved significantly from the time when it first came in the 1960s, blockchain technology will grow from here.

The advantages of the technology weigh heavily on the disadvantages. Slowly all limitations will resolve, and you will see its usage in many other areas. 

We hope the article was beneficial for you. You not only learned about the disadvantages of blockchain, but you got a better understanding of the working of blockchain, right?

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