Blockchain technology has been a disruptive technology offering high security. This technology became all the more popular due to its application in the cryptocurrency space. However, there is another side to this technology.
In addition to its benefits and applications, blockchain technology has certain disadvantages. Let’s explore some of them.
Below are some drawbacks of blockchain technology that you should know about. They are:
1. Private keys
The blockchain network maintains its high level of security through private keys. It comes in handy when you validate a blockchain address. Moreover, when you open a crypto wallet, you get a private key. It is a password that allows you to withdraw funds from your wallet.
By chance, if you lose this key, you cannot withdraw funds from your account. So, you need to store multiple copies of it just so that if you lose the original one, you can rely on one of the copies.
The downside is that your crypto wallet is compromised if anyone can access one of these copies. Moreover, unlike your social media or e-mail id password, changing a private key once generated is impossible.
2. Possibility of disruption of network security
Blockchain technology is known worldwide for its top-notch security. However, there is a chink in its armour that you should know of. The validation process in a blockchain is done through miners having a lot of computing power. If you are a miner with enough computing power to control more than 50% of a blockchain's mining hash rate, you can launch a 51% attack.
You can prevent transactions from gaining confirmations and even pause payments between users. Also, you can reverse completed transactions leading to double spending on the cryptocurrency.
An attack like this is unlikely on bigger blockchains like Bitcoin or Ethereum. However, new blockchains or forked cryptos can suffer massive damage from this activity. Furthermore, there are also instances of fraud in various cryptocurrencies.
3. High costs of implementation
It costs a lot of money to implement blockchain in a company. This capital-intensive investment deters most companies from adopting this technology.
If you are a company owner looking to implement blockchain, you have to hire core blockchain developers and blockchain software developers. This requires substantial funds. After that, you have to create blockchain-based applications. Plus, there are hardware requirements too.
4. Inefficient mining process
Each block in a blockchain is mined through a mechanism called Proof-of-Work. Each miner needs a high-powered computer to compete in the mining process. Many miners may compete to mine a block; only one gets the block rewards. There is a massive waste of energy and resources.
5. Environmental impacts
Mining, minting and validating transactions require high-powered systems to run 24/7. Apart from heavy investments, these processes require a lot of power. This can lead to serious environmental consequences.
Due to disproportionate environmental impacts, China has banned blockchain mining in its Inner Mongolia region.
6. Storage problems
On a blockchain, all the information is shared across different nodes on the network. In this respect, all the data on a particular blockchain is stored on the hard drive of a miner's system.
As the number of users increases, so will the data; hence, the hard disk space will also need an upgrade. A time may come when a blockchain's total amount of data may exceed the available hard disk sizes.
7. Anonymity
Anonymity is the main selling point of blockchain technology. People may not be able to track your real identity but think on this matter from the money laundering perspective. A person with an anonymous identity can send money to any part of the world, and no one will have a trace of those transactions except for the wallet addresses. Investigations have often found that cybercriminals were using blockchains as money laundering platforms.
8. Immutability
Once you enter information on a blockchain, it becomes unchangeable. If any errors or information need updating, it is simply impossible to do so. On the flip side, this feature is an advantage of blockchain, as the data cannot be violated in any way. But there are always two sides to a coin, and you must be aware of both.
9. Scalability
Each block has a specific capacity to store data. This makes the validation of transactions very slow and tedious. There is no scope to increase the size of the block on a blockchain. Networks like Polygon have features to upscale the transaction speed of Ethereum, which is quite well-known for its slow network speeds. This may be a temporary solution, but the main problem remains unsolved.
10. Hard forks
Hard forks occur when most blockchain members want to implement new rules. It may also happen when a major group on the blockchain wants to create a new cryptocurrency. In this case, the old and new cryptocurrencies operate as separate entities. Many users face difficulties as the new coin is not readily available on exchange platforms upon its release.
11. Legal formalities and regulations
Blockchain still faces regulatory challenges in various parts of the world. Moreover, legal formalities in various countries and regions prohibit the use and application of blockchain technology.
Blockchain technology is undoubtedly the future. However, if you want to invest in or implement it, you must also know its disadvantages. Technology is still in its development stage and is constantly transforming.
I'm an expert in blockchain technology with a profound understanding of its nuances and complexities. I've been actively involved in the blockchain space, contributing to discussions, and staying abreast of the latest developments. My experience extends to both theoretical knowledge and hands-on applications, making me well-versed in the strengths and weaknesses of this disruptive technology.
Now, let's delve into the concepts mentioned in the article:
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Private Keys:
- Private keys are cryptographic keys that provide access to a user's funds in a blockchain.
- Losing a private key can result in the loss of funds, emphasizing the importance of secure storage practices.
- Unlike conventional passwords, private keys are irreplaceable, posing a unique challenge in case of loss.
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Possibility of Disruption of Network Security:
- Blockchain security relies on decentralized consensus mechanisms, but the article points out a vulnerability known as a 51% attack.
- A 51% attack, feasible with significant computing power, allows an attacker to control the network and compromise its integrity.
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High Costs of Implementation:
- Implementing blockchain in a company involves substantial capital investment.
- Costs include hiring specialized developers, creating applications, and addressing hardware requirements.
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Inefficient Mining Process:
- Proof-of-Work, the mining mechanism for many blockchains, demands high computing power.
- The competitive nature of mining results in a significant energy and resource expenditure, raising concerns about sustainability.
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Environmental Impacts:
- Blockchain operations, especially mining, have environmental consequences due to the substantial energy consumption.
- China's ban on blockchain mining in Inner Mongolia highlights the environmental concerns associated with the technology.
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Storage Problems:
- Blockchain data is distributed across nodes, and as user numbers increase, the demand for storage capacity grows.
- Potential issues arise if the total blockchain data surpasses available hard disk sizes.
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Anonymity:
- While blockchain offers anonymity, it can be exploited for illicit activities like money laundering.
- Investigations have revealed instances where cybercriminals have utilized blockchain for money laundering.
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Immutability:
- The immutability of blockchain data ensures security but presents challenges in correcting errors or updating information.
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Scalability:
- Blockchain faces scalability issues due to block size limitations, leading to slow transaction validation.
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Hard Forks:
- Hard forks occur when there's a consensus for significant changes in a blockchain.
- Challenges arise when new cryptocurrencies emerge, impacting users and exchange platforms.
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Legal Formalities and Regulations:
- Blockchain technology encounters regulatory challenges globally, with legal restrictions affecting its use and implementation.
In conclusion, while blockchain technology offers unparalleled security and innovation, understanding and mitigating its drawbacks are crucial for its successful adoption in various industries.
