It is amazing that such a new technology as blockchain, though not quite understandable to the average person, has received wide coverage in the mass media. Advertisement of blockchain technology spread like wildfire because it is the basis of the most popular digital currency, Bitcoin. The explosive growth of the cryptocurrency in 2017 has provoked the interest of many people in the crypto industry and blockchain technology in the hope of easy and fast earnings. The magic word "blockchain" evokes in the minds of the broad masses an association with the solution for all problems. Is it so? Blockchain is a technology, but not a source of income. Alas, the technology has not found any large-scale application so far.
The history of blockchain illustrates many of the problems that are usually associated with the introduction of new technologies. If we are to reason, then the high expectations of the market do not correspond to the actual possibilities of the technology. For example, the developers claim that these 187 burning and not-so-burning issues can be solved with the help of distributed ledger technology. It sounds implausible. In addition, many consider blockchain as an end in itself, when it is just a tool that serves to achieve certain goals.
And these are the two factors that cause the greatest damage to the future of this technology, despite all the prospects for streamlining any operations, as well as improving the interactions between people.
At its core, blockchain is a form of digital trust that has a number of potential applications in business, where trust is one of the key factors of uninterrupted operation. Some of the characteristics of this technology which make it so valuable, however, are not so good beyond virtual reality. In real life, the elimination of any problem is a search for compromises. There is no single universal algorithm for solving multi-directional problems.
Thus, before blindly leaping headfirst into any field of activity surrounding the technology of blockchain, it is important to create such conditions under which professionals from the sector would get an idea of the blockchain, as well as its capabilities and problems associated with use.
Limitations and Shortcomings of the First Generation
You can trust the data stored within the blockchain because of the algorithm for increasing the number of blocks. Unlike other data management methods, the blockchain is a decentralized (peer-to-peer) network. There is no single monolithic structure that can manage and own all the data. This eliminates the risk of manipulated information. And even if someone has an idea on how to influence the data, it will be rather difficult to do this because users will have to make changes to all nodes of the circuit simultaneously, which is almost impossible.
The second aspect of blockchain, which makes it such a safe option for data management, is the uniqueness of the form of records. Miners must reach a consensus to add a new block to the chain. In addition, each new record contains a reference to the previous block, which means that it is impossible to change or delete a block without editing the entire circuit. That is why the data is immutable. And this is one of the key advantages of distributed ledger technology (although the immutability and the GDPR are not yet compatible).
Considering the process described above, it can be concluded that adding new data to the blockchain takes longer than with a centralized system. Numerous nodes involved in the procedure for verifying transactions and protecting against hacker attacks seriously hamper the process. Thus, in its current form, blockchain is a slower technology than existing ones. For example, Visa processes transactions 3,500 times faster than the Bitcoin payment system.
Another problem is that all the blocks store the complete data of the chain. This means that as the blockchain grows, it becomes more cumbersome, slow, and difficult to control. In a number of real business process scenarios that involve the use of a large data set, the chain can simply explode and become uncontrollable.
There are other threats related to the safety of the use of technology. The technology of blockchain depends (to a large extent) on cryptography and peer-to-peer networks, which make it very reliable and stable. History has shown, however, that there is no hundred-percent reliability. And someone who is well motivated, who has the right tools and, perhaps, time, might one day cope with the task of hacking it. The interest of hackers grows in direct proportion to the growth of the popularity of blockchain technology. And even if we accept the fact that it is completely inaccessible to intruders, this cannot be said about the systems and programs that are somehow related to it. In general, blockchain technology is not a magical, universal solution to all problems.
Like any other technology, it is viable due to the existence of compromises. In this case, a compromise must be made between scalability, decentralization, and security, which is an almost insoluble task.
New Generation Blockchain as a Guarantee of the Viability of the Technology
The lack of scalability is probably the biggest drawback of the blockchain. Despite numerous improvements to the software that was created for the production of Bitcoins eight years ago, the main code remains the same. It simply cannot match the significantly increased number of users, worsening the overall bandwidth. And the solution to this problem depends on the life or death of technology. First-generation cryptocurrencies, such as Bitcoin, do not scale at all and are even somewhat dangerous for the environment if we consider the energy consumption index.
Subsequent generations solve this problem by introducing new projects and concepts. For example, they move away from the Proof-of-Work consensus algorithm (in which the miners need to perform increasingly complex calculations while increasing energy costs) and introduce a newer Proof-of-Stake algorithm to allow for data confirmations that do not require the use of significant computing power.
Another example of the renovation of the blockchain can be a radical change in the design of the chain itself. In the new concept, the design departs from linearity, where the blocks are linked one by one, and the whole system turns into a network model that allows several records to be made simultaneously in different branches of the chain.
Too Bad to Be True?
All of the problems of the described innovative technology must be taken into account when implementing it and moving to the form of digital trust (where software has to be trusted more than anything else). In many cases, the advantages of the blockchain compensate for the problems and make it a better alternative. A recent real example is the use of a blockchain to solve the problem of identification in a refugee camp under the aegis of the U.N. in Jordan.
So, let us not trust much in the hype around blockchain. Instead, one must be aware of what the new technology may or may not bring. It is undoubtedly powerful and exciting, but not yet fully mature and remains somewhat limited. That explains the fact that blockchain still has not received universal application despite such mass media coverage. It is hoped that the new and future generation of technology will become a more viable application than what is available at the moment. These new generations, like the old ones, will not be a panacea but will give a unique chance to create a new platform for universal development and growth.