Blockchain technology has been around for a while, but it gained significant momentum around 2008 with the introduction of the first cryptocurrency on the market, Bitcoin. The blockchain infrastructure is known as a decentralized and distributed database of transactions, which contrasts with a centralized system where a central authority controls security and governance.
Blockchains are vital for cryptocurrencies, but not all tokens operate within a decentralized ecosystem. Still, some of the leading cryptocurrency assets, such as Bitcoin, Ethereum, and BNB, utilize blockchains to ensure security, drive improvements, and enable developers to contribute to these ecosystems.
Unfortunately, despite its innovation, blockchain faces numerous challenges that experts must address to facilitate faster adoption. Let’s address some of them and discuss the potential solutions.
The blockchain trilemma
The blockchain trilemma is one of the most pressing issues in the sector. It was first addressed by Vitalik Buterin, Ethereum’s co-founder, and it concerns finding the balance between security, scalability, and decentralization. Currently, no blockchain has achieved all three features:
- A secure blockchain should be able to prevent and assess attacks and vulnerabilities;
- A scalable blockchain must withstand a growing number of transactions and users without entering congestion;
- A blockchain must be decentralized so control is evenly distributed across participants;
In most cases, a blockchain can reach either two of these three aspects, sacrificing one for the sake of the others. Luckily, several projects approached this issue and found potential answers:
- Ethereum 2.0 introduced shards to break down the transactions so they can be processed faster, and rollups to manage multiple transactions into one off-chain;
- The Lightning Network has state channels, which are separate from the main channel, which can be used for fast transactions;
- Polkadot supports interoperability through “relay chains” that a blockchain can use for scalability purposes;
The massive energy consumption
Energy consumption in cryptocurrency became a problem when actions like mining became more competitive, requiring growing amounts of electricity to support complex mining rigs. Bitcoin mining, for example, uses the energy equivalent of a country like Australia or the Netherlands. At the same time, the cryptocurrency has the potential to become a legal ledger, according to Catherine Chen, Head of VIP & Institutional at Binance.com: “Bitcoin is maturing into a macro-sensitive asset: increasingly influenced by monetary policy, central bank actions, and global money supply changes, rather than just crypto-native events like halving cycles.”
The ideal solution would be for Bitcoin and other proof-of-work-based assets to switch to a more energy-efficient consensus mechanism, such as proof-of-stake. Ethereum and many other blockchains leverage this system, which requires much less computing power and no specialized equipment.
In addition, the use of renewable energy instead of burning fossil fuels would contribute to mitigating the effects on the climate. Hence, mining could be done with the help of solar power, green hydrogen, or wind power.
The regulatory uncertainty
One of the main reasons why blockchain and technology haven’t reached adoption yet is the uncertain regulatory ecosystem due to:
- Crossing jurisdictional boundaries, as blockchains can operate anywhere in the world;
- Making it difficult to interpret the application of regulations in relation to participants;
- Managing liability in cases of security, confidentiality, and data protection;
- Understanding how smart contracts meet pre-conditions in different jurisdictions;
There could be an endless list of legal matters when establishing a blockchain network or trying to navigate smart contract challenges, such as identifying the individual liable for a malfunction. Therefore, managing this sector will require time and resources to determine where regulation begins and ends, ensuring it doesn’t compromise the quality of services and products.
At the same time, finding a balance between the contradictory idea that even if blockchain is decentralized, it requires guidelines from a centralized institution is necessary. Many users of cryptocurrency appreciate the lack of control and genuine governance on these networks, and removing this feature could hinder innovation.
The integration with legacy systems
The legacy systems used in most industries require development and updates, but they might’ve remained behind due to the high costs of improvement or resistance to change. That’s when it becomes challenging for them to accept blockchain, as integrating it in regular legacy systems might be difficult.
They might also have several reasons to oppose this, considering the many users who don’t trust this technology. However, as more people become interested in blockchain technology, highlighting its opportunities and benefits could help strengthen their positive opinions.
At the same time, the skill gap in the blockchain industry is a prominent issue, as there are not many professionals who understand and manage blockchain products. Therefore, the company either competes with them for talent or invests in their training to prepare for the future of blockchain adoption.
The cross-chain communication issue
Finally, blockchains must communicate in order to be efficient, but things are not as straightforward as they seem. Blockchain interoperability enables networks to share assets and information, allowing users to benefit from a superior transactional experience.
However, blockchains haven’t been designed to validate the state of others’, so receiving or executing cross-chain transactions is pretty difficult. This also takes us to the most pressing matter: security. Exchanging data and valuable transaction information exposes the blockchains to cybersecurity vulnerabilities. In several cases, validating transactions relies on centralized solutions, such as a cryptocurrency exchange or local validation through atomic swaps.
Another option for solving this issue comes from an industry-standard oracle platform called Chainlink. It developed the CCIP (Cross-Chain Interoperability Protocol) to read and write data from any blockchain, enabling token transfers to be fast and easy. The blockchain is one of the most reliable in the industry, reaching the fifth level of cross-chain security.
Final considerations
Blockchain is a superior technology that’s gaining traction across innovative businesses. However, its popularity is hindered by challenges such as the lack of a legal framework, navigating legacy systems, and cross-chain impediments. Navigating these challenges as a company that wants to adopt blockchain as fast as possible requires patience and a willingness to collaborate with professionals, as well as invest in employees’ training.
