The 5 Major Problems with Bitcoin and Blockchain Technology
You’ve heard the hype and listened to the predictions. But what are the challenges faced by today's blockchains?
Unless you’ve been living under a rock the past years, you have probably encountered a lot of blockchain related hype and listened to a seemingly endless drab of utopian predictions about a decentralized wonderland-like world that is all but imminent.
But what are the current problems with Bitcoin and other blockchains? Is the technology the great liberator and equalizer, the miracle cure to all societal and industry ills like it’s portrayed in the media? Are today’s blockchain platforms limitless, free of deficiencies, weaknesses, and vulnerabilities?
Of course not. At least not at the moment anyway.
Current blockchains suffer from several limitations that are inhibiting usability and adoption. Overcoming these limitations will be necessary if the technology is to meet its true promise.
So, what’s the story? How far have we come and what are the major problems preventing the technology from meeting the hype?
The last decade (or so)
Emerging in 2009, the cryptocurrency Bitcoin and its core operating technology, a blockchain, laid the foundation for a new era of digital peer-to-peer transactions. It also paved a path for how networked systems, web services and digital communities of the future are to be designed and built.
Bitcoin has since gained legitimacy among millions of people around the world, and even some governments. It is now accepted, managed, and sustained by a vast international community as a platform to exchange value.
While Bitcoin introduced one specific application of blockchain technology, a peer to peer electronic cash system that enables online payments (transfers of value), the advent of the Ethereum open software platform, served to realize the broader potential of blockchain technology beyond Bitcoin.
In doing so, it opened up a world of unimagined decentralized possibilities, where more complex constructs of value can be built, transferred, and managed with greater ease and transparency.
The past decade has seen developments beyond these two blockchains, but innovations have been piecemeal and singular in their approach, and have failed to provide a comprehensive solution to the prevailing problems that blockchains and cryptocurrencies face – especially relating to usability and adoption.
We still have a long way to go
Together, Bitcoin and Ethereum have so far proven that blockchain technology, decentralized systems, and global collaborative communities can work. They have also revolutionized usability among an elite developer community.
This is no small achievement.
However, and very importantly, they have fallen short of making the development of cryptocurrency, blockchain technology, and decentralized applications easy and accessible to entrepreneurs, innovators, and corporations around the world.
A new decentralized world awaits, but only if we can produce a new generation of blockchains that solve some tough challenges.
Bitcoin is fascinating and innovative. A completely decentralized system where financial actions that require a high level of trust, can be executed without trusting anybody. However, ‘trustless-ness’ comes with a price: hard limits on the number of transactions that can be processed in a specified time interval.
Almost all of the well-known first-generation blockchain systems have hard limits on the number of transactions. Bitcoin limits the maximum block size, Ethereum limits the total amount of gas in a block, as examples.
The current scaling crisis
Due to the increased adoption of cryptocurrencies in recent years, the number of users and transactions have skyrocketed, testing the limits of first-generation blockchain systems.
Conventional blockchains like Bitcoin are now constrained in transactional throughput because of the nature of their protocol and blockchain design. Currently, the primary design structure of most existing systems is a linear linked-list style blockchain. As adoption increases and more miners are attracted to the system, all mining capability is dedicated to mining the one next block in the linear blockchain. Therefore, the increased mining capability doesn’t facilitate scalability at all.
Scalability issues have given rise to significant transaction fees, clogged mempools and long drawn debates resulting in forks and community splits. Ethereum’s ambitions are currently constrained by the transactions per second (TPS) factor. For it to replace Visa, it should have a TPS of 45,000; however at its current TPS of 15 – one popular application like CryptoKitties suffices to make the network unusable.
2) Limited Programming Ecosystem
As a first-generation, blockchains have established a base programming ecosystem. Blockchain-based smart contracts have also ushered in a new era of computational law whereby contracts are backed and agreed on by a blockchain which is unbiased and universally prevalent.
Ethereum Virtual Machine was a significant step-up from the highly limited (by design) Bitcoin programming environment. However, with increasing adoption; the EVM has hit design limits and security pitfalls.
So, although Ethereum created the application development aspect on a blockchain, building complex applications remains very difficult.
3) Blockchain Security Vulnerabilities
Credit needs to be given to first-generation blockchains for their protocol layer security. Very few instances of the Bitcoin protocol or the Ethereum protocol being vulnerable have been reported – which bodes well for their security considering these networks have now been around for years.
However, application layer security has been inadequate thus far. Lackluster application layer security has resulted in multiple incidents from the Parity Multi-Sig Wallet issue (which led to 500,000 Ether being stuck) to the infamous DAO attack – which caused an irrevocable forking of Ethereum into two different blockchains and communities. These are just two of many examples.
Smart contract security
Security has always been one of the controversial topics for smart contract platforms. It started with the DAO hack (~$60M) but has been followed by a string of incidences. There is widespread agreement in the community that blockchain platforms have room for improvement in this particular area. At the moment, smart contract security is addressed at various levels:
Code Analysers – to check for at least all known exploitable code patters at development stage (Mythril, Oyente, Manticore)
Formal Verification – to create some form of a mathematical proof to ensure that a smart contract will work as intended.
Manual Validation – using validation services involving real humans and code review processes (Zeppelin) before launching real projects.
Unfortunately, these checks are proving inadequate. Much more needs to be done to tackle such a complex problem, especially considering that the consequences of a small mistake or oversight can have major financial and human costs.
Today’s developer tools are basic and often require hacky third-party tools or centralized platforms to fill the gaps. Additionally, light client implementations targeting mobile platforms are also needed to enable massive deployments.
Providing feature-rich tools for third-party developers has not been a priority as of yet. This has had a negative impact on system security (smart contract flaws) and has prevented widespread usage (lack of presence especially on mobile platforms).
Currently, a parallel can be drawn between blockchain technology and TCP/IP (Transmission Control Protocol/Internet Protocol) in terms of adoption and disruptive potential. The reason for this is simple: blockchain technology is still considered to be in the early stages of development, and platforms are dealing with infrastructural challenges. Ethereum’s Light Client has been integrated in an experimental stage, tools required for secure smart contract development are still in progress, and mobile applications interacting with blockchains are extremely low in numbers.
Due to the lack of necessary frameworks, third-party companies stepped up and provided more centralized solutions for multi-platform availability. If we follow the analogy, the development of the TCP/IP which started in 1970’s and was adopted by ARPANET in 1983, has come a long way until the first versions of HTML and HTTP were introduced in the early 1990’s.
However, the real products that popularized the web are browsers: Mosaic in early 1993 and Netscape Navigator in late 1994. Similar to that, next-generation blockchain platforms will need to aim to create the ‘browser equivalent for blockchain technology’.
5) Governance Mechanisms
First-generation blockchains didn’t foresee the governance challenges that a decentralized system, with no central party, would face. Hence, we have witnessed the divisive Bitcoin scaling debates and Ethereum forks which illustrate that governance mechanics should be part of the blockchain protocol. The current governance challenges faced by today’s blockchains are best summed up by Preethi Kasireddy –
“While we definitely want to keep the development of blockchain technology as decentralized as possible, we still need some organization amongst developers and others in the ecosystem to agree on new standards, features and upgrades. It’s unclear how you achieve this without leading to at least some centralization (e.g. The Ethereum Foundation).”
“Finding a balance between centralized and distributed control will be key to keeping development on the right path.”
As stated in one of our previous articles by Odysseas Sclavounis – whilst governance by network protocols can indeed lead to novel ways of organizing social life, it does not circumvent the fact that the network must itself be created and governed. Next-generation blockchains will need to embed governance into the blockchain structure to provide steady inbuilt governance and preserve distributed control.
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Anthony is the head of content and research at Intrepid Ventures. He has spent the past several years researching and analyzing technologies and working with a diverse mix of blockchain companies to help them gain insight and develop authoritative content.
Source: The Blockchain Review