Although blockchain has been around for eleven years, it still faces many challenges, both in terms of the actual technology itself and adopting it for the masses. Blockchain innovation occurs in a small space and faces many criticisms for its scalability, hype, and investors hoarding cryptocurrencies for speculative gains.
This article will analyze the current challenges blockchain technology and cryptocurrencies face both from a technological and interdisciplinary perspective. The goal of this article is to de-bunk common myths associated with blockchain technology and provide an in-depth look at barriers to adoption, and challenges it faces before it's available to the masses.
Cryptocurrencies are not Scalable (yet)
One of the major limitations of Bitcoin lies in the fact that it is not a scalable digital currency. According to Prashant Ram, for it to be used as a real-world currency, Bitcoin would have to process and record thousands of transactions per second.
In contrast, VISA, the most widely recognized payment system, can currently handle 4000 transactions per second and has been stress tested to handle 47000 transactions per second. Bitcoin doesn’t allow for this because it currently requires ten minutes to generate a new Block on the Bitcoin blockchain.
Bitcoin also has size limitations. Satoshi Nakamoto placed a limit on the block size: no block can be greater than 10 MB. In order to keep the ledger’s size and the time needed to verify all transactions (with increases in block size) manageable, cryptocurrencies have hard limits on the throughputs of transactions.
Nakamoto also made Bitcoin finite, which means once 21 million Bitcoin are mined and are in active circulation, no more can be created. Ram believes that these limiters are the major reason why Bitcoin cannot, in its current implementation, be used as mainstream currency exchange.
According to Blockgeeks, the main scalability problems common among cryptocurrencies are the time that is taken to put a transaction on a block and the time that it takes to reach a consensus.
In Bitcoin and Ethereum, transactions only go through when a miner inputs the transaction data in the blocks which they have mined. This is where the crux of the problem lies: the more popular a cryptocurrency becomes, the more time consuming they become.
Although there are other alt-coins that are attempting to tackle the scalability problem, several international institutions believe the scalability problem prevents cryptocurrencies to adequately function as traditional legal tender. In 2018, The Bank of International Settlements (BIS), an organization based in Switzerland which is comprised of 60% of the world’s central banks released a report that debunks the possibility of scalability in blockchain.
This report argues that in modern-day economies, fiat currency is provided through a joint public-private venture between the central bank and private banks. In this two-tiered system, trust is generated through accountable central banks, which back reserves through asset holdings and operational rules.
Since blockchain is decentralized it is assumed that all participants or miners to a decentralized cryptocurrency are trusted agents, and are not backed by governments, creating increased volatility.
The report also states that updating the ledger on blockchain is also subject to congestion furthering problems of scalability and mass adoption. In blockchain-based cryptocurrencies, in order to limit the number of transactions added to the ledger at any given point in time, new blocks can only be mined at pre-specified intervals.
Once the number of incoming transactions is such that newly added blocks are already at the maximum size, the system congests, and many transactions go into a queue. This causes fees to soar whenever the transaction demand reaches the capacity limit which can sometimes take hours or days, interrupting the payment process.
The issues of scalability combined with volatility, limitations on circulation supply (in the case of Bitcoin), and where trust is predetermined by a protocol are prohibitors of an elastic supply thus rendering it impossible for a cryptocurrency to carry the same weight or stability as fiat currency.
Accessibility and Mass Adoption
To date, Bitcoin and blockchain technology have been around for one decade, yet both only started to gain traction from 2014 onwards. According to Rita Trichur, one of the reasons to explain the lack of mass adoption is because “there is a lack of incentive to create a real sharing economy with cryptocurrencies.”
Trichur believes that the market rewards them for keeping crypto wealth concentrated in a few hands. This is promoting a common investment strategy known colloquially in the blockchain space as “hodl-ing”. For those that are unawares, Trichur defines hodl-ing as slang for “hold on for dear life” and sees it as an attempt to hoard bitcoins and other cryptocurrencies in an attempt to make speculative gains.
Trichur argues that small investors, known has crypto whales, hold roughly 40% of all bitcoin currently in circulation. Furthermore, Trichur believes that cryptocurrency is far from being the people’s currency, due to their hefty price and costly transaction fees which prevent mass adoption.
Sadhya & Sadhya identified knowledge as the most significant barrier and the lack of a sound understanding of the technology. They argue that this knowledge deficiency has resulted in an inadequate realization of the relevance of the technology, its benefits of adopting it, along with feasible use cases worthy of implementation.
Sadhya & Sadhya also believe that the overall belief about Blockhain designates it as too complex to intrigue enough attention from the general public . Like most new technologies, Sadhya & Sadhya note that there is a lack of awareness at the organization level, with executives showing reluctance to adopt blockchain due to the failure of recognizing any substantial return on investment.
51% Attacks
One of the biggest risks to a blockchain is a 51% attack. According to Jennifer J. Xu, this type of attack occurs “when a single miner node with more computational resources than the rest of the network noes dominates the verification and approval of transactions and controls the content of a blockchain.”
In a 51% attack, a single entity can gain full control of the majority of a network’s mining hash-rate thus having the ability to manipulate at Blockchain. There have been several examples of a 51% attack in the past year, with a notable example being Ethereum Classic (ETC). ETC is a fork of Ethereum and fell victim to a 51% attack on January 5, 2019 which lasted for three days, halting on January 8 with an estimated loss of 1.1 million dollars.
To date, there are limited ways to mitigate a 51% attack and no one fool-proof mechanism to ensure that no one entity controls the majority of a blockchain.
Bitcoin and its uses in the Dark Web
One of Bitcoin’s most notorious and earliest uses has origins on the Dark Web. The unregulated landscape of cryptocurrencies and the “Blockchain dystopia” could allow criminals to use the technology for harmful purposes.
This is due to the pseudonymity that blockchain provides, shielding criminals from identification allowing them to conduct illegal activities. According to Olga Kharif, Bitcoin’s use in illegal online marketplaces peddling everything from drugs to child pornography is on pace to set a record this year at more than $1 billion.
Amongst the many illegal marketplaces, Hydra is currently the largest found on the dark web. A report by Chainalysis concluded that drugs are the most prominent category of goods sold, but child pornography and stolen credit cared information are also high in demand.
Bitcoin is the most popular cryptocurrency accepted on these markets, followed closely by Monero. Attempts to limit or even take down marketplaces on the dark web are difficult because when law enforcement shuts one down, it’s only replaced by another, usually with increased anonymity and security protocols.
It is important to note that while the growth in illicit Bitcoin spending may be alarming, illegal activity accounts for less 1% of all Bitcoin activity in 2019, down from 7% in 2012.
Using cryptocurrency in exchange for illicit goods and services isn’t the only way blockchain poses a risk. In June 2019 for example, an anonymous user of the Bitcoin Satoshi Vision (BSV) blockchain added illicit images of child pornography and sexual abuse to an immutable blockchain ledger. The images were added to the BSV core ledger through the payment processing app Money Button.
In this case, the individual used the payment app to effectively load the images on the blockchain. According to Ehrenkranz, this isn’t even the first-time child abuse images were shared on blockchain. In March 2018, researchers in Germany found approximately 16,000 files stored on Bitcoin’s blockchain, included links to child pornography found on the TOR network, a popular access point to the dark web, along with images depicting nudity of minors.
Ehrenkranz argues that the capability to include images and links to illicit content raises legitimate concerns over the immutable nature of blockchain. This has set a precedent that illegal content can be permanently added to a ledger, and potentially points to a future in which blockchain hosts need to roll out stronger moderation efforts and blacklists to ensure illegal content isn’t shared, but most importantly, isn’t viewed
The Emergence of private blockchains may be used for exploitation
Private corporations and their interests can also exploit blockchain for their gain. Private blockchains and enterprise-level blockchains can leverage the data and keep it from the public.
This can mean that any data present to accountability organizations, civil society, or to the public can run the risk of being tampered or mishandled by a private stakeholder simply because they own the data in question.
It’s not beneficial have an immutable blockchain if the public doesn’t have access to it in any way, shape, or form. When there are human rights causes involved, it is integral to ensure that access to the technology is freely available while still allowing for innovation to thrive.
Absolute transparency can only be guaranteed with public blockchains that aren’t controlled by a single entity. It would be important to discourage private blockchains run by companies who wish to protect profits and market shares, or to place anti-tampering regulations on them which would uphold the principles of accountability and transparency.
Bridging the Digital Divide
As a digital technology, blockchain faces barriers to mass adoption because of the digital divide. This term has typically referred to the gap between those who have access to certain technologies and those that do not.
Many developing countries do not have the adequate infrastructure or ability to provide high-speed internet or digital accessibility. According to UNICEF, there are more than 300 million young people between the ages of 15 and 24 across the globe that are not connected to the internet and lack connectivity to information that the rest of the world take for granted.
All humanitarian efforts and efforts to promote the Sustainable Development Goals with blockchain are moot if sustainable, cost-effective, long-term solutions can't be adopted.
UN organs are actively working to bridge the digital divide. UNICEF has created an initiative called Project Connect which seeks to map all schools in the world using satellite imagery, machine learning, blockchain and data science.
With real-time data, governments and network providers can use Project Connect locate schools that do not have access to the internet. These maps in turn, can be used to drive partners to provide connectivity to these schools.
Blockchain’s role would be to record the information maintained across the P2P network. Blockchain can also enable a more transparent and accountable network, and can provide users’ visibility into how donations are being used to connect to more schools around the work, what speed of internet each of the connected schools has, and managing the contracts between a region of schools and an internet service provider.
If UNICEF can connect all the world’s children by providing connectivity to all schools, children can maximise their access to greater economic opportunities, increased access to information, and will bridge the issues of the digital divide.
Problems with Enforcement
There are many issues that arise when it comes to enforcing rights and law where blockchain is concerned. Due to the decentralized nature of blockchain, nodes on a blockchain exist all around the world which makes it more difficult to link information to a person, especially when it comes to criminal activity.
This can pose cross jurisdictional issues in terms of identifying which governing law is essential. In addition, major crypto players and nefarious actors run the risk of operating within jurisdictions which lack adequate money laundering, and terrorist financing controls.
Decentralization in blockchain means the lack of a central intermediary that oversees and governs how blockchains should function at the international level.
There are also problems surrounding anonymity and pseudo-anonymity, when it comes to tax evasion, anti-money laundering, hacks, and other digital crimes. When cryptocurrencies such as Monero are involved, it is difficult to track where the funds originate from, and their destination.
Conclusion
Despite blockchain’s existence for over a decade, it has failed to gain much traction among the masses. There are still a variety of complex and difficult challenges it must overcome for it to bridge the digital divide and make a difference.
Risks of hacks and digital attacks, criminal activity on the dark web, and even high barriers to entry for women and people of colour make it difficult for adoption.
Coupled with scalability and potential environmental risks to the environment, it seems that there are a lot of negatives to contend with. However, it is important to reflect how the technology will evolve once these challenges are addressed.
The barriers to entry did not prevent the World Food Programme, the UN, or several other enterprises from implementing positive uses of the technology to progress the sustainable development goals.
Laura Marissa Cullell is an MA Graduate of the UN University of Peace in International Law and Human Rights. She wrote her thesis on Blockchain and the Sustainable Development Goals: Utilizing Disruptive Technologies to Promote Human Rights, Peace, and Good Governance. She loves puns, cookie dough, glitter, and reading an obscene amount of books at the speed of light.
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