Unleashing the Potential: Innovations/Suggestions for Crypto and Blockchain

We are in the modern digitalized era. After the creation of the Bitcoin blockchain network, now, we have different consensus algorithm-based blockchain networks so many cryptocurrencies are based on them and this world is continuing to embrace the potential of blockchain and crypto with a wide range of real-world use cases. As the industry is constantly evolving, it's essential to explore new and innovative solutions to address existing challenges/limitations and tap into new opportunities to catch the mainstream adoption trend.

This article attempts to provide some suggestions for innovations in crypto and blockchain that developers could consider. From decentralized finance (DeFi) to AI-enabled blockchain, it highlights some of the most promising areas for growth and development.

Please note that the use cases of blockchain technology are not just limited to crypto but the entire article explores different aspects related to blockchain technology that are correlated with crypto specifically, hope you understand.

Limitations of the Existing Blockchain Networks:

There is no doubt, blockchain technology has attempted to solve various persisting problems (such as centralizations, costs and speed, lack of trust, and security), but it was not free from limitations. Here are some of the most notable limitations.

• Scalability

  Scalability is a major challenge for existing blockchain networks especially for the Proof-of-Work (PoW) consensus-based blockchain networks like Litecoin, Bitcoin, etc. As the number of users and transactions increases, so does the size of the blockchain network. This can be a cause of slow transaction speeds and high transaction fees. Bitcoin, for example, has a maximum transaction rate of about 7 transactions per second which is comparatively lower than traditional payment systems like Visa.

• Energy Consumption

  Bitcoin and some other blockchain networks use a PoW consensus algorithm which is energy-intensive. The mining process requires significant computing power which consumes a lot of energy and hardware resources. This notorious and disputable energy consumption has raised concerns about the environmental impact of blockchain technology. Some countries like China, Morocco, and Bangladesh have already banned crypto mining.

• Interoperability

  Different blockchain networks operate independently (Such as Ethereum, Cardano, etc. use a Proof-of-Stake (PoS) consensus algorithm and Litecoin, Bitcoin, etc. use a PoW consensus algorithm, both of the consensus algorithms are utterly different from each other) which makes it challenging to transfer assets or data between them. Interoperability solutions are being developed by different projects but they are not yet widely adopted as a vital solution in the crypto sphere. A concept of wrapping coins/tokens to support different blockchain networks is introduced without losing the original values of coins/tokens. For example, Tokenized Wrapped BTC is supported on the Ethereum-based DeFi platforms but the process is quite complicated to transfer and convert the assets. The tech of direct communications between two different blockchain networks is yet to be invented.

• Security

  Generally, blockchain technology is considered to be secure as it uses strong encryption. For example, Bitcoin uses the hash function to process the transactions, and every block is added to a chain to form a blockchain, which is safe and secure as there is no chance of being added to the block containing malicious transactions. In addition, work done by the algorithm is almost impossible to reverse by using currently available resources (Quantum computing could be the exception but it is still in the developing stage). But there have been some high-profile hacks and thefts of cryptocurrencies in the past. Smart contract vulnerabilities, human error, centralized points of failure, and mining manipulation with the centralized nodes, can all compromise the security of blockchain networks.

• Adoption

  Here is no doubt that blockchain technology and crypto have the potential of bringing changes to almost all industries, but adoption has been slow in some sectors. Many businesses and consumers are still unfamiliar with blockchain and cryptocurrencies, and there are regulatory and legal interventions to overcome them. In order the crypto and blockchain technology to go mainstream, technical literacy is essential but that is not realized in the mass number of users.

Some of the latest solutions to overcome the above limitations

Based on the consensus algorithms, use cases, cost and speed, and trust, there are different generations of blockchain technologies. There is already a published Hackernoon story where I explain this. These technologies have attempted to solve persisting limitations to some extent (but they have not completely replaced the blockchain networks with the persisting limitations) which are as follows:

1. PoS consensus algorithm-based blockchain networks

To combat the issues of disputable energy consumption, low scalability, high fees, and slow transactions, PoS-based blockchain networks have evolved, like Polkadot, Avalanche, and Cardano. Now, Ethereum (initiator of the smart contract features) itself switched to PoS from PoW. Comparatively, PoS-based blockchain networks are more energy efficient than PoW-based blockchain networks as it doesn’t need expensive hardware setups like for Bitcoin mining. Amounts of staked coins/tokens determine the validation power of the validators so we can expect the security of the blockchain. In addition, everyone with staked coins/tokens can participate in different network-related activities like transaction validations, voting for protocol changes, and many more. There are different types of the PoS consensus algorithm which are as follows:

• Pure PoS

  In this network, validators stake their crypto holdings to participate in the consensus process and then validate transactions, and the process is based solely on the amount of crypto staked. For example, Peercoin.

• Delegated PoS

  Token holders can delegate their staked tokens to a validator or delegate to participate in the consensus process and assist in validating the transactions. The validators with the most delegated tokens are chosen to validate transactions and earn block rewards that are shared with the token holders. For example, TRON, EOS, etc.

• Hybrid PoS

  It combines elements of both PoW and PoS consensus algorithms where validators stake their crypto holdings to participate in the consensus process, but miners can also solve complex mathematical problems to validate transactions using computing powers and earn block rewards. For example, Binance Smart Chain (BSC).

• Masternode PoS

  Masternodes in PoS networks offer extra network functions and require operators to hold a minimum amount of crypto while being online to participate in the consensus process. For example, Dash.

• Federated PoS

  A group of trusted validators (known as a federation) validate transactions and earn block rewards. The network creators or community typically chooses the federation members, and the consensus process is based on their decision. For this, the Ripple network is a well-known example.

Limitations of the PoS Blockchain Networks:

Despite offering the best solutions to combat the several limitations of the PoW blockchain networks, PoS blockchains are not free from their limitations, which are as follows:

• Centralization: It could be weird to mention that even the so-called decentralized PoS blockchains can be centralized. Let’s see, the nodes with higher stakes (whales), have a greater chance of being selected to validate transactions in the network. This can result in a small group of nodes controlling the network and potentially making decisions that are not in the best interest of the network.

• Security: PoS blockchains may be more vulnerable to attacks if a large percentage of the staked tokens are controlled by a single entity or group of entities. In that case, a 51% attack could be possible where the attacker could potentially modify transactions or even create new blocks in their favour.

• Fairness: Token distribution mechanism in a PoS blockchain can be an issue as early adopters and large investors(whales) may have an unfair advantage in achieving the staying power for various network-related operations. This could cause a lack of diversity in the network and potentially lead to centralization.

• Network Participation: In a PoS blockchain, the larger the number of stakes, the higher the chances of validating the transactions. The nodes that hold fewer coins/tokens as the stakes may have less incentive to participate in the network and validate transactions as they may not receive enough block rewards to cover the cost of staking. This could eventually cause a lack of network participation and make the PoS network less secure and less decentralized.

2. Layer 2 solutions

This refers to the off-chain protocols or mechanisms to process transactions faster and more efficiently like the Bitcoin lightning network does. These solutions are applicable to addressing the scalability issues of the blockchain network. These sorts of solutions work by processing transactions off the main blockchain and then settling them on the blockchain at a later time and the process can be carried out by using payment channels, sidechains, or other mechanisms to enable fast and low-cost transactions. Some examples are Bitcoin Lightning Network and Plasma for Ethereum.

Limitations of the Layer 2 Solutions

• Generally, Layer 2 solutions can be complex and require sufficient technical expertise to develop and implement a blockchain. So, it can be less accessible to non-technical users.
• Some layer 2 solutions rely on centralized entities to operate which can be a cause of single points of failure and reduce the decentralization as well as security of the blockchain network.
• Layer 2 solutions can introduce new security risks (such as the possibility of fraud or hacking) that need to be carefully managed and mitigated with all the security measures.
• Different layer 2 solutions may not be interoperable with each other or with the main blockchain.
• Layer 2 solutions may require new governance models and decision-making processes to ensure that they are developed and operated in a way that tunes with the common goals and values of the entire blockchain community.

3. Interoperability protocols

They refer to technologies and standards that enable different blockchain networks to communicate and exchange information with each other as Polkadot does to some extent. Interoperability allows for the creation of a more seamless and interconnected ecosystem between different blockchain networks that can support a wider range of use cases and applications with different cryptocurrencies.

Some of the main interoperability protocols in the blockchain include:

• Sidechains: They are separate blockchains that are connected to the main blockchain network and enable users to transfer assets between them. Sidechains can be used to create specialized applications.
• Atomic Swaps: They are a decentralized mechanism for exchanging one cryptocurrency for another without the need for a centralized exchange and they are typically implemented using smart contracts. They can be used to exchange tokens across different blockchains.
• Cross-chain bridges: Cross-chain bridges are protocols that enable the transfer of assets between different blockchains. Cross-chain bridges typically involve the use of smart contracts or other mechanisms to facilitate the transfer of assets between the two networks.
• Decentralized exchanges (DEXs): These are platforms to allow users to trade cryptocurrencies without the need for a centralized exchange or entity. DEXs can be used to exchange tokens across different blockchains and can help to increase the overall liquidity and efficiency of the blockchain ecosystem by allowing users to have full control over their assets.
• Interledger protocols: A set of mechanisms and technologies that enable the transfer of crypto value across different payment networks including blockchain networks. Interledger protocols can be used to facilitate cross-border payments as Ripple XRP does and other financial transactions that involve multiple payment networks.

Limitations of Interoperability Protocols

Interoperability protocols have almost similar limitations as layer 2 solutions have which as follows:

• Security
• Complexity
• Centralization
• Standardization
• Governance

4. Invention of a Unique Proof of History (PoH) Consensus Algorithm

To address the scalability and high transaction costs of existing blockchain networks, Solana was the first blockchain network to introduce a unique PoH consensus algorithm with a superfast transaction speed of up to 65,000 TPS. Later other Arweave, Filecoin, and Hashgraph were introduced to be based on the PoH consensus algorithm. The benefits of PoH blockchains (Solana) are:

• Scalability
• Low fees
• Smart contract support
• Interoperability

Limitations of PoH-based Blockchain Network Solana

Here is no doubt, PoH is a unique concept to address most of the shortcomings of other existing blockchain networks but, it is not free from limitations. To assess the long-term viability of the Solana network, it's really important to consider two significant vulnerabilities. One is related to the monolithic design of the network which could potentially lead to centralization. The other vulnerability is related to the overall security of the Solana blockchain network and the potential for security issues to arise due to its own design. It's crucial to understand these vulnerabilities and monitor their impact on the network's stability over time.

Overall, almost all blockchain networks exhibit remarkable shortcomings and developers are continuously thriving to invent new solutions. Technically, there are so many difficulties to going blockchain for the mainstream adoption trend.

To address the potential shortcomings, here are some sets of ideas and suggestions for the developers or experts in the related field to invent the new technologies:

1. Green Energy

In light of the increasing awareness of the need to reduce carbon emissions, there have been ongoing discussions about alternative solutions for PoW-based transaction mining. As it is closely related to hardware resources like mining machines, computers, smartphones, etc.

✅Innovation Suggestions:

The following suggestions could inspire developers/engineers to come up with new techniques:

2. Decentralized Finance (DeFi)

DeFi is one of the most popular and rapidly growing sectors in the blockchain industry. Developers could create decentralized lending and borrowing platforms, advanced decentralized exchanges (DEXs), stablecoins, and other financial products like dApps and services using advanced blockchain technology.

• Lack of regulatory clarity: One of the biggest challenges facing DeFi is the lack of regulatory clarity i.e. no clear framework for regulating DeFi platforms which can lead to confusion and uncertainty for users to perform financial activities.

✅Innovation Suggestion:

• Security risks: DeFi platforms are vulnerable to security risks such as hacks and scams, and some of the previous high-profile DeFi platforms hack (Such as bZx for $55 million, Badger DAO: $120 Million) suggest, the security issue is the most critical thing to address.

✅Innovation Suggestions:

These risks can be mitigated by implementing the following features;

• Limited scalability: Despite having the fastest blockchains Solana, or SUI, scalability is still the major concern. Different DeFi platforms are currently limited in their scalability and they are exhibiting some sorts of performance issues like transaction congestion during the high traffic time, limiting their ability to handle the massive influx of transactions.

✅Innovation Suggestions:

• Limited interoperability: DeFi platforms often operate in silos which can limit their ability to interact with each other.

✅Innovation Suggestions:

• Limited accessibility: DeFi platforms can be complex and difficult to use for those without technical expertise or literacy.

✅Innovation Suggestions:

3. Non-Fungible Tokens (NFTs)

NFTs are digital assets based on the blockchain that represent ownership of unique items (such as art, music, and collectibles). Developers could create new NFT platforms, integrate NFTs into existing applications, or build new use cases for NFTs.

• Lack of standardization of NFTs: There are currently no widely accepted standards for NFTs which can lead to interoperability issues between different NFTs-supported platforms. This lack of standardization can also make it difficult to compare or value NFTs as there is no standardized way to measure their uniqueness or value of them.

✅Innovation Suggestions:

4. Interoperability

Interoperability refers to the ability of different blockchain networks to communicate and interact with each other. Developers could create bridges between different blockchain networks to cross-chain transactions and interoperability.

• Lack of standardization: The lack of standardization across different blockchain platforms is the main issue.

✅Innovation Suggestions:

• Technical complexity: The blockchain technology is complex and interoperability between different blockchain networks can be challenging due to differences in their underlying architecture and design. Some blockchain networks like Solana have used new and unique programming languages like Rust which is the difference essentially from its codebase from other existing blockchains so technical complexity is obviously there to allow interoperability.

✅Innovation Suggestions:

5. Privacy and Security

Privacy and security are the most important concerns for blockchain and cryptocurrency users. For example, identity management is still a challenging part of the crypto sphere and interoperability between different blockchains can also raise security and privacy concerns like when it comes to sharing sensitive data between different blockchain systems.

Developers could create new privacy and security solutions like the strongest encryption mechanism, zero-knowledge proofs, multi-signature wallets, and other security features.

• Public vs Private Blockchains: Not all blockchain networks are fully decentralized and public, some private blockchain networks operate based on a controlled set of nodes. Private blockchain networks have a greater chance of a single point of failure if there is some sort of vulnerabilities. In the case of the public blockchain network, one of the main privacy concerns of blockchain is transparency. While this transparency is one of the key features of blockchain technology, it can also lead to the exposure of sensitive data as hackers may match the transactions pattern to detect the real identity of the asset owners.

✅Innovation Suggestions:

• Smart Contract Vulnerabilities: Smart contracts are self-executing contracts that are based on pre-adjusted codes. However, smart contracts can also be vulnerable to different types of coding errors and other types of vulnerabilities that can be exploited by attackers. Previously, attackers have managed to detect smart contract vulnerabilities to hack different DeFi platforms and dApps.

✅Innovation Suggestions:

• 51% Attack: A 51% attack is a notorious attack in the blockchain industry where an attacker gains control of the majority of the computing power or transaction validation power on a blockchain network which potentially allows them to manipulate transactions in their favor to steal cryptocurrency.

✅Innovation Suggestions:

• Data Breaches: Blockchain technology stores data in a decentralized and immutable manner in the blocks of the chain which makes it difficult to modify or delete data. However, if an attacker gains illegal access to a blockchain network then they can access sensitive data and steal the funds.

✅Innovation Suggestions:

• Identity Management: Another of the most important privacy and security concern of blockchain technology is identity management as the technology can make it difficult to maintain anonymity while still verifying the identity of users on the blockchain network for example, transaction records are public and available to everyone.

✅Innovation Suggestions:

Some innovations and suggestions which could be highly desirable for the existing and new blockchain networks are as follows:

6. Scalability

As mentioned earlier, scalability is a notable challenge for blockchain networks. Existing blockchains still struggling to meet the growing demands of users to handle so many blockchain-related activities like transaction mining or validations, metaverse platforms-related activities, blockchain gaming activities, DeFi platforms-based transactions, and many more.

✅Innovation Suggestions:

7. Governance

In the decentralized blockchain ecosystem, we need a unique governance model and mechanism for the decision-making process. The persisting challenge is, centralization as a small group could take control over different blockchain-related activities by owning the larger percentages of stakes or resources to run the blockchain network. In addition, governance and regulatory challenges could be problematic as different blockchains may be subject to different regulations and governance structures.

✅Innovation Suggestions:

9. AI-enabled Blockchain

Last but it could be a game-changing suggestion if it is implemented into blockchain technology. There is an already published Hackernoon story too.

Well, we know there are still human interventions in the existing blockchain networks like transaction mining and validations, changes in protocols, producing the new blocks, and adding transactions into the new blocks which could potentially lead to several human-created errors or unfair transaction mining or validation standards or mechanisms modifications. AI-enabled blockchain is a new evolving field that combines blockchain technology with artificial intelligence (AI) with the goal to create a more intelligent and automated blockchain system where AI algorithms could be used to optimize and improve various aspects of the blockchain network.

Here are some potential use cases for AI-enabled blockchain:

• Fraud Detection: AI algorithms could be used to analyze blockchain data and detect any suspicious or fraudulent activity within the network. This can help prevent fraud and improve the overall security of the network.

• Smart Contract Optimization: The AI algorithm could optimize smart contracts to make them more efficient and effective for example, AI can be used to automatically identify and remove redundant or unnecessary code in a smart contract used in different blockchain-based products or services.

• Predictive Analytics: AI can be used to analyze blockchain data and make predictions about future trends or events for example this can be useful in areas such as finance and supply chain management where accurate predictions can help improve decision-making, especially in DeFi.

• DAOs: AI can be used to optimize the decision-making processes of DAOs to make more informed and effective decisions in favor of the entire community.

• Energy Optimization: AI can be used to optimize the energy consumption of blockchain networks by reducing their environmental impact for example, AI algorithms can be used to dynamically adjust the mining difficulty of a proof-of-work blockchain network based on the current energy consumption of the network.

These are just a few of the many areas where developers and concerned experts could innovate in the crypto and blockchain industry. With the rapid pace of technological development and adoption, there are always new opportunities for creative and innovative solutions in this field.

Conclusion:

The fact is, there are certain limitations to the current state of crypto and blockchain technology but there are also many exciting opportunities for innovation and growth of this evolving industry. New technology development progress for quantum computing and quantum encryptions is ongoing so it would not be a bad idea to think about advanced solutions to get tuned with the pace of technologies. In addition, there are also many opportunities for innovation and growth in the crypto and blockchain space such as the integration of AI, the development of decentralized finance (DeFi) applications, and the expansion of NFTs beyond the world of digital art. Ultimately, the continued growth and success of crypto and blockchain technology will depend on the ability of developers, entrepreneurs, and other stakeholders to identify and address the limitations of the technology while also pursuing innovative new applications and use cases. With the right combination of vision, creativity, and technical expertise, the potential of crypto and blockchain is truly limitless.