Blockchains are innovative solutions, but they are plagued by problems that limit their adoption. Many organizations are either building entirely on it or incorporating it into their base architecture. Despite this, the average individual is either unaware of this technology or considers it too esoteric to use.
Blockchain is the underlying technology that powers decentralized finance protocols, NFT platforms, Decentralized Autonomous Organizations, and other similar innovations. Some businesses use private blockchains to integrate blockchain technology into their architecture.
To ensure this technology becomes a household name, the blockchain space must address some issues to make it appealing to the average individual.
This article provides detailed insight into the concept of blockchains, the barriers to widespread blockchain adoption, and how to overcome them.
What is a Blockchain?
A blockchain is a distributed ledger of immutable records distributed across a network of computers or nodes.
Blockchains are decentralized, which means they are not controlled by centralized authorities. They are managed as a decentralized technology by a network of nodes or computers that keep each other in check. This type of technology is usually accessible to the general public.
Typically, public chains have a transparent history of records that the public can examine.
Blockchains could also take the form of a private blockchain, which is not a permissionless chain but is restricted and can only be accessed by a limited number of people.
Third, a blockchain may adopt the architecture of a consortium.
Consortium blockchains are semi-decentralized chains managed by multiple companies or organizations. They combine elements of public and private chains while eliminating the risks associated with a single organization controlling the network.
The hybrid chain is yet another type of blockchain. A hybrid blockchain is designed to be accessed by the general public while certain data is kept private and accessible to a limited number of people.
Smart contracts are a key component of blockchain technology that has piqued the interest of both individuals and organizations. Smart contracts are multi-party agreements that are automated. They are intended to address the shortcomings of traditional contracts, which can be altered.
For starters, smart contracts are immutable, meaning no one can change the terms of the agreement once it is added to the blockchain.
Second, it is completely automated. Once the terms of the agreement are met, the contract is automatically executed.
Smart contracts have a wide range of applications. They serve as the foundation of Decentralized Autonomous Organizations (DAOs). Smart contracts allow any individual or organization to enter into an automated contract triggered by specific conditions.
What are the Challenges Facing Blockchain Adoption?
Although blockchain technology is revolutionary, some challenges are slowing the rate at which it is incorporated into daily activities. Among these are:
Energy Consumption
Blockchains, particularly older chains, consume massive amounts of computing power and electricity.
Blockchains that use the Proof-of-Work consensus mechanism may be counterproductive as more countries seek environmentally friendly alternatives for energy production and consumption.
Some countries have prohibited mining, a critical component of the PoW blockchain. In Georgia, for example, miners were reportedly forced to swear an oath to stop mining. In an effort to curb the activity, authorities in Kosovo began seizing the mining equipment of cryptocurrency miners in the region.
China has outlawed all cryptocurrency activities, including mining. The penalties for breaking this rule are so severe that a senior Chinese provincial official was reportedly expelled for crypto mining.
Other countries have requested that miners on PoW chains seek environmentally friendly energy sources. To address this, it is critical that Proof-of-Work blockchains transition to more environmentally friendly chains, such as the Proof-of-Stake consensus mechanism.
Through its proposed Merge, Ethereum is in the process of transitioning from PoW to PoS.
Scalability
Scalability issues have slowed the public adoption of blockchain technology. Ethereum is a popular blockchain for various reasons, one of which is the introduction of smart contract technology. Developers could use smart contracts to deploy their decentralized apps without having to worry about creating a blockchain for their dApps.
As more developers built decentralized apps on Ethereum and the number of transactions skyrocketed, the network’s capacity failed to keep up. This resulted in network congestion, higher transaction fees, and slow transaction speeds.
Developers had to pay a lot to get their smart contracts into the network, while the average user had to pay a few thousand dollars to get NFTs. High gas fees eroded profits from transactions on decentralized finance protocols.
Scalability solutions can be used to address this nagging issue. Ethereum is transitioning from a PoW to a PoS consensus mechanism while also incorporating a sharding solution into its architecture to prevent scalability issues from recurring.
Another option is to use Layer 2 solutions to increase throughput while decreasing gas fees. Scalability can be improved using solutions such as state channels, side chains, and nested blockchains.
Reputation
Over time, blockchain-based projects and cryptocurrencies have been associated with criminal activities because of their element of anonymity. Cryptocurrencies have been linked to illegal activities such as ransom payments, money laundering, and terrorism financing.
The anonymity cryptocurrencies offer, particularly with privacy coins, has made it easier for individuals to transfer funds with little or no trace. When used by criminals, it makes it difficult for authorities to track them down.
News of individuals disguising Ponzi schemes as crypto projects or hackers defrauding people of their money through social engineering or hacking activities has also contributed to this negative reputation.
Educational activities must be significantly increased to help the average person better understand the technology’s underlying principles and improve the overall image of blockchain-crypto projects.
Absence of Regulation
Blockchain-based platforms, since inception, have erroneously viewed themselves as not being under the purview of traditional regulations. This misconception has led some of them to flout regulations and laws. Consequently, these companies have been involved in a variety of illegal activities, including rug pulls, insider trading, and embezzlement.
Insider trading is a common occurrence in the crypto market due to the apparent lack of regulations. Three individuals, including a former Coinbase product manager, were recently arrested for insider trading. This is just one of many instances of insider trading in the crypto market.
Regulators around the world have begun to take steps to regulate the crypto space. The US Securities and Exchange Commission (SEC) has been actively investigating crypto businesses. In June, the US SEC launched an investigation into the founder of Terra, Do Kwon, and his activities. In the same vein, BlockFi was asked to pay $100 million in penalties by the SEC.
Security Issues
Several blockchain-based platforms have suffered security breaches in recent times, and DeFi protocols, in particular, have been popular targets for hackers. These attackers typically look for flaws in the smart contract code as well as other aspects of the protocol’s architecture.
Among the notable security breaches recorded this year include the hack on Horizon Bridge, resulting in the loss of up to $100 million worth of assets. Another case in point was the purported hacking of the Ronin Network, which resulted in the theft of $600 million.
They may decide to attack the platform’s users directly through phishing attempts and other similar activities. Some OpenSea users were victims of this. Some Twitter users reported receiving emails from fraudulent addresses claiming to be associated with OpenSea. These emails were intended to phish the identities and personal information of unsuspecting OpenSea users.
To convince the average individual to use blockchain technology, especially cryptocurrencies, platforms building on the blockchain should strengthen their security infrastructure through a range of strategies, such as conducting regular security audits, staying current on security updates, holding testnet events, and more.
Esoteric Nature
Most people regard blockchain technology as esoteric or difficult to comprehend. Several decentralized apps (dApps), particularly DeFi protocols, have a poor user experience. The average person may find it difficult to carry out activities on these platforms.
The esoteric nature is also evident in the lack of required skills to build, maintain, and design the user interface for dApps, as well as in community management and other critical aspects.
Blockchain platforms must host educational activities to increase public awareness about this technology.
To improve and simplify the process of using these user interfaces, dApp creators should seek the assistance of user experience professionals such as UX researchers, UX designers, and similar experts.
In Conclusion,
- A blockchain is a distributed ledger of immutable records that cannot be altered and are distributed over a network of computers or nodes.
- Blockchains can be public, private, consortium, or hybrid.
- Smart contracts are automated multi-party agreements. They are designed to address the shortcomings of traditional contracts, which can be altered. For starters, it is immutable, which means that once it is added to the blockchain, no one can change the terms of the agreement.
- Some issues must be addressed before widespread adoption of blockchain technology is possible.
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