The Limitation of Blockchain

The issue of scalability and the need for incentives Blockchain, in the form that it exists, is not scalable because it is constrained by the available computational power of the network, which means that it cannot be used in its current form for high-volume transactions.

The network constraint also makes the creation of the individual blocks of the blockchain an inherently slow process. The time required for a single block to become a part of the public blockchain could vary from a few seconds to several days. Let’s see how. A block (known as a record) in the
blockchain is a series of sequential transactions. The complete process of
creation of a block comprises two steps. First, every individual transaction
has to be validated by mining computers on the network (called ‘miners’) by solving a complex mathematical puzzle. A Bitcoin blockchain software processes about seven transactions per second, and Ethereum blockchain does.

Compare it to the speed of VisaNet (Visa’s processing system) that could
handle 47,000 transactions per second.

A single blockchain block can contain 2,000 transactions. The entire process
of validation of a block is called the ‘block time’. The block time for Bitcoin,
which limits the size of each block to 1 megabyte due to network computer
concerns, is 10 minutes. The average block time in Ethereum is faster, about 20 seconds, because its block sizes are much smaller at around 20–30 kilobytes, but it has other complex variables that we will cover in the later chapters.

Read more : What are blockchain used for ?

The second step of adding the block on the public ledger is the one that
takes an uncertain amount of time, ranging from seconds to days. This is
due to two variables: network activity and the blockchain fee. The blockchain fee, also called as the ‘transaction fee’ or the ‘miners’ fee’ is the money users pay to the miners when performing transactions. Usually it is $1 but it increases with the surge in the network activity as it did during the cryptocurrency bull run of December 2017 when users had to pay over $60 just to have the transactions confirmed. The speed and the scalability issues of the blockchain raise concerns that the technology is not suited for high-speed or high-throughput transaction networks. There are a number of new solutions, such as SegWit, Lightning Network and #Metahash, that promise to solve these challenges, but it’s too early to see any impact.

An energy absorber (For Proof of Work type)

All the nodes of a blockchain network have to perform computationally
intensive procedures to create block, a process that requires large amounts
of computing power.

In a report released in June 2018, the Swiss-based Bank for International
Settlements (BIS), a financial body owned by 60 central banks, called the
blockchain an ‘environmental disaster’. To quote from the document, ‘At the
time of writing, the total electricity use of Bitcoin mining equalled that of
mid-sized economies such as Switzerland, and other cryptocurrencies also
use ample electricity. Put in the simplest terms, the quest for decentralised
trust has quickly become an environmental disaster.’

In 2017 alone, according to a research conducted by the UK-based energy
comparison tariff service PowerCompare, the average electricity used to
mine Bitcoin surpassed the annual energy usage of some 159 countries. The
website Digiconomist estimates verifying transaction on the Bitcoin blockchain consumes about 200kWh, enough to power an average home for over four weeks.

The 51 per cent attack

The blockchain is designed to follow a model of democratic governance,
and it faces the same problem that real-world democracies face. In what is
called a ‘51 per cent attack’, a group of miners can defraud the system by
gaining control of more than 50 per cent of the network’s mining hashrate,
or the computational power. Cryptocurrency networks like Bitcoin Gold,
Verge and Monocoin were all hit with the 51 per cent attack during a single
week in May 2018, and coins of estimated worth in the millions were stolen.
There are several other drawbacks and limitations of blockchain, such as
‘forks’, which are disruption caused due to software incompatibility of mining nodes, its tainted legacy where it enables transactions for criminal activity and is perceived as an anti-establishment construct, the ‘pseudonominity’ of users and miners and others. But all of these issues can be resolved within the framework of permission-based blockchain networks such as the ones that are being used and will be used for the supply chain.

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