Read: 1. Why blockchain?
2. What is blockchain?
3. What is money?
4. How blockchain works?
How blockchain prevents fraud?
Nodes solve mathematical problems with previous links to existing transactions. If a new node with a limited link to previous transactions joins the network, will be treated invalid. Only longer links will become part of blockchain ie only verified blocks. Provides security and stability. In the previous article, this was explained as Proof of Work and then an alternate algorithm Proof of Stake was also mentioned. These algorithms do not provide 100% security but they make it extremely difficult for an attacker and thus reduce the probability of attack.
There might be a complete opposition to blockchain in the future from governments, economists and public for various reasons, like every disruption has had in the past. This might not be too far. Hacks still continue to take place. To a certain extent, both opposition and attacks are necessary to weigh the benefits of blockchain and strengthen the security measures. Everything evolves through mistakes as well as trail and error.
A few challenges that need to be addressed:
1. Transactions can be sent and received anonymously. While this preserves the users’ privacy, it also provides scope for illegal activities on the network as regulatory bodies cannot track users’ identity.
2. Even though cryptocurrencies and blockchain technology are becoming popular, it’s still not easy to trade them for goods and services.
3. Cryptocurrencies are very volatile, affected by large events or announcements in the cryptocurrencies industry.
4. With no proper regulations, there is too much scam and money laundering by defaulters. Uninformed investors, in the hope of trying to use blockchain as a get-rich-quick scheme, invest in scam cryptocurrencies that have no product or authentic team working.
5. The technology is still in its infancy. There is rapid growth and development happening to improve the blockchain security and stability while offering a broader range of features, tools, and services.
6. Blockchain technologies can’t scale and aren’t evenly distributed yet. Blockchain technology needs to transcend the internet and not run on a controlled space.
7. Too many services claiming to use blockchain technology with no actual need for it.
8. Blockchain technologies aren’t really decentralized, there are still centralized exchanges and miners who control everything.
9. Blockchain distributes wealth poorly. The possibility of programmable money given directly to benefactors who contribute to the networks.
10. No killer application yet that enables people at large scale to adopt blockchain technology. Humans have evolved with the ability to share stories and co-operate and blockchain technology needs to be a decentralized platform for humans to create and distribute information.
In every era of known human history related to technology, we have found a solution to an existing problem, only to eventually discover the solution has a multitude of unforeseen problems. Humans thought moving to diesel-based cars from horse-based transport would reduce the amount of horse dump which was a major concern. Now, we are in an era moving towards electric cars because of the environmental damage we continue to cause.
Blockchain, called internet 2.0, is similarly trying to solve what internet 1.0 was supposed to — democratize access. That said, blockchain is not a one-stop solution. It has its set of challenges today and will have a lot more in the future. What blockchain offers is a step forward to how the human fabric might work better in the absence of powerful middlemen in the long run. A trustless system over trusted systems.
Overall, with its abilities to be decentralized and maintain trust between anonymous people on the network, the blockchain technology has the potential to revolutionize several industries that work on the network effect like governance, banking, and energy distribution.
ImageCredits: Medium, Hashgains, Challenges
5. What are the challenges with blockchain? was originally published in Data Driven Investor on Medium, where people are continuing the conversation by highlighting and responding to this story.