In the tech world, blockchain is still the most popular buzzword. Some believe it will change the financial industry and other industries, like real estate, medical, and law. The key reason behind the hype is the potential to work in a distributed environment with a tamper-proof facility.
Nonetheless, there’s always a hype phase for new technologies. It takes a long time to overcome every challenge and use them to drive the modern world. Nothing is different about the blockchain, either. Even though there are many options, it will still take a while to get past all the challenges.
Therefore, in this blog, we did a little digging to find the challenges faced by blockchain and the industries preparing themselves to adopt this new technology.
Before we move forward, let’s understand blockchain.
Introduction to blockchain
Before going into what blockchain means, it is crucial to understand what a database is and how it works. According to Oracle, a database can be defined as an organized collection of structured information or data, typically stored electronically in a computer system.
To understand blockchain, all you need to know is that databases are usually an electronic and organized way of storing data, usually in a tabular format.
Blockchain is a very specific type of database that has a unique way of storing information. The data in a blockchain is structured differently when compared to a typical database. The information is gathered in groups called blocks. Each block has a predefined storage limit, and once filled, it will be chained with the previously filled block. When new data is presented, a fresh block is created, within which the additional data is compiled, which is added to the chain. This creates a virtual chain of blocks and, thus, is called a “Blockchain.”
To learn more about blockchain, click here.
Let’s move on to check the challenges that hinder blockchain adoption.
Major blockchain adoption challenges
#1 Difficult to understand and adopt
A layperson may find it challenging to understand the advantages of blockchain technology due to its complexity. Before using this revolutionary technology, one must read through and understand the distributed ledger and encryption principles. The fact that financial institutions can offer secure payment gateways and other services at reasonable prices compared to the costs associated with blockchain makes its adoption difficult.
#2 Lack of appropriate skill set
In addition to hardware and software, you need to recruit qualified staff to administer blockchain technology. As you are aware, blockchain technology is still evolving. Few people now have the necessary skills to handle such technology.
On the other hand, there is a huge need for this kind of skilled personnel. So, you will need to pay higher salaries if you want to hire qualified individuals. Therefore, hiring the right personnel will cost you some extra money.
#3 Lack of trust and privacy
In general, privacy and blockchain don’t go well. The public ledger powers the system; therefore, complete privacy is a matter of concern.
But can any business survive without privacy? Well, no. Many businesses that deal with privacy must have defined boundaries. Customers entrust them with personal data. Therefore, if they are stored in a public ledger, they wouldn’t genuinely be private anymore, would they?
So, to restrict access to the data, it is required to change the registers that are on the public ledger. A solution to this would be to make it exclusively available to customers.
#4 Higher implementation cost
Blockchain is typically implemented to cut costs associated with third parties and intermediaries involved in the value transfer process. Although blockchain technology has many advantages, it is still in its infancy and is, therefore, difficult to integrate into existing systems. Moreover, it makes it more expensive all over, limiting both the government and private companies from adopting it.
One of the main problems that needs to be solved is interoperability, which is one of the main barriers preventing organizations and industries from implementing this technology. Due to their inability to send and receive information from other blockchain-based systems, the majority of blockchains operate independently and do not interact with peer networks.
Many projects have been launched to solve this issue. For example, Ark uses the SmartBridges architecture that bridges the communication gap between the networks. This project claims that it offers worldwide transmission and transfer, along with global interoperability.
#6 Lack of proper regulation
One of the biggest challenges to deploying blockchain in an organization is the lack of regulation. Blockchain technology is being adopted as a transactional tool by numerous organizations. You will observe that many products will depend on this. But there aren’t any specific rules about it right now. As a result, nobody strictly adheres to any regulations when it comes to the blockchain.
Herein is the issue, though. Although one of the advantages of blockchain is that it provides visibility, security is still inadequate. You won’t be able to say whether it will be risk-free for you. Governments and several industries may need to establish laws for blockchain to overcome these challenges.
#7 Higher energy consumption
The technology uses a Proof-of-Work mechanism to verify transactions and establish trust before allowing them to be added to the network. This system needs a lot of computer power to process, validate, and—most importantly—secure the entire network by solving challenging mathematical puzzles.
The co-founder of Ethereum has proposed a way to resolve this problem by switching from Proof-of-Work to Proof-of-Stake. By using this approach, participants can save a lot of energy by not having to solve challenging puzzles.
Despite all these challenges, various industries have slowly started adopting blockchain technology, like education, retail, logistics, media and entertainment industry, etc. We have a whole series on how blockchain technology can transform these industries. Click here to learn more about it.Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn't represent any investment advice or WazirX's official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.