Blockchain Implementation Challenges in 2021

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Blockchain implementation challenges

Blockchain has come such a long way since its inception that it’s sometimes easy to forget that the technology is still relatively young. While a decade in the blockchain space may seem as an eternity, such a rapid growth is typical for projects that are still early in their development. So blockchain technology still has a lot of growing pains to go through before it could unlock its full potential. In addition, the tech needs to achieve wider adoption, especially among enterprises.

In this article we’ll be taking a look at some of the biggest blockchain implementation challenges that still need to be addressed in order for the technology to reach ubiquity.

Blockchain implementation challenges

Scalability

Blockchain networks have many advantages, but their biggest drawback is their limited capacity to scale in order to handle large transaction volumes.

This problem, often referred to as the ‘scalability trilema’ is the main reason why many doubt that blockchain systems would ever be capable of operating at scale. It essentially revolves around the difficulties current blockchain platforms experience when trying to find the right balance between scalability, decentralization and security.

Privacy issues

One of the greatest strengths of blockchain technology, public blockchain networks, in particular, is the transparency that comes from having a record of a network’s transaction history that’s public and easy to verify. However, this is not always seen as a positive. For example, it can make enterprises, which want to protect their trade secrets and other sensitive information, reluctant to embrace some of the most prominent blockchain protocols, such as Ethereum.

Regulations

One of the biggest obstacles to blockchain adoption is the lack of regulatory clarity which makes many people question the legitimacy of the sector. In addition, existing regulatory regimes are unable to keep up with the rapid development happening in blockchain and crypto and actually stifle DLT innovation, rather than encourage it. Initial coin offerings, stablecoins and DeFi protocols have in recent years demonstrated the limitations of current rules and regulations when it comes to handling the sector.

Criminal activities

The lack of adequate rules and the fact that blockchain is still a relatively new technology have contributed to the emergence of scam projects and other bad actors trying to enrich themselves on the back of uninformed investors. There have also been a number of high-profile crypto exchange hacks, including the infamous Mt. Gox incident that nearly toppled the entire cryptocurrency space in 2014.

Energy consumption

Another challenge stems from the fact that Proof of Work, which is the most widely used consensu algorithm, is very energy intensive. This not only limits the opportunities for ordinary people to join PoW networks and hinders decentralization by encouraging the formation of large mining pools, but it also raises environmental concerns.

Awareness

As we already mentioned, the blockchain is an emerging technology and the DLT space is relatively young. And with crypto price volatility usually dominating the headlines of mainstream media outlets, it’s hardly surprising that the immense utility the technology has is not well understood by the public.

Ways to accelerate blockchain adoption

The aforementioned blockchain implementation challenges are well understood by the blockchain community and many development teams are working tirelessly to address them. Here are some of the ways that are actively explored.

Refining blockchain consensus algorithms

Proof of Work has played a crucial role in bringing the blockchain revolution to the world, but over the past few years we’ve been increasingly seeing signs suggesting that PoW can no longer support the blockchain evolution. Its drawbacks in important areas such as scalability and energy consumption have forced Ethereum, the world’s second-largest blockchain network, to start a transition to a Proof of Stake algorithm.

Building effective Layer 2 solutions

The scalability problem can also be tackled by building Layer 2 solutions that take some of the load from the main chain. Some of the world’s most prominent blockchain protocols are betting heavily on Layer 2. Bitcoin has the Lightning Network, Ethereum developers are working on a number of solutions, such as roll-ups, state channels and Plasma, and Polkadot is built around the idea of sharding.

Private blockchains 

The privacy issues that come with the transparent nature of public blockchains can be avoided by using private networks designed to support a relatively small number of network participants with known identity. Since participation in such networks requires permission, they are also called permissioned blockchain networks. Private blockchain protocols can be used to create practical enterprise-grade solutions capable of connecting multiple companies or separate departments within a company.

What’s more, the power of private and public blockchains can be combined to achieve optimal results. This is the so called hybrid approach that involves using a public blockchain to store encrypted proof for all the work that has been done on a private network connecting a small number of known stakeholders.

Zero knowledge proofs

And then we have zero knowledge proofs, a class of mathematical instruments that can be used to show that something is true without disclosing the actual data that proves it. Because of this zero knowledge proofs are increasingly being used in blockchain and DLT. The Baseline Protocol, for example, utilizes ZK proofs and other cryptographic techniques and instruments to synchronize private business processes via the public Ethereum mainnet while preserving privacy, confidentiality and data security.

Introducing regulatory frameworks

One of the main reasons for regulatory uncertainty that can be found in the blockchain and crypto space is the lack of unified approach when it comes to the regulation of the sector. The rapid evolution of blockchain technology caught regulators around the world off guard, leaving them scrambling to react to a rapidly growing and changing industry. This has resulted in a lot of regulatory patchwork, with various jurisdictions across the world and sometimes even different regulatory bodies in a single region coming up with their own rules and regulations for the sector. 

This problem can be countered by drawing up regulatory frameworks that afford regulatory consistency across larger regions. An example of such a framework is the European Commission’s proposed Markets in Crypto Assets Regulation, which will introduce an EU-wide regime for crypto tokens.

Having more regulatory clarity will not only make people start taking the sector more seriously, but it will also discourage fraudulent actors from trying to take advantage of the market and uninformed investors.

Raising awareness

Considering that distributed ledger technologies are still largely unknown to the public, it’s on the community to inform people about the technology’s design, strengths and utility. Building educational resources, holding webinars and other educational events are some of the ways that blockchain companies can utilize to raise awareness. Initiatives like Coinbase Learn and Binance Academy are great examples of how some of the world’s leading blockchain companies are working to raise awareness about blockchain technology.

Like many of our peers, we at LimeChain also make a concentrated effort to inform a larger audience about the technology. We’ve participated in a number of educational webinars and we’re currently working on an exciting new initiative that will help raise the next wave of blockchain developers. Stay tuned for more news on that front! In the meantime, we can recommend checking out our YouTube channel, where you can find plenty of educational videos.

The future of blockchain and DLTs

The adoption of blockchain and DLTs depends on a number factor and will require active support from governments and other public organizations. But the sector also needs to find ways to address the biggest challenges it’s currently facing. The good news is that, as we saw above, the blockchain community is already working on solving these challenges.

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