Scalability and Other Challenges

While the blockchain technology has been hailed as a major breakthrough, it is not without its own issues. Blockchain technology is still in the early stages of its development, and a number of problems have cropped up that are still awaiting some level of resolution. Decentralized networks such as blockchains have their own unique challenges.

In this chapter, we'll look at the following key issues in blockchain:

• Scalability and decentralization
• Scalability and costs
• Usability
• 51% attacks
• Network forks
• Catastrophic bugs
• Lack of interoperability
• Low availability of blockchain skills

Scalability and decentralization

One of the key advantages of blockchain is decentralization, which is the removal of any single authority to control the network. Unfortunately, this has a downside, which is its effect on the performance of a system. Blockchain systems work by keeping all the nodes of the network in sync by trying to achieve consensus so that every computer running a blockchain sees the same system state. More nodes on the network typically results in less centralization. This also means that more work must be done to ensure that all the network participants are in agreement with each other, which limits performance and scalability.

There are a few reasons why a larger number of nodes hinders performance:

• Each node typically must process all transactions. The higher the number of transactions to be processed, the more processing power and network throughput that...

Blockchains in business

While the Bitshares team suggests a theoretical limit of 100,000 transactions a second, they are using technologies and lessons from the LMAX exchange, which claims to be able to process over 6 million transactions a second. Most blockchains do not achieve a performance that is anywhere near the theoretical performance, with most blockchains achieving well under 1,000 transactions a second in practice. For instance, Bitcoin achieves approximately seven transactions a second, and Ethereum around 14. A decent server running MySQL can process 10,000–20,000 transactions a second of similar complexity. Thus, traditional approaches are much easier to scale to larger transaction volumes than blockchain systems.

The cost per performance of traditional database systems, including distributed database systems, is vastly cheaper on every level than blockchain...

Usability

Current blockchain systems are relatively difficult to use in comparison to other systems. For instance, the use of any Ethereum-based DApp requires either the installation of a special browser or the MetaMask plugin for Chrome, or the purchase and transfer of Ethereum on one of the public markets and then learning the interface of the desired application. Each action taken requires the expenditure of Ethereum, the exact amount not necessarily known in advance and varying depending on network load.

Once set up, sending a value via a blockchain-based system is relatively easy, but prone to mistakes in the addresses. It is not easy for a human to know whether they are sending the value to 0x36F9050bb22d0D0d1BE34df787D476577563C4fC or 0xF973EE1Bcc92d924Af3Fc4f2ce4616C73b58e5Cc. Indeed, ICOs have been hacked by attackers gaining access to the ICO main website and simply...

51% attacks

All blockchains can suffer from consensus attacks, often referred to as 51% attacks because of the original consensus attack possible in Bitcoin. Every blockchain relies on the majority of its users or stakeholders being good actors, or at least not coordinating against the rest of the network. If the majority (or even a large minority) of the powerful network actors in a blockchain system coordinate against the rest, they will be able to launch double-spend attacks and extract large amounts of value from the network against its will.

While once theoretical, there have recently been a number of successful 51% attacks against different blockchains, such as Verge (find the link in the references). In systems that are more centralized, such as proof-of-stake systems where there may be a small number of extremely large stakeholders, it is entirely possible that similar...

Network forks

Another issue for public blockchains is the existence of network forks. Bitcoin has been forked twice, splitting into Bitcoin and Bitcoin cash, then again into Bitcoin Gold. There are now three independent networks claiming the Bitcoin mantle. While the original network is still by far the most dominant, all the forks were a result of a breakdown in agreement among the key network participants about the future of the technology.

Ethereum suffered a similar fate, splitting into Ethereum, and Ethereum Classic over how to respond to the DAO hack. The majority felt that the DAO should have the hacked funds restored, but a strong minority disagreed, asking why should this hack get special treatment over others?. The result was two networks, one with the hacked funds restored (Ethereum) and one where the network protocol was the rule no matter what (Ethereum Classic).

...

Catastrophic bugs

The upside of an immutable ledger is that nothing can be hidden or altered. The downside of an immutable ledger is that nothing can be hidden or altered—including bugs. In the case where networks such as Ethereum write the smart contract code into the chain itself, this means that code bugs cannot be fixed easily; the original code will remain on the blockchain forever. The only workaround is the modular code where each section references some other section, and these pointers have programmatic ways of being updated. This allows the authors of a DApp to upload a new piece of code and adjust the pointers appropriately. However, this method too has issues. Making these updates requires a specific authority to update the code.

Having a central authority that is necessary for updates just creates new problems. Either that authority has centralized control...

Lack of interoperability

Current blockchain technologies do not easily interoperate. While it is possible to write an application that can communicate with multiple blockchains, those blockchains do not have the natural capability to communicate with each other. In many cases, the fundamental approach to transactions and governance may not be compatible. For instance, in the Ethereum network, any user can send any token to any other user, no permission required by the recipient. The recipient is free to ignore the new tokens if they wish, but they still have them (which results in some interesting tax questions). In the Stellar network, however, a user must issue a trustline to another in order to receive custom tokens issued by that user.

Similarly, many networks offer multisignature and multiuser wallets on-chain. However, without a centralized application sitting outside the...

Low availability of blockchain skills

As with any new technology, the number of skilled personnel will be limited. In the case of blockchain, this natural order is made far worse because of the large and growing number of systems. Looking only at the major chains, systems are written in C, C++, Java, Scala, Golang, and Python. All of these systems have different architectures and protocols. The blockchains that have smart contracts have different contract models, contract APIs, and even completely different programming languages, such as Solidity and Serpent.

On the security front, each blockchain system has subtly different security models and challenges. The simpler the system, the easier those requirements are, but the less the blockchain will be able to do. Moreover, because of the recent surge of interest, blockchain skills are very expensive on the open market. In particular...

Privacy

One of the supposed advantages of blockchains is that they can be run anonymously. However, if this anonymity is ever broken, the immutable ledger means that every transaction throughout time can now be traced perfectly. Maintaining perfect anonymity is extremely hard, and even if one person is successful, if the people they do business with are not also anonymous as well, then statistical techniques can be used to narrow down the possibilities of their identity considerably.

While many people think about anonymity in terms of avoiding law enforcement or taxation, it is not only governments that might be interested in this information. For instance, plenty of criminal organizations would love to be able to identify wealthy but unassuming people. An organization could trace large holdings or transactions of cryptoassets to a specific person and use that as a targeting method...

Energy consumption

Some of the largest blockchains, such as Bitcoin and Ethereum, still work on a proof-of-work model. The proof-of-work approach is extremely power hungry and inefficient. One news report suggested that the Bitcoin network alone already consumes more power than the nation of Ireland. Other sources considered this an exaggeration, but even so, it illustrates the tremendous cost of running these systems.

However, more and more systems are moving from proof-of-work systems to other systems for this exact reason. New consensus algorithms, such as proof-of-stake and delegated-proof-of-stake, make such extreme energy costs unnecessary.

Summary

In this chapter, we have covered the current major challenges of using and implementing blockchain systems. Businesses looking to use blockchains should be aware of the current state of the technology, the costs in comparison to other technological approaches, and the security and staffing issues that exist in the blockchain world.

The good news is that none of theses issues are insurmountable, and many of them will certainly improve with time. Numerous projects are under way to improve the usability and security of different blockchain networks. Additional tooling and training resources reduce the difficulty of programming new blockchain applications.

References

1. https://bitshares.org/technology/industrial-performance-and-scalability/
2. https://news.bitcoin.com/proof-of-work-coins-on-high-alert-following-spate-of-51-attacks/
3. https://www.theguardian.com/technology/2017/nov/27/bitcoin-mining-consumes-electricity-ireland