Blockchain has become one of the fastest-growing technologies in recent years. The global blockchain market value is expected to reach over $67.4 billion by 2026. It will grow at a CAGR of 68.4% from 2021 to 2026.
From validating customer identity to bringing transparency to the healthcare industry, blockchain is poised to transform many industries in the future. Every sector understands that it has the potential to improve business, and countries like the USA know that it can boost the GDP by $407 billion by 2030.
Although blockchain technology has always been seen as inherently safe, there are concerns emerging about its security.
Consider the example of the recent Ronin Network. A critical bridge chain that powers Axie Infinity, was attacked, and this resulted in in a loss of 173,600 Ethereum and 25.5M USDC, equivalent to over $600 million due to a crypto hack. Exploit of the smart contract’s vulnerability of improper account validation was cited as the main reason for the crypto hack.
That's not all. Other challenges, too, raise questions about the technology's future.
Why Is Blockchain Facing an Existential Threat and How to Overcome Them?
More Instances of Hacking
The Ronin hack proved that poor coding and associated vulnerabilities are common enough in blockchain technology. A headline of an article in WIRED warrants the same — "Blockchain has a bridge problem, and hackers know it."
Blockchain bridges are considered the easy targets of hackers. The cryptocurrency and DeFi platforms are also susceptible to security issues. Although blockchain transactions are inherently secure, enterprises and consumers do not trust them entirely.
Securing bridges and better security audits are crucial to mitigate hacking risks. Enterprises can also use AI to monitor transactions and identify suspicious activities to prevent hacks.
Environmental and Sustainability Impact
Since Bitcoin and Ethereum (now migrating to Proof of Stake) work on the proof of work concept, it requires a lot of computational power. Such Blockchain networks consumes so much energy that a single bitcoin transaction could easily power a household for more than 70 days. It is also said to increase carbon-di-oxide emissions.
With the climate crisis looming worldwide, Blockchain technology must be made sustainable. Several countries like China, India, and Iran are banning crypto mining. Ethereum developers are trying to transition from proof-of-work to a low-energy proof-of-stake concept.
Proof-of-Stake blockchain is a new-gen network that limits energy consumption and carbon emissions. However, this could take more time to show positive outcomes. Many developers are also building green smart contract applications to reduce carbon footprint.
The skills gap is a massive roadblock to adopting blockchain. 49% of companies cite the skills gap as their top challenge. According to the Blockchain Council, the demand for blockchain engineers increased by 500% in 2019. Meanwhile, companies that hire blockchain specialists are facing high attrition rates.
Although there's demand and enterprises are willing to pay high salaries, very few skilled blockchain specialists are available. One reason could be that Blockchain is still an emerging technology that changes quickly.
There is also complexity involved in using the technology. Apart from investing in training resources, enterprises can overcome this problem by using solutions such as blockchain-as-a-service. This enables the enterprise to leverage blockchain without investing too much in resources.
While the decentralized nature of blockchain technology is considered its strength, it can also be a disadvantage for enterprises due to its limited scalability.
Let's take the example of account transfers. Typically, transaction networks process thousands of transactions per second. Bitcoins can process only three to seven transactions per second. This could impact daily transactions and make them useless for large-scale applications.
According to APQC, only 29% of enterprises are doing blockchain pilot projects or deploying them fully. To resolve the scalability issues some of the promising solutions come up in the recent times like L2 solutions, rollups, lightning network, segwit and scalable consensus mechanisms.
Lack of Interoperability
Blockchain faces a challenge of interoperability as there's no standardization in how different networks interact and communicate. Most systems work in silos and do not communicate with peer networks. They cannot relay messages to each other. The information will have to pass through a central authority or additional tools, defeating the purpose of decentralized architecture.
As more enterprises build their own blockchain systems, universal standardization becomes important to facilitate communication between them. The good news is that many enterprises are undertaking interoperability projects to bridge the gaps between different blockchain systems and allow the smooth transmission of information.
The Road Ahead
George Friedman had once predicted blockchain to become obsolete as he said that he didn't know of any encryption technology that's not broken.
There's a fear of blockchain platforms becoming non-existent in the future. There's also no clarity on how blockchain can help certain industries.
However, this does not entirely mean that blockchain will become non-existent in the future. Blockchain plays a significant role in Web 3.0 and Metaverse. It will open new digital opportunities for enterprises. Industries like fashion, gaming, and consumer goods use blockchain technology to bridge the gaps between the online and offline worlds.
That said, blockchain technology will continue to evolve and revolutionize the business. By overcoming the challenges that threaten its existence and educating the decision-makers about the potential of blockchain, enterprises, and governments will be able to understand its use better and embrace it more profoundly in the future.
Amplify Your Business With Xoriant
Xoriant is a technology partner working closely with leading industry cloud providers for various services. Our core technology teams have successfully delivered projects and proof of concepts on various blockchain cloud platforms. We continue to closely observe and contribute to increasing market and innovation wave while transforming the technology called Blockchain.
Looking to implement Blockchain in your business environment?