Blockchain: Limitations

Governance: The digitisation of assets and securities could raise new challenges, most notably in the realm of securities laws. If more and more people bootstrap their businesses through decentralised mechanisms without abiding by the mandatory disclosures required by law, there is a risk that they will be clamped down by regulatory agencies.

Scalability: Blockchain technology is constantly evolving, but it’s still missing certain capabilities critical for scalability within the financial markets. As more transactions are added to the blockchain, the larger it swells requiring more storage space and bandwidth to update the distributed ledger.

Real Time Computations: Ethereum is unable to access real time data from outside the blockchain. Developers need to rely on trusted third party data providers, called oracles to provide smart contracts with outside information. Additionally, specifications prevents real-time computations. It takes up to 15 seconds to process block transactions. As a result, developers need to write asynchronous code with front-end frameworks that can updates states accordingly.

Immutability: while data immutability is generally true, the written data could still be tampered and the blockchain can be rebuilt as long as the majority of the participants on the network have reach a consensus. This is especially true in consortium and private chains where the number of participants is smaller. In this context, it may be difficult for a central authority to audit consortium data and determine whether it has been tampered with or not.

Carbon Footprint: While blockchain technology is a decentralised system, it is not necessarily green. In fact, the energy consumption of bitcoin alone uses a comparable amount of electricity per year as the entire country of Israel. That’s the equivalent of powering over 5.1 million US homes. Additionally, 1 bitcoin transaction is the equivalent of 100,000 VISA transactions. Simply put, the way in which blockchain and cryptocurrency are operating now is not sustainable.

Defining Blockchain: While admittedly blockchain has made impressive headway in providing use cases in nearly every industry, the word blockchain is now being used to describe everything and anything from system transactions to supply chains to permissioned databases. This recent article emphasised that there is no universal definition of blockchain. The term had become so widespread and it’s use cases varied so significantly from original definition that it is quickly losing its meaning.

Blockchain technology has many of the same risks attached to it that the internet did in its early stages

The truth is that while blockchain has made impressive waves across all industries, we still do not have a clear understanding of its capabilities. We are only at the cusp of this technology, and it is different last year than it was the year before and will continue to change. Where we are with the blockchain is what the internet was in 1994. When the internet was released to the public, very few individuals knew what it was, and it endured it’s own idealistic hype-cycle. But consider that today, that we work digitally more than we work in real life. It’s impact was long lasting and has become second nature to us. Blockchain will be the same. It may not transform in an observable way, but it’s infrastructure will enable us to become more efficient and provide a new space for innovation.

Volatility is expected in disruptive trends.

As we are currently reaching the apex of the inflated expectations, historical data based on the analysis of previous tech-market trends (such as that of artificial intelligence), show that after the first period of inflated expectations follows a more or less narrow time-frame of disappointment which triggers usual market psychology dynamics and shrinks the marketcap of the tech related business in question. We still have not reached the peak of inflated expectations nor have we pushed the imaginations of individuals involved or not involved in the blockchain at this moment in time.