Navigating the Limitations of Blockchain: Processing Transactions and Beyond

The blockchain technology, hailed for its revolutionary potential to disrupt traditional paradigms of data security, governance, and financial transactions, has faced several limitations and criticisms ever since its inception. This article delves into the primary challenges surrounding transaction processing in blockchain networks, while also highlighting other critical factors that influence its performance.

Transaction Processing Capabilities of Blockchain Network

When it comes to transaction processing, the blockchain technology is often compared to its peer cryptocurrencies and traditional financial networks. In a highly publicized benchmark, the blockchain network is measured to manage a meager 7 transactions per second (TPS). This is a stark contrast to other cryptocurrencies like Ethereum, which can handle up to 20 TPS, and Bitcoin Cash, which boasts 60 TPS. Even legacy financial brands like Visa can comfortably process 24,000 TPS, outpacing blockchain networks significantly.

Challenges and Overhype in the Blockchain Industry

While the innovative potential of blockchain cannot be understated, its limitations have been a point of contention within the industry. Critics argue that blockchain has become overhyped, with its capabilities being exaggerated without proper context to its limitations. This over-hype has led to unrealistic expectations and widespread misconceptions about the technology's practical applications.

Through extensive research, development, and a process of trial and error, industry experts have identified and addressed several key issues with blockchains. These include complexity, network size, transaction costs, and speed, and the politically charged aspect of data storage.

Complexity and Jargon in Blockchain Technology

Blockchain technology, despite its revolutionary promise, is underpinned by a new and often specialized vocabulary. This complexity has made it challenging for people to navigate the technology without proper understanding. However, there have been efforts to provide comprehensive glossaries and indexes that break down the jargon in a user-friendly manner.

Network Size and Antifragility

Blockchains are not purely resistant to bad actors; rather, they are antifragile, meaning they strengthen when faced with attacks. This antifragility, however, requires a large and widely distributed network of users. The robustness of this network of nodes is crucial for the full benefit of a blockchain. Some blockchain projects have encountered debates about whether their permissioned networks could be inherently flawed due to their restricted user base.

Transaction Costs and Network Speed

Although blockchain offers near-free transactions in its early days, recent years have seen a rise in transaction costs. For example, Bitcoin, once lauded for its near-free transactions, is now facing notable costs. As of late 2016, Bitcoin can only process about 7 transactions per second, with each transaction costing approximately $0.20. Additionally, blockchains can only store up to 80 bytes of data per transaction, which limits its practical applications.

Political and Ethical Considerations

Beyond transactional performance, the use of the blockchain for data storage is a politically and ethically charged issue. The question of 'bloating,' or using the blockchain as a store of information, is often frowned upon because it forces miners to perpetually reprocess and re-record the information, potentially leading to inefficiencies and increased costs.

Furthermore, the blockchain technology raises complex issues related to data quality, human error, and security. If a blockchain is used as a database, the quality of information entering the system is crucial. The phrase 'garbage in, garbage out' holds true in a blockchain system of record just as it does in centralized databases. Ensuring data accuracy is paramount to the integrity of the blockchain.

Security flaws, such as the '51% attack,' pose another significant challenge. If more than half of the nodes in a network lie, their lie can be accepted as the truth. This is a notable vulnerability that must be monitored closely. Extensive measures are in place to prevent such attacks, such as closely monitoring mining pools by the community.

Finally, there are political aspects to blockchain technology that involve governance models. Because blockchain protocols offer opportunities to digitize governance and form incentivized governance models, there have been significant public disagreements within the community. These disagreements are often expressed through the process of 'forking,' where a blockchain protocol is updated with the agreement of the majority of users. These debates can be technical and sometimes heated, but they are informative for understanding the democratic and consensus-driven nature of blockchain technology.

Conclusion: While blockchain technology presents undeniable potential, its limitations are clear and have sparked ongoing debates within the industry. Understanding these challenges is crucial for the responsible and effective use of blockchain technology in the digital economy.