There is a lot of hype about what the global distributed ledger aka “Blockchain” can do for society.
A “trust machine” as some people call it, that will bring the power of finance, data sovereignty and inclusion to the people,
hence rendering centralized intermediaries like Visa, Barclays & Facebook obsolete.
We shall achieve this by using a combination of robust, battle tested cryptography & game theory.
While this vision is plausible, realising it is not a easy as it may seem.
The blockchain is not yet ready.
The core barriers to main stream adoption
The blockchain, while being a new concept in decentralized distributed databases has also presented a very unique set of problems in computer science & economics that have never been solved at the time of this writing.
Is this post, I will talk about the the 6 most important issues only with which if solved, shall we (blockchain enthusiasts) ever achieve our vision.
1. Scalability Issues
The current bandwidth, i.e the data that can be transmitted through a blockchain with in a given time is simply too bounded for main stream adoption.
Ethereum for instance does a maximum of 13 transactions per second. Visa on the other hand can do 24,000 Transaction per second and peak over 40,000 transactions per second.
So as you can see, the blockchain is thousands of magnitudes unable to manage a global traffic of financial transactions.
This is what they call the “Scalability Problem”
Coming up with a solution to scalability the problems without tarnishing the original value propositions of a blockchain (immutability/security, decentralization & censorship resistance) is not trivial. It has been nick named the “scalability trilemma” by Vitalik Buterine (Ethereum’s co-author).
2. Lack of Intuitive Private Key Management
Ordinary users will simply never wrap their heads around private keys.
Private keys, which are a string of text used to sign transactions and make other proofs(cryptographic).
The purpose for these proofs or signatures is for other entities on a blockchain network to verify identities & messages amongst themselves without reasonable doubt.
Private keys have two main problems first, how to store them securely.
Anyone who can memorize, take a picture, or copy your private key can literally steal all your money.
Because they have your private key, they can make the cryptographic proofs/signatures and accurately prove to everyone on the network they are you even without your consent. Even when they are not you.
Second, you loose your key you loose access to all your money & no one can ever help you out.
There is no “click here to remember your private key”
We need to first come up with something as intuitive using ATM/Debit cards.
Imagine if your bank told you that, “if you forgot your Debit card PIN, you loose access to all your money with zero hope of recovering it how ever large a sum of money it would be”.
If the above was the case, I don’t think any one would use debit cards.
3. Contract security
It is simply not reliable & safe for responsible institutions & individuals to deploy smart contracts on blockchains like Ethereum.
Due to the blockchain having an immutable and unpredictable state, Smart contracts deployed on such a platform are also expected to suffer from immutable bugs & unpredictable events.
The popular blockchains only don’t offer transaction finality i.e you will never be 100% sure that you have gotten funds.
You can only be probabilistically to a high degree (but with zero guarantee) that you have received your funds.
This is because in major consensus algorithm called Nakamoto Consensus, the miners elect the chain with the most computational work that are with in the same protocol i.e consensus rules.
For instance imagine your bank tells you that you that, “there is a 95% chance that we might have your life savings, however you may also not poses it in 5 years in case we discovered that the chain with the most work does not have your transaction in it”
Yes, I don’t think anyone wants to keep their life savings in such a bank.
Just by knowing someone’s cryptocurrency address, you can know their account balance & transaction history simply by pasting it in a blockchain explorer like blockchain and etherscan
Meaning it’s very easy for anyone to keep track of your financial activities without permission.
You buy HIV drugs? I now know your HIV positive, Your paying schools fees? now your local kidnapper knows where your kids study.
Buying birth control pills? Now anyone in the world may accurately guess that your a woman.
No careful person wants that!
6. Price volatility
Very few people simply don’t have the stomach to hold a financial instrument that drops by over 50% with in a few months.
What can we do?
Most projects are building on platforms that have these problems regardless, in hopes that they will integrate solutions to the respective issues in the future.
The risk they face however, is that the platform they built on, my become obsolete after a heavy investment of time & resources on the wrong platform.