When new technologies migrate to a production environment, it is not uncommon to see bugs and issues that are only identifiable when it is used in full scale production mode. Testing in a lab only covers the foreseen scenarios and issues, whereas real-world usage gives a much broader scope of scenarios and usages.
Distributed ledger technology (or Blockchain) is currently in that phase. Let's explore the key issues that still remain for blockchain to see broad adoption, including data privacy, security, integration and governance, and regulation. The hurdles are discussed in a high level here just to give a sense of the wide range of issues that need to be resolved. Subsequent posts will cover each of the issues in more detail depending on the feedback.
• Data Privacy
One of the important obstruction to widespread adoption is data privacy concerns. Traditional models may not offer 100% privacy, however people are accustomed to having their transaction history being in the hands of a few trusted parties. With a distributed and publicly available ledger, it will be important to offer data privacy and confidentiality specially when it is concerned with financial services where this requirement is essential.
There are various approaches that the blockchain community is working on and the way forward will be a mix of solutions that will come together to offer complete data privacy, confidentiality and permission-based access.
• Scalability
Consumer adoption will increase the volume of transactions that the blockchains will be required to handle. The throughput of transactions to handle peak volumes would be critical for the blockchain based technology to come into normal commercial use, which brings up the issue of scalability.
For comparative purposes, bitcoin has an average of 3-4 transactions per second, which pales in comparison to Paypal (193 transactions per second) or VISA (1,667 transactions per second). These are average numbers and these networks handle much more at peak times.
• Robustness and availability
The blockchain based distributed ledgers should have 100% availability which includes the ability to be handle high loads and volumes while remaining response and functional, fend off attacks to the network (DDoS, etc.) and have no single point of failure. Being distributed it is easy to imagine there won't be any single point of failure, however the ability to stay functional while managing high loads and volumes is absolutely essential.
• Regulatory and legal compliance
At the moment there is a lot of uncertainty as to the stance of the countries towards the use of blockchains and associated cryptocurrencies. For the blockchain based solutions to work, they would need to ensure they comply with all regulatory and legal compliances for them to have any legal standing and backing from the relevant authorities. Without any clear legal cover, it would be risky for businesses to adopt these technologies only to find out their investment has gone to waste if the relevant authorities do not consider it permissible.
Transaction validation is a key fundamental that is built into the blockchain technology, however there are no mechanisms or solutions to handle enforcement, dispute resolution, and accountability. This is not as easy as it sounds because ensuring these regulatory requirements requires an underlying commonality and harmonisation of legal standards on a global scale.
• Interoperability
Blockchain ledgers crop up on a daily basis as different ideas on the applicability of the blockchain technology are offered for different industries and use cases. In the end, there would need to be a degree of interoperability that the ledgers will have to manage between each other to make wider adoption feasible.
These issues are not new or forgotten. The blockchain community is actively engaged in coming up with solutions to manage these hurdles be it data privacy, regulatory compliance or robustness.
It is important to understand though that there is still a lot of work that needs to be done before widespread adoption and a fair chance at cryptocurrencies beginning to replace fiat currencies in their usability and adoption.