Engineering, Sarah

With so many benefits, why is nobody implementing blockchain?


Blockchain seems full of promise but there must be some drawbacks otherwise we’d be seeing implementations in numerous industries and it would be further along the hype cycle than it currently is. In this post we will look at the main drawbacks of blockchain. The rate of adoption of technology can be directly linked to how much it is trusted and understood, and a significant part of that is a comprehensive understanding of its drawbacks.

A lot is being made of the removal of intermediaries in transactions and the public nature of blockchain. How is blockchain able to ensure the security and privacy of data?

Privacy and security are fundamental issues that need to be addressed for successful implementation. A main concern of blockchain is the possibility of a “51% attack”. Blockchain transactions are committed to the ledger once a consensus is reached and there is a possibility that attackers are able to gain control over 51% of network machines and launch scams or distributed denial-of-service (DOS) attacks on mining pools (Sikorski, et al., 2017). Low confidentiality in the public, distributed blockchain network can be addressed with targeted encryption but despite these structural challenges network integrity is actually strong by design (Mendling, et al., 2018). This threat will always be present on a public network, however private blockchains are able to somewhat sidestep this issue so use cases within individual enterprises should see more successful implementations in the short term than public blockchain implementations.

Maintaining the privacy of transaction details, including size, volume and parties involved, is key to maintaining competitive advantage and minimising legal liabilities. A mechanism must be available that facilitates association between cryptographic keys to allow transfer of data across the blockchain, including a user certification process that maintains privacy without hindering the speed of the network (Lai & Kuo Chen, 2018). Again, this issue is circumvented with the use of private blockchains within an enterprise.

How can I be sure my information is kept private? How is blockchain regulated?

Comparing the governance of new technologies with that of current technologies is not straightforward and presents regulatory paradigms and enforcement challenges. Blockchain’s openness, lack of permissions and potential anonymity prove problematic from a legal and regulatory standpoint. Industry wishing to take advantage of public blockchains will need to address how the anonymity of blockchain transactions in cryptocurrencies such as Bitcoin fit with anti-money laundering rules, how regulators can confirm compliance with regulations if token transfers take place without any central authority, and how to address international data transfer issues given the global decentralisation of nodes (Millard, 2018). This leads to two important focal areas – who should govern blockchain and what needs to be set up to deal with the associated legal headaches; and what regulations need to be put in place to ensure the privacy of data and can these regulations be adequately proposed and enforced (S&P Global Platts, 2018).

In a conventional centralised system there is a clearly defined governance framework, though for a decentralised public blockchain there may not be any existing precedence’s, frameworks or policies to follow. Liability in a centralised system can be easily placed on the central authority whereas in a decentralised system liability ownership has to be clearly established from the outset and roles and responsibilities within the ecosystem clearly set out (Lai & Kuo Chen, 2018).

These issues may be sidestepped with the use of private blockchains. The blockchains currently being trialled are primarily private, permissioned distributed ledgers on which participants require permission to join. This suits the use cases described previously, supply chain management and smart contracts, where it makes sense that competitive advantage lies in being able to exploit price arbitrages over product specifications, location and time (S&P Global Platts, 2018). The main issue then becomes defining the legal status of a smart contract able to self-execute – is the legal team involved in drawing up the contract or the programmer of the smart contract liable upon automatic execution?

Private blockchains definitely show the most promise so far but I’ve heard the structural or network related drawbacks may be too much for both private and public blockchains.

Structurally, the main drawbacks of blockchain include the usability of the network, the size and bandwidth available, latency within the network, wasted resources and network throughput. From a human resourcing point of view, the usability of blockchain is currently limited in terms of developer and end-user support and the knowledge base within the C-Suite is limited. From a physical resource perspective, there are environmental concerns such as the high usage of electricity due to the consensus mechanisms being used by miners to compete and confirm transactions. For example, the power used for Bitcoin mining in 2014 was comparable to Ireland’s annual electricity consumption (Sikorski, et al., 2017) and while solutions to this such as new consensus mechanisms exist they currently remain unproven (Mendling, et al., 2018).

There are physical limitations within the blockchain such as a much lower transaction throughput rate. As an example Visa is able to process on average 2,000 transactions per second (tps) with a capacity of 50,000 tps but Ethereum blockchain is currently limited to 12 tps. Experimental solutions are being developed, currently unproven, but these would be best suited for private blockchain applications (Mendling, et al., 2018). Coupled with throughput is latency, the time taken to include a transaction on the blockchain. Even in the absence of network congestion, transaction inclusion takes time and several confirmation blocks are recommended to ensure transactions are not removed due to malicious activity. Example average inclusion times are 60 minutes on the Bitcoin network and between 3 and 10 minutes on Ethereum but even with technological advances networks are unlikely to achieve latencies as low as conventional centrally-controlled systems (Mendling, et al., 2018).

As well as blockchains technological restrictions, given the location of mining activities (not of the bitcoin variety) many nations involved may not possess the infrastructure or personnel to implement blockchain and gain satisfactory results. To optimise the rollout of blockchain a certain standard of information and communication technology needs to be present in a country, with some blockchains only requiring support via SMS whilst others require smartphones and 4G internet access. Many communities within the developing nations in which mining occurs may lack the education, information and awareness of blockchain or have negative perceptions of it due to its association with bitcoin (Kshetri, 2017).

These challenges and doubts regarding the basic infrastructure and performance of blockchain are also compounded with doubts about the lack of standardisation and interoperability across blockchain networks. These issues appear to be solvable, though they will be compounded with a lack of executive understanding regarding blockchain and how it will change their businesses (Davies & McNamara, 2018), an issue which will need consideration during the implementation process. So where does that leave us? Tune in next time to find out.


Davies, S. & McNamara, G., 2018. Why Is It So Hard to Trust a Blockchain, s.l.: pwc strategy&.
Kshetri, N., 2017. Will blockchain emerge as a tool to break the poverty chain in the Global South?. Third World Quarterly, 38(8), pp. 1710-1732.
Lai, R. & Kuo Chen, D. L., 2018. Blockchain – From Public to Private. In: Handbook of Blockchain, Digital Finance and Inclusion Volume 2. s.l.:Elsevier, pp. 145-177.
Mendling, J., van der Aalst, W. M. P., Weber, I. & vom Brocke, J., 2018. Blockchains for Business Process Management – Challenges and Opportunities. ACM Transactions on Management Information Systems, January.
Millard, C., 2018. Blockchain and law: Incompatible codes?. Computer Law & Security Review, Volume 34, pp. 843-846.
S&P Global Platts, 2018. Blockchain for commodities: Trading opportunities in a digital age, London: S&P Global Platts.
Sikorski, J. J., Haughton, J. & Kraft, M., 2017. Blockchain technology in the chemical industry: Machine-to-machine electricity market. Applied Energy, pp. 234-246.

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