Here are the Downsides and Potential Dangers of blockchain.
1. It is not a distributed computing system
Blockchain makes use of a peer to peer network. The computer systems that take part in this network are called nodes. This is advantageous in some respects but it also carries with it its own drawbacks.
For instance, the quality of the blockchain will also depend on the quality of the nodes that constitute it. A slow or compromised computer system on that network can potentially have a negative impact on the entire network.
The bitcoin blockchain provides incentives for nodes that participate in the network. But the same cannot be said of other blockchains that don’t provide the same level of incentives.
A true distributed computing system is one that does not depend on the participation or involvement of the nodes in its network. These are important conditions in the corporate setting.
Take note that in a blockchain network, there is no mutual assistance being performed from one node to the other. What if one node is experiencing a reduction of computing resources? Can’t other nodes help out to cover for the reduced computing power? Each node is independent of the other in a blockchain network. There is a lack of synergy and that can weigh down on the network of a blockchain.
What a blockchain really is a distributed network. It lacks the essential features of a distributed computing system to make it more appealing to large scale enterprises.
2. High energy consumption
Blockchains make use of different consensus algorithms. In the case of bitcoin, the proof of work consensus is used while in ethereum the proof of stake is used. In both instances, making use of these consensus algorithms involve cryptologic problem solving.
You need very powerful computing systems to accomplish such tasks and these computer systems (i.e. miners or validators) consume a lot of energy. Remember that every time the blockchain is updated with a new block, the mathematical problem that miners will have to solve will automatically be made more difficult.
The more difficult the crypto puzzle becomes the more energy a miner is required to spend. However, do take note that not all blockchain systems work this way.
Some types of blockchain make use of private networks and permissioned networks. The number of nodes in these networks is usually limited and thus they do not have the same energy consumption problems.
One avenue for improvement will be to stop using global consensus algorithms and use more efficient methods to achieve consensus. Unfortunately, the more popular blockchain networks today still use public networks to remain operational and thus aren’t energy efficient.
3. Scalability is still an issue
There have been efforts to improve the scalability of blockchain networks but it still remains an issue for some. One of the culprits to this is network congestion. It is no secret that the bitcoin network has grown by leaps and bounds.
This growth also affects the speed at which the entire network can operate. It should be apparent that the more nodes that join a system, the more congested that system becomes. This will affect the performance of the network and the chances of getting reduced network speed will increase.
The good news is that scalability solutions are in the works. For example, we have stated one of the key differences between the bitcoin and ethereum blockchains. The processing time for bitcoin is 10 minutes whereas ethereum only requires 14 seconds.
There is still much to be done when it comes to scalability especially when it comes to cryptocurrency blockchains. competing systems like VISA leave blockchain systems in the dark when it comes to processing times. They process 1,700 transactions per second, which means they can process millions of transactions per day.
4. Immutable Data
Now, don’t get me wrong. We mentioned that immutability is a pro and not a con for blockchain technology. Well, if you consider all factors, immutability is a double edged sword, actually. Immutability is a quite beneficial to the supply chain and financial industries but it can be a problem for others especially where sensitive data and information is concerned.
There is another problem with immutability—the fact that it can be subjective as well. Here’s an interesting theory: given the fact that blockchain makes use of a distributed network where nodes are supposedly independent, is it possible to gain consensus if you own the majority of the nodes?
If one entity, let’s say a large corporation, owns more than 50% of the nodes in a blockchain network, then there is room for that company to sway the consensus.
5. It is not 100% secure
It is a fact that a blockchain network tends to be more secure compared to other competing platforms. That is something that is truly wonderful. However, while keeping that claim in mind, you should remember that there is no such thing as a completely secure computer system or network.
Yes it is true that a blockchain is very difficult to hack, however, that doesn’t mean it cannot be hacked. Don’t be lured by such claims as being completely hack-free. That is why you shouldn’t be too complacent with uploading all your sensitive information to a blockchain.
For example, in 2017 hackers were able to locate a flaw in the code in the ethereum blockchain. They used this flaw to steal millions of dollars. The problem is that there was no quick way to shut the system down since the blockchain was running on a distributed network.
Simply put, there was no off switch. You can’t just turn off your computer to deny hackers the access they need. You can’t pull the DSL jack and disconnect your system from the internet.
The solution was for white hat hackers to steal the money back from the criminals before they can distribute it. This goes on to show us that there is truly no such thing as a hack proof system especially if that system is connected to the web.
There are other ways to crack the code other than looking for flaws in the code. For instance, hackers can use DDoS attacks (Distributed Denial of Service). What this does is that the nodes in the blockchain network can be bombarded with a ton of network requests that will result in network congestion. It will slow processes and it may leave avenues for hackers to enter and do their dirty work.
Blockchain networks can also be susceptible to cryptographic cracking. For example, quantum computing has capabilities for cryptographic cracking. That means the crypto keys can be hacked as well. The good news is that blockchains are now being updated to address cryptographic cracking. But that doesn’t mean other methods of hacking into a blockchain don’t exist. Just remember that you shouldn’t be too complacent especially when marketers tell you that their blockchain is completely hack-proof.
6. Losing private keys
Have you ever forgotten your email’s password before? Was there ever a time when you forgot your Facebook password? How about the last time you forgot the security pin for your ATM?
People forget things all the time—especially complex passwords. That is why private keys for your crypto wallet can be both a blessing and a curse. Sure it makes your crypto wallet very secure. Sometimes it is so secure that it keeps your cash away from you as well.
There have been man horror stories of crypto wallet owners who lost their private keys when their wallet contains lots of bitcoins (or some other crypto currency). One example is a guy that goes by the name of Welshman. He threw away an old hard drive but he forgot that it held his crypto wallet and private key. The wallet contained 7,500 bitcoin, which is worth more than $40 million today.
Some experts estimate that there are more than 4 million bitcoin that have been lost due to a lost crypto wallet or private key. For most of us, when you lose your private key it simply means your cryptocurrency is gone forever.
However, there are measures today that are being developed that might help recover those lost private keys. One such solution is by using zero-knowledge encryption. This protocol allows you to recover your private key by downloading the same wallet app on another device. There is no 100% guarantee that it will work but it is definitely worth a shot.
For now, the best thing that you can do is to make sure that you create more than a single secure copy of your crypto wallet and private key. Some digital forensics experts even recommend that you write it down on a page or piece of paper and make sure it is an item that won’t get lost—like a family Bible or maybe your diary. By keeping your private key offline (i.e. off the grid) you are keeping it safe and away from the hands of hackers. Obviously you can’t hack something that isn’t connected to the internet.
Apart from that, you may have to wait a bit longer for other means to recover lost private keys to come around.
7. The cost of implementation
Switching your business over to blockchain technology will still incur a considerable cost. Yes, it is true that a lot of blockchain technologies today are open source, but it isn’t just the acquisition of the said technology that you should think about. Implementing the said technology might also become an unforeseen cost center in your business.
Sure you may be given free access to the original source code for a particular blockchain that you would like to implement in your enterprise. However, you will still have to hire blockchain developers to work on customization and the implementation of the said blockchain.
If you’re getting a paid blockchain on the other hand, you should also pay for licensing as well. Take note that enterprise projects can cost you millions especially if you’re trying to implement blockchain to a very large organization.
It is true that there will be no transaction fees involved in blockchain technology, but infrastructure costs might come as a surprise to you.
8. Your team’s aptitude for blockchain technology
Another downside that you should be aware of is the need to train your employees to use blockchain technology. You already have to update your current systems to adopt and maybe switch over to blockchain, but your staff and other employees will also need to learn how to use this technology.
You don’t want to go about it by trial and error. If you want to transform your business and make the most out of this investment, then you should also invest in your team—which will also mean you have to hire experts in the field to train your staff.
9. A rather young technology
we compared blockchain technology to those old two dimensional videogames of the 1980s. A lot of those videogames were in monochrome. That tells you a lot about the state of affairs in the world of blockchain technology. There is still a lot of things to do to make it truly robust and efficient.
A lot of improvements have been made since the release of the bitcoin blockchain. Today there is Ripple, Enterprise Ethereum, Hyperledger, and Corda and they represent some of the advancements in blockchain today.
However, there are still a lot of problems about this technology that has to be resolved. You can get involved in product development by testing out different blockchains and try to implement them in your business. Another option is to sit back and wait for further developments come along before you invest in this type of technology.
10. Cryptojacking
What is cryptojacking? It is hijacking but for crypto related purposes. Allow me to elaborate on that. A cryptojacking attack will allow hackers to tap into your computer and use its processing power and other resources for the purpose of mining cryptocurrency.
They don’t care about your data and they won’t bother to steal your banking or other personal information. What they want to get is your PC’s computing power. Your computer will become part of a vast network of other computers that work together to mine cryptocurrency.
Once the currency has been mined, it will be stored in the hacker’s crypto wallet—not yours. These hackers use a variety of attacks to break into your computer system. The idea is to install malware on your computer. They may use emails, websites embedded with malicious code, and hacking into cloud services.
A cryptojacking attack is usually quick and silent. If your firewall, malware defender, and antivirus software aren’t updated then chances are you will never notice anything. You’ll just experience some lagging in your computer’s performance but otherwise, everything seems okay.
Sometimes the scripts that hackers use can make computers run really slow. Sometimes they can even make certain components, like your computer’s motherboard and GPU, to overheat.
Hackers usually target business computers but they will also attack home computers if given the chance. Some computers are never turned off and in most instances are kept online. The crypto mining scripts that hackers use will always operate in the background and will not show up when you toggle between applications.
How do you detect a cryptojacking attack? If you notice any of the following symptoms on your computer, then you may want to have your IT team check your systems:
- Decrease in your computer system’s performance
- Overheating devices
- Increased levels of CPU usage
- Changes in the coding of your websites
Note that if you are able to detect possible symptoms of cryptojacking in one computer or device in your home or office network, then chances are the other devices that are also connected to it may already be affected also.
So, how do you prevent cryptojacking?
- Improve your IT team’s security training
- Educate your employees about possible symptoms to lookout for. You should also educate them on how to prevent an attack in the first place.
- Install ad blockers
- Use browser extensions that are designed to protect your computer from malware
- Block any unwanted scripts from websites
Remember that no computer system or infrastructure is ever free of troubles and downsides. The same is true for blockchain technology. You should weigh the pros and cons of using blockchain before you jump into the bandwagon and try it for yourself.
