The world might be moving toward a blockchain-based economy. But the technology today is still at an early stage of development – think Model-T rather than Prius, to use an automotive analogy – so it’s too soon to really know what that economy might end up looking like.
And before we arrive at that blockchain future, we’ll undoubtedly need to contend with many risks and challenges. Again, using the car comparison, that means resolving blockchain-equivalent issues such as rules of the road, seat belts, fuel economy, impact resistance, auto insurance and more.
For blockchain, those issues fall into six categories, according to the World Economic Forum: adoption challenges, technology barriers, security risks, legal and regulatory challenges, interoperability risks and energy consumption challenges. For example, blockchain today remains too difficult for many people to use.
“The usability of the technology is currently a crucial barrier to entry – many existing interfaces for blockchain ledgers are too complex for mainstream adoption today,” the WEF noted in a September 2018 report prepared in collaboration with PwC and the Stanford Woods Institute for the Environment. “Speciﬁc areas to improve include the user experience, system speed and the lack of formalised blockchain protocols. The degree to which users trust and understand the technology could also prove a barrier to adoption.”
Beyond such adoption obstacles, the technology itself has limitations – in transaction capacities, scalability and support from production-ready networks – that also need to be addressed. The Australian research organisation CSIRO said in a May 2017 report that, despite some of the potential advantages of blockchain technologies: “[T]hey also currently have limitations for confidentiality, privacy, and scalability. For latency and availability, reading is improved but writing is worsened. Blockchains are also subject to a different cost model. Digital currency transfer and long-term storage of transactional data may be less expensive.
However, program execution and storage of big data may be more expensive.”
Depending on the type of blockchain used – public or private – and how advanced it is, the technology also offers both security advantages and potential security risks. The latter range from the possibility of a 51-per cent attack or a private security key loss to a variety of vulnerabilities that could be introduced with poorly designed smart contracts, according to a recent security survey by researchers in China and Hong Kong. Some of these might be minimised through smarter security precautions, more efficient detection mechanisms or other techniques such as secure enclaves, the authors note. Alternative consensus mechanisms could also help reduce the intensive computing and energy requirements of today’s proof-of-work systems, they add. In general, they say, improved security remains an area ripe for further research and development.
Advances in quantum computing could also threaten the inherent security of the cryptography used in blockchain systems today. However, there are a number of post-quantum blockchain projects in the works aimed at reducing that potential risk.
“In the context of blockchains, enhancements are likewise being made to quantum-proof protocols, as already there are some blockchains that claim to be ‘quantum-resistant’,” stated a January 2018 research report on blockchain from Credit Suisse. “Nonetheless, should the day of reckoning for public-key cryptographies arrive—when quantum computing capabilities surpass the security of asymmetric encryptions—much of the Internet’s traffic would likely be at risk, and blockchains would be far from the largest concern.”
Addressing regulatory risks, meanwhile, will depend upon the actions of a wide variety of government and quasi-government agencies around the world. For now, different jurisdictions are approaching the technology through everything from strict regulations – including outright bans on cryptocurrencies in some cases – to a lighter touch aimed at encouraging innovation and new economic opportunities.
Finally, the WEF points out, significant challenges remain in making blockchain technologies interoperable with other IT systems.
“The integration of blockchains with each other and with other IT systems will be fundamental to its success,” the WEF said in its report. “Given the early stages of blockchain development, it is only natural that there are no concrete blockchain standards. While the standards are being developed within each platform, the interoperability between platforms and with other IT systems is currently extremely limited and often non-existent. This potentially raises a costly operational challenge as users will need to set up suitable data models and blockchain-enabled business processes to incorporate new authentication and communication protocols.”
Finding answers to all of these challenges, CSIRO concludes, will take time.
“There is still much that is unknown about the development of trustworthy blockchain-based systems,” the agency said. “Further research is required to improve our knowledge about how to create blockchain-based systems that work, and how to create evidence that blockchain-based systems will work as required.”