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On points of fact, the majority puts great hopes on blockchain. And it seems that yet today, people eventually understood that invention of the ânew Bitcoinâ is a bad scheme. That technology of a distributed database that blockchain offers has an extremely high potential in the nearest future. It is believed to furnish systems which would be faster, cheaper and, whatâs important, more secure. Although, the revolution still hasnât started and there are two basic reasons for that:
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The ecosystem around blockchain is too infant. Thereâs a range of problems we need to solve before the technology can be applied on a worldwide basis.
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Like every technology, blockchain has its limitations that weâll discuss right away.
Constantly growing volume of data
Unlike traditional accounting systems that process final state of the database, blockchain is a chain of blocks (sorry about tautology) that stores the whole history of all the changes that have ever happened for all the time of networkâs existence. Needless to say that this leads to the fact that your database grows continuously.
This limitation is not a critical one. Rather a peculiarity of the technology that, in fact, provides for quite significant advantages. Having the whole history of changes thatâre securely interlinked with each other makes it practically impossible to notelessly alter data or extract it from the database.
Capacity issue
Whereas blockchain is mostly applied in a decentralized environment, systems based on it usually have lower capacity than the centralized ones. Itâs all trivial, actually. Instead of having data transmitted to centralized servers, decentralized systems require it to be spread across an unlimited number of independent servers. In addition, participants should reach consensus considering this data. Obviously, it all takes longer time.
Governance issue
Before you actually launch a blockchain-based system, thereâs an essential, you can call it, activity that is to be accomplished â specify the governance. In a decentralized environment, decision making is carried out on the basis of consensus because participants donât trust each other. If there would be a certain entity thatâs in charge of upgrading the system, dealing with certain difficulties in it and so on â the system would be centralized. Thus, it is extremely hard to determine correct conditions from the very start. Conditions that would allow accurate decision making in the network, that doesnât have a responsible party, but a âdecentralized communityâ that, by means of consensus, decides what to do and how to do.
Responsibility
People are used to centralized governance systems. Because you can always find someone to blame. For example, if you have problems with your bank account â you go to the closest branch office and they help you fix this issue.
In case of a completely decentralized network, you take all the responsibility, because you are involved in the process of managing the state of the system together with everyone. While the rules by which the system operates is the only guarantor of integrity. Each participant verifies the activity correctness of the least. Even the court is unable to implement a solution that contradicts the protocol rules.
The concept of responsibility in decentralized systems is quite vague. People should accept the fact that each participant takes their own risks. Whilst, governments should work out new legal models, sometimes even laws that consider the essence of such behaviour models.
Conclusion
Limitations we have just covered can be classified into two groups of issues:
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Technological aspects (Capacity issue and constantly growing volume of data)
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Issues related to the mentality shift (Responsibility and governance issue)
As to the first group, it would be proper to remark that the innovations blockchain technology introduces to accounting systems caters to a drastically different approach to managing data. Thatâs why each benefit prompts a number of technological challenges that developers need to overcome.
While the second group is all about us. Notably, the way we think. People need some time to get used to the new form of governance. Donât get it wrong â itâs not that blockchain is so global that will replace governments, for example. Of course no. Rather, it will significantly reduce third-parties, in such way reduce the distance in our communications. But before we are able to turn down intermediaries, we need to think out new approaches and rules under which we interact with each other, directly.
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About the author
Dr. Pavel Kravchenko is the Founder of Distributed Lab, blogger, cryptographer and PhDÂ in Information Security. Pavel is working in blockchain industry since early 2014 (Stellar). Pavel's expertise is mostly focused on cryptography, security & technological risks, tokenization. He considers the company's mission in a creation of an open ecosystem that uses uniform payment and asset management protocol - so-called âfinancial web'â
Disclaimer
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