Blockchain is a digital ledger where all the transactions are recorded in chronological order and are visible publicly. It is a transparent and decentralized system to record a sequence of transactions (or “blocks”). Blockchain technology has a great potential to reduce remittance cost, improve financial inclusion, and fight against corruption. However, for a full-fledged adoption of blockchain technology, it becomes necessary to understand and address the challenges related to initial cost, integration with legacy systems, energy consumption, people perspectives, and privacy & security.
High Cost- Even though blockchain technology has benefits with regards to productivity, efficiency, timelines, and reduced costs, it is highly expensive at its initial implementation. This is due to high cost of software that is required to run this technology. Moreover, this software needs to be highly specific for specific type of hardware. In addition to these costs, there is a need to find qualified people to run this technology. With high demand and limited supply of qualified people, it becomes necessary to pay high salaries to them. Such large investment is not feasible for small or medium sized businesses in various sectors.
High Energy Consumption- The bitcoin and Ethereum network use proof of work mechanism to validate the transactions done on blockchains. This mechanism requires large amount of energy to run and cool down the computer systems. In order to overcome this challenge, the Ethereum network is planning to move to a proof-of-stake mechanism, which would use less energy in order to process.
Public Perception- It is necessary to change public perception to adopt this technology for mainstream applications. Currently, blockchain technology is synonymous with Bitcoin. Hence, before entering the mainstream, people must understand the difference between bitcoin, other cryptocurrencies, and the blockchain. It will enhance the willingness to adopt this technology.
Privacy- The Bitcoin blockchain is publicly visible. The information associated with Bitcoin transaction is available in the public domain. With the exception of some privacy-centric coins, the case is same with many of the blockchains currently in existence. This feature becomes a liability if distributed ledgers are to be used in sensitive environments. For instance, private patient data should not be accessible for all as is the case with proprietary business data. This is also applicable to government or financial data. For widespread adoption of blockchain technology, the ledgers shall be altered in such a way that only the authorized person can access it.
What We Think- Blockchain is an emerging technology and government should take initiatives to increase the awareness and change public knowledge on this technology. Even though this technology requires considerable amount of planning and expertise, it could help in reducing burden of protecting important data in various industries. While there is little doubt that blockchain technology will play an important role in both public and private sectors in the future, this future is still far than many believe. The above-mentioned list of challenges clearly highlights the need for technological improvements to the current state of blockchain technology to take hold on a large scale.