Challenges & Objections to the Blockchain

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Challenges & Objections to the Blockchain


Objections to the blockchain and explanations

General awareness of blockchain is still low. Most people have heard something about cryptocurrencies, however their overall knowledge about blockchain is limited. The information in the media is often negative and misleading. This implies a certain aversion to blockchain technology. Below we have collected the most common sounds objections / allegations and tried to explain the actual situation or to indicate possible solutions.

Cryptocurrency extraction is inefficient, unecological, energy-intensive and pointless

This objection mainly applies to blockchain networks based on the consensus PoW algorithm. For example, Bitcoin production consumes about 73 TWh of energy per year, which is about 0.33% of world energy consumption and also approximately consumption Austria[1]. However, newer blockchain networks use more modern consensual algorithms such as PoS (Proof of Stake), which are many times lower energy intensive. For wider deployment in an e-Government environment, we recommend avoiding PoW blockchain.

Blockchain always gradually moves towards centralization and thus loses its meaning

Especially for blockchains using PoW, we monitor grouping into so-called mining pools. For example, the largest mining association in the Bitcoin network achieves up to 30% success. For more modern blockchains using other consensual algorithms (e.g. PoS) is this risk lower and the motivation to associate in mining associations is lower. In general, the greatest possible diversity of nodes must be sought, various platforms, operating systems, geographical locations, ownership, etc.

Blockchain is used for money laundering and for payments in the grey or black economy, most ICOs are scams.

Indeed, the anonymity of payments in cryptocurrencies and the lack of regulation can lead to the use of payments in the grey and black economy. However, the proposed projects avoid cryptocurrencies as currency and use the blockchain as a database or use it in terms of asset tokenization. In the proposed projects, blockchain on the contrary, brings trust and greater transparency.

Blockchain is a disruptive technology that will cause job losses, the collapse of companies, office closures

Blockchain is a revolutionary technology and tends to disrupt existing business models and streamline processes. The result can be a local loss of jobs, but blockchain brings also many new opportunities and new business models.

Blockchain is slow (Bitcoin)

Bitcoin blockchain is much slower and has less time capacity (maximum number of transactions per minute) as contemporary, more modern blockchains. Bitcoin creates a new block approximately every 10 minutes, modern blockchains create new blocks in seconds. Bitcoin capacity is only up to 7 transactions per second (depending on the content), Ethereum up to 15 tx / sec, some more modern reach up to more than 1,000 transactions per second.

Current challenges and trends

Deviation from PoW towards other algorithms

Due to the high and ever-increasing energy intensity of consensus-based algorithms on computational power (PoW), we can notice a deviation from PoW when it comes to new blockchain projects to more energy efficient algorithms such as PoS, DPoS, etc. Overview comparing different consensus algorithms is given above in this chapter.

Efforts to reduce the amount of data stored in the blockchain and storage of larger data off-chain

Due to the requirement of fast response, smaller demands on the transmission capacity of the network or smaller blockchain node storage requirements we see an effort to minimize the amount of data stored to blockchain and transfer of larger data off-chain, meaning to other repositories outside the blockchain. Only their hashes are then stored in the blockchain to verify the authenticity of the document. Examples of off- chain storage are e.g. IPFS (InterPlanetary File system), StorJ, etc.

Asset tokenization

Asset tokenization is a strong trend in the use of blockchain. Real world assets are represented in the virtual world in the form of tokens. A token is something like a cryptocurrency, just with that difference that it represents an asset (or part of it) from the real world. It can be a means of transport (e.g. car, bicycle, yacht), real estate (e.g. cottage, holiday apartment), computing power, cloud storage capacity, emission allowances and much more. Tokens are then, with the use of blockchain, easily transferred, traded, monitored for use and, most importantly, secured against misuse by multiple uses (e.g. that an auto asset will only be assigned to one user at a time).

Smart contracts

One of the frequently mentioned trends is also the use of smart contracts in blockchain. Attractive are low costs, security, clarity, non-need of a third party and enforceability of the contract. Blockchain however, supporting smart contracts is more complex and potentially more expensive or slower. After the DAO incident in 2016, during which 50 mil. USD was stolen (returned later), it is appropriate to ask questions regarding the security of smart contracts. Due to the lack of regulation, the question of binding and law applicability is uncertain, and litigation might be problematic.

The following table summarizes some of the challenges and risks of blockchain technology:


Challenges and risks

Adoption challenges

User experience

Applicability of the technology

System speed

General public trust

Lack of awareness of the technology

Technology barriers

Low transaction capacity


Security risks

Cyber ​​security risks

Data leaks

Limited protection of cryptographic keys

Legal and regulatory challenges

Unclear jurisdiction

Identification of those responsible

Legislative framework of contracts

Personal data protection regulation

Interoperability risks

Lack of blockchain standards

Development of suitable data models

Suitable protocols for authentication and communication

Energy consumption challenges

Proof-of-work consensus algorithm

Proof-of-stake and proof-of-authority scalability

Reducing energy intensity

Blockchain challenges and risks

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