8 Reasons Blockchain Could Fail. Is It Likely?
Could blockchain and cryptocurrency fail? Yes. Blockchain and cryptocurrency offer massive potential. However, without further development they may never be able to live up to the hype and could ultimately fail.
Anyone who knows me, knows that I have an overall positive attitude about blockchain and cryptocurrency. I cheer for this technology the same way that I cheer for my favorite football team. However, blockchain technology is in a major battle. In my mind, the battle is similar to a Battle Royal that you would see in a professional wrestling event.
Kind of like this:
royal rumble2.jpg
Blockchain is trying to prove itself and be the last man standing. There are several major challenges standing in its way. So with that in mind I would like to introduce the most likely reasons blockchain would fail.
First...Lets Define Failure And Success...
The success or failure of blockchain can be defined in many different ways. In my mind, failure would be the inability for blockchain to be mass adopted in society. Success would be the everyday use of blockchain/cryptocurrency in business and individual transactions. With that being said...
These are the 8 biggest reasons blockchain could fail...
- Security Breaches / Hacks / Counterfeiting:
Security is one of the built in features that makes blockchain so desirable. Bitcoin is built on a blockchain that is 10 years old, and to this point it has not been directly hacked. In addition, no Bitcoins have been counterfeited or double spent. For clarification, there have been plenty of cryptocurrency exchanges which have been hacked, but the blockchain itself remains unharmed.
Something else to know, is that there are many different ways blockchain transactions can be processed. Proof of work, Proof of stake, and combinations of both, determine how decentralized a blockchain actually is. There are trade offs in security depending with approach is used.
Reason #1 It May Fail: Blockchains have *weaknesses.
Likelihood of Blockchain being hacked: 4 out of 10.
If someone were able to successfully hack or counterfeit the blockchain itself, it would be a direct shot to the heart of cryptocurrency. The very core of what makes blockchain special would be exposed and likely lead to a failure of blockchain as a whole. Fortunately, this has been very difficult to do, especially in the case of proof of work platforms like the one Bitcoin is built on.
- US Economy:
Most of the world economy is pegged directly to the US Dollar and many people believe that the US Dollar will eventually collapse. In fact, it was a failing US Dollar that led to the creation of Bitcoin back in 2009. One of the reasons cryptocurrency became so popular is because it provided the possibility of re-creating a financial system that seemed to be failing overall.
On the other hand, a thriving US Dollar causes people to forget the pain associated with a crippled and struggling economy. When there is growth and happiness there seems to be no need for change. If the economy is doing great, and everyone is happy with the dollar, why should we change anything?
Reason #2 Blockchain May Fail: High confidence in paper money.
Likelihood Of High Trust In Paper Money VS. Bitcoin: 8 out of 10 (At least for the foreseeable near future)
While I do believe that cryptocurrency may eventually replace the paper dollar, I don't believe that is going to happen for a while. The overwhelming majority still are comfortable and trust the US Dollar and financial system.
Read: "Will Cryptocurrency Be Mainstream?...And When?"
- Transaction Speed:
Cryptocurrency will only be a hobby size industry if it is not able to accommodate faster transaction speeds and higher transaction volume. Visa handles around 24,000 transactions per second and approximately 150 million transactions per day worldwide. In comparison, Bitcoin can handle around 7 transactions per second and Ethereum can handle 15 per second. Ripple is a cryptocurrency that has the fastest transaction speed at 1500 per second but some people argue that it is not a true blockchain.
Either way, blockchain/cryptocurrency will need to accommodate more transactions in everyday business than it currency can. Otherwise, why switch to a new infrastructure in the first place?
Reason #3 Blockchain May Fail: Inability to seamlessly upgrade real world business use.
Likelihood of Transaction Speeds Not Improving: 2 out of 10
This is a well known pitfall in the industry and the best minds know that there is a massive financial reward if they can figure out solutions to this problem.
- Regulation And Political Forces:
While no government can fully control or stop blockchain/cryptocurrency from advancing, they can heavily influence how quickly and easily it happens. Each country is making independent decisions which either help the advancement of this promising new technology, or squelch its ability to flourish. Countries such as the US, EU, and Canada have been mostly crypto friendly while countries such as China, Russian, and Vietnam have been much less friendly toward cryptocurrencies. If countries view blockchain, and/or cryptocurrency as a threat to their economic system they will do everything they can to dissuade there citizens from using it. Imposing high taxes, heavy regulation on exchanges, and enacting laws that place high penalties on users could easily impact the future growth of blockchain.
Blockchain could fail if people perceived that the risk vs reward of using this technology was not worth it when opposing their governments authority.
Reason #4 Blockchain Could Fail: Heavy Regulation.
Likelihood Of Blockchain Failure Because Of Regulation: 3 out of 10.
Read "Blockchain Impact: Political, Economic, Social" for more thoughts on this topic.
- Difficult to Understand and Use:
Helping the average person understand what blockchain is and how it works is challenging enough. Getting people to use and implement blockchain into their business, or daily lives, is even a bigger task. For example, If we had to understand how an airplane works before we could take a flight no one would ever fly! But because someone has put it all together and made it safe and simple to use, millions of people fly everyday.
Blockchain will fail if everyday applications don't become more available and simpler to use.
Reason #5 Blockchain Could Fail: Ease of Use.
Likelihood of failure due to Ease of Use: 2 out of 10.
*There are hundreds of projects, games, and programs that are being developed to address this issue. It will only be a matter of time until it is much easier to use.
- Energy Inefficient:
Running a proof of work blockchain system where every transaction is validated by every other computer in the network is very inefficient and consumes massive energy resources. It is estimated that it takes more electricity to run the Bitcoin blockchain than it does to provide electricity to some small countries.
Obviously there are many environmental concerns that come with this. If it currently takes so much electricity to operate Bitcoin, can you imagine how much energy it would take if Bitcoin were mass adopted? In addition, the mining rigs and mining farms that consume electricity also need to be temperature regulated 24 hours a day so they can run at maximum efficiency. This is also another part of the energy consumption concern.
While there will probably be activist groups that fight for energy regulations, Blockchains are decentralized and cannot be shut down like a company can. Therefore, advancements in energy efficiency will have to happen, or this will continue to be a thorn in the side of blockchain advancement.
Reason #6 Blockchain Could Fail: Energy Consumption
Likelihood of Failure Due To Energy Consumption: 2 out of 10
An interesting follow up question would be: How much water, ink, electricity, tree harvesting, and other natural resources are used for printing paper money compared to the energy consumption of blockchain?
- Not Necessary:
Blockchain could fail if the majority of people simply thought it was unnecessary to change what they are already comfortable doing. People have their own set way of doing things and asking them to change is a tall order.
Blockchain is, or will be, directly confronting the status quo in peoples lives.
If people do not see a simple and easy reason to switch, there would be no reason to change. This complacency would allow people to overlook the value of this new technology and simply render it as not necessary. This would be a silent killer for blockchain and slowly kill its chances as a viable technological solution for the future.
Reason #7 Blockchain Could Fail: Complacency
Likelihood of Failure Due to Complacency: 7 out of 10
Most people don't care or don't want to take the time to learn something that is confusing to them, especially if it doesn't seem to impact them on a personal level. Blockchain is working against human nature and peoples general desire to stay in their comfort zones.
- Unable To Adapt:
In 2017, blockchain became the golden child of new technology. In the grand scheme of things it is still a rookie on the world stage. Lessons need to be learned, and new solutions need to found, in order for blockchain to become even more successful. If blockchain and cryptocurrency developers do not learn from past failures or from their peers successes...it will fail.
Remember that Walmart overtook Kmart because Kmart was unwilling to adapt to the changing economic landscape. The same is true for blockchain.
Reason #8 Blockchain Could Fail: Self Inflicted Wounds
Likelihood of Failure Due to Self Inflicted Wounds: 8 out of 10
None of the outside forces acting against blockchain are as likely to cause blockchain to fail as its own ability to mature and meet the challenges that it faces.
Conclusion: Blockchain jumped into the ring and claimed it would be a champion. Clearly, it faces strong competition and major challenges from every side as it fights its way into society. So far, it seems that blockchain has stood tall against its opponents, but it is still vulnerable. New technology needs to be developed and new strategies need to be learned if it is going to be champion.
So my final answer to the question "Could blockchain fail?" is Yes. And if it did, it would be a combination of all the reasons outlined above. We will just have to wait and see how the challenges are met and if a transition can be made.
*Because of the nature of how the Bitcoin blockchain is built and secured it is susceptible to an attack known as the 51% attack. This would be where one person or entity controlled 51% of the mining rigs and was able to change and re-write all the previous blocks in the blockchain to whatever they would like. This is extremely unlikely due to the massive amount of resources it would take to accomplish this task. For Example, There are millions of computers around the world mining Bitcoin and it would be extremely difficult for one centralized entity to acquire half of these resources.
