Technical Challenges

Source: https://vitalik.ca/general/2021/04/07/sharding.html

Challenges with Blockchain Technology

• Performance, Scalability, & Efficiency
• Privacy & Security
• Interoperability
• Governance & Collective Action
• Commercial Use Cases
• Public Policy & Legal Frameworks

Performance, Scalability, & Efficiency

Throughput

• Bitcoin: 7 – 10 transactions / sec
• Ethereum: 20 transactions / sec
• Visa: 65,000 / sec
• DTCC (stock transaction): up to 100,000 / sec

Proof of Work Energy Consumption

Source: https://digiconomist.net/bitcoin-energy-consumption

Alternatives Network Structure

• Sidechain
• Sharding
• Layer 2
• Payment Channels
• Lightning Network

Alternative Consensus Protocal

Generally Randomized or Delegated Selection of Nodes to Validate next Block. May have added mechanism to confirm Block Validators’ Work

• Proof of Stake – Stake in Native Currency
• Proof of Activity - Hybrid of POW and POS
• Proof of Burn – Validation comes with Burning of Coins
• Proof of Capacity (Storage or Space) – Based upon Hardware Space

Major Permissionless Blockchain Applications still use Proof of Work – though:

• DASH is a hybrid of POW with a tiered system of ‘Masternodes’
• NEO uses a Delegated protocol of ‘Professional Nodes’

Privacy & Security

• Law Enforcement & Regulators want more transparency
• Financial Institutions, Regulators & Some Users want less public transparency

Concerns about Privacy Coins & Mechanisms Fostering Illicit Activities

• Coins: Dash, Monero, Zcash
• Mechanisms: Mixers or Tumblers

Cybersecurity Challenges of Private Key Custody, Generation & Storage

• Significant Losses due to Hacks, Mismanagement and Thefts

Possible Solutions

• Zero Knowledge Proofs: to prove a statement is true without revealing the message of that statment
• Pedersen Commitments: cryptographic algorithms that allow a prover to commit to a certain value without revealing it or being able to change it.

Interoperability

• To view, access, and share information across different blockchains or blockchain networks

Hard Forks and Soft Forks

• A hard fork is a change to a blockchain protocol that renders older versions invalid. e.g. bitcoin cash, etherum classic
• A soft fork is a change to a blockchain protocal that is backward compatible.

Permissoned vs Permissionless

Permissioned Blockchain

• Known set of participants
• No proof-of-work or mining
• No need for a native currency
• Distributed database technology
• Favored by the financial sector

Permissionless Blockchain

• Unknown participants
• Security based on incentives
• Native currency
• Crypto-economics