6 potential blockchain limitations for enterprise use

1. Performance

As Kevin Hobbs, CEO of blockchain consulting company Vanbex Labs, explains, blockchain adopters must take into consideration the technology's performance limitations.

Kevin Hobbs

When a transaction is being processed, a blockchain has to go through everything a normal database does, plus some extra steps.

"Since every blockchain transaction must be digitally signed, there is the burden of signature verification. In contrast, centralized databases do not need verification and are thus faster," Hobbs explained.

Blockchains also require more computation than centralized networks, Hobbs said.  "Whereas centralized databases process transactions once -- or twice -- in a blockchain, they must be processed independently by every node in the network," he said.

Bitcoin, for example, processes seven transactions per second. By comparison, Visa, using centralized database technology, processes transactions roughly 370 times faster, handling around 1,700 transactions per second. Blockchain projects have taken steps to boost transaction speeds, but have not caught the competition, and many experts believe they will not due to the technology's architecture.

David Chaum

Meantime, slow transaction speeds present a big barrier to blockchain adoption, according to David Chaum, founder of decentralized messaging and payments platform Elixxir.io. He said he believes regular users will only care about blockchain apps when they see no noticeable difference in their performance, compared to their centralized alternatives.

"You cannot reasonably expect the average consumer to sacrifice functionality in order to use an app just because it's built on the blockchain," Chaum said.

Nir Kabessa

Because of their architecture, public distributed ledgers will always be less efficient and more costly than centralized services, said Nir Kabessa, a teaching assistant at Columbia University and president of Blockchain at Columbia, a universitywide organization for nurturing distributed ledger technology. He argued that blockchain should be avoided unless trust -- blockchain's main value proposition -- is the cause of inefficiency.

"Projects that don't need to decentralize trust shouldn't use a public blockchain," Kabessa said.

2. Updates and patches

Another blockchain limitation is related to how blockchain apps are updated. Making changes is not like publishing an updated version to an enterprise app store and expecting all phones to automatically download the latest version.

Instead, the entire network -- or a majority of it -- has to agree to the update. Especially if the update is backward-incompatible, it may be hard to convince everyone to join. That is often the reason for splits in the blockchain community -- e.g., Bitcoin splitting into Bitcoin Cash, and the latter splitting again into Bitcoin SV and Bitcoin ABC.

For developers looking to rapidly patch, improve and expand their products, blockchain might not be suitable.

3. Protecting data and IP

Everything on the blockchain is open source and transparent -- from the blockchain's code to the smart contracts that run on it. That is the philosophy of the technology after all. If you have patented technology or other intellectual property you don't want to share, blockchain is not ideal.

Another natural part of blockchain is immutability -- once something is stored on the blockchain, it will always remain there. This can be troublesome for some data protection laws, like the GDPR, where users must have the right to be forgotten.

Georg Greve

"Any system in violation of these legal requirements will never be suitable for large adoption," said Georg Greve, chairman and head of product at Vereign, a blockchain-based identity verification platform. "Private blockchains can address some of this at a legal level, but generally it is good advice to avoid writing personally identifiable information to the blockchain, because just hashing or encrypting it is generally not good enough."

To cope with this, instead of storing the personal data on the chain, Vereign stores links to the personal data. Thus, the information on the chain will be immutable, but the personal data at the endpoint can be deleted.

4. Network costs

It's very easy to launch a client-server architecture, whereas in blockchain, you need an entire network with nodes.

You cannot reasonably expect the average consumer to sacrifice functionality in order to use an app just because it's built on the blockchain.

In a centralized service, a simple client-server model can function with as little as a single server, handing all requests for the application. But with a decentralized network, you need hundreds if not thousands of nodes (servers) running the application. This expansion is necessary, as the bigger the network is, the safer it will be from 51% attacks -- a hacking attempt, where the hacker attacks the network with overwhelming computing power in order to force verification of otherwise invalid transactions.

Thus, a blockchain platform needs to convince users to join the network and run the code as nodes.

An alternative approach would be to use an existing blockchain network. While this removes the need to build one's own network, users must work within the parameters of the existing service: They can't change how the system works or scales, what algorithms it uses for verification or how many transactions it will be able to handle.

5. User acceptance

One of the primary motivations behind many blockchain projects -- to remove intermediaries -- is also one of the potential limitations of blockchain.  The technology enables peer-to-peer transactions, eliminating the strictures imposed by a central authority and the fees typically paid to a third party.

Richard Dennis

However, in many instances, middlemen are part of a better solution. As Richard Dennis, founder of Temtum, explains, removing the middlemen and adopting a blockchain alternative would create more work for the users, such as dealing with encryption keys or the lack of protection if an account has been compromised.

"This is adding additional work for the user, reducing user experience and not creating enough value for them to choose a decentralized application over a centralized one," Dennis said.

Furthermore, many centralized services already have a vast reach, and that is benefitting both users and developers. Citing Apple's App Store as an example, Dennis explained that users do not mind paying $.89 for an app if they can enjoy it right away, and even the sellers are willing to pay 30% of their take to the platform, as it gives them access to hundreds of millions of valued customers.

6. Mistaking blockchain for public key infrastructures

One of blockchain's primary ingredients is cryptography; users prove their ownership via their private keys. Many services have used this feature to develop identity verification projects, or supply chain services: It proves who is who and what actions have been taken by each party.

However, while it is good to replicate the data enough to ensure it is reliable and secure, having every warehouse storing everyone else's data in a large blockchain is an "overkill," according to Nash Foster, CEO of industrial-scale blockchain platform Pyrofex. "Most of the enterprise applications I'm aware of really just use 'blockchain' as a code word for public key infrastructure," he explained.

Nash Foster

Public key infrastructure (PKI) is a technology that enables the linking of identities with public key certificates. PKI is already used in Secure Sockets Layer certificates to secure website communications -- and ensure the target website really is what it claims to be. But as Foster warned, it should not be mixed with blockchain.

"People are starting to wake up to the opportunities associated with PKI, but they call it 'blockchain' because that's the latest hype cycle buzzword," he said.

"Blockchains are not the fastest, nor the most efficient technology for data redundancy and distribution," Greve said when asked about blockchain's limitations. "They are a specialized tool for certain purposes where immutability and timestamping are required."

For instance, while Vereign uses the encryption provided by blockchain, it also uses the timestamping feature. Thus, if a device is compromised, the tracks will remain on the ledger. This makes hiding identity theft much harder.

So, while blockchain does provide the encryption component, it also does a lot of other things that would not be necessarily suitable for every project.

"A lot of applications, like provenance applications for drug distribution, can and should make use of public key cryptography for attestation," Foster said. "But, they don't actually need a blockchain for this. And, if they used one, it would be far more costly than is necessary."