While blockchain technology can transform entire industries, it can also have negative effects on the wider digital world. Bitcoin and other cryptocurrencies are digital currencies that can be freely exchanged online or transferred between parties in a peer-to-peer network directly without any third-party interference. But this new form of money has also been called “the mother of all scams” because of its intense volatility, the difficulty of verification transactions, and the high cost of entry into the market.
In response to these concerns, several companies have developed blockchain-based digital currencies such as Bitcoin and Ethereum to replace existing financial systems and improve trust, transparency, and security. But the technology can also have downsides. Here are some of the top disadvantages of blockchain technology:
Bitcoin Price Volatility
Because of its decentralized nature, the value of a Bitcoin can fluctuate wildly from day to day depending on supply and demand. The volatility can have a significant impact on business operations and the success of startups. Some investors might find the price volatility of Bitcoin too high and might decide to invest in other coins with lower volatility. But for many companies, the volatility of Bitcoin can be a major issue.
If a company uses a digital currency as a way to settle payments or as part of a transaction process, it needs to consider the risk that the price of that particular coin will rise or fall dramatically over the long term. If a company’s supply chain is entirely dependent on that particular coin’s value staying high, then the company could find itself out of business very quickly.
Lack of Regulation
One of the biggest challenges that startups and businesses facing blockchain technology face are the lack of regulation in some areas. Transactions are mainly done on decentralized exchanges like BTC Loophole and Bitcoin Profit. Companies will often ask the government for a license to operate to explore new business opportunities such as the potential for blockchain technology in the food and drug supply chains. But in some parts of the world, such as in India, the use of blockchain technology to track food or pharmaceuticals is still considered a violation of food or pharmaceutical regulations.
In other parts of the world, such as in the United States, many companies have been granted special permission to operate under the guise of cyber security or “white hat” hacking. But even in the United States, companies are often required to obtain special permission to use certain types of radical new technologies like blockchain. This can lead to significant delays and bureaucratic problems for emerging companies trying to use blockchain technology.
High cost of entry for small businesses
One of the biggest challenges that startups and businesses facing blockchain technology face is the high cost of entry for small businesses. This is because each new technology often has a learning curve that is far too steep for would-be startups and businesses to overcome without help. For example, blockchain technology requires a huge amount of data analysis and significant computing power to function properly. This process can often take weeks or months to complete and is prone to human error. To make matters worse, the technology is often only reliable and effective when it is being used by large corporations with massive computer power and vast datasets.
Inability to track transactions
One of the biggest challenges that startups and businesses facing blockchain technology face are the inability to track transactions. This is caused in part by the distributed nature of the technology and in part by the increasing popularity of online payments and transactions.
Online transactions currently represent about 60% of all transactions, but this figure is expected to reach 90% by 2020. This means that companies will increasingly rely on electronic payments, which will make it much harder to track payments.
Concern over blockchain’s capacity for scalability
One of the biggest challenges that startups and businesses facing blockchain technology face are scalabilities. This is caused in part by the distributed nature of the technology and in part by the popularity of online payments and transactions. Currently, about 35% of all internet traffic is consumed by online payments and transactions, according to the World Wide Web Foundation. This means that there is significant potential for blockchain technology to disrupt this sector. But scalability issues can also be overcome by providing more services on the blockchain, like supporting multiple cryptocurrencies.
To fully understand the advantages and disadvantages of blockchain technology, it’s important to remember that it’s still in its infancy. It’s been in development for more than a decade. As such, there’s still much room for growth and improvement. As technology matures, it’s expected to have many benefits. However, it can also be difficult to use, expensive to set up, and subject to regulation. For these reasons, businesses and investors need to remember that there is a risk when investing in blockchain-based assets.