What Are the Limitations of Blockchain for Businesses?

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What Are the Limitations of Blockchain for Businesses?

To shed light on the limitations of blockchain technology for businesses, we’ve gathered insights from CEOs, a Co-founder, a Founder, and an Operations Manager. From the scalability hurdle in blockchain transactions to the high energy consumption of blockchain networks, here are the top five limitations these experts have identified and how they impact operations.

  • Scalability Hurdle in Blockchain Transactions
  • Consensus Mechanisms Slow Confirmation Times
  • Not Suitable for Certain Transaction Types
  • Risk of Data Loss in Blockchain Usage
  • High Energy Consumption of Blockchain Networks

Scalability Hurdle in Blockchain Transactions

Blockchain technology faces a notable hurdle in business: scalability. The nature of blockchain limits its ability to handle a large volume of transactions quickly. Bitcoin processes around seven transactions per second (TPS), while Ethereum manages 10-15 TPS. In contrast, Visa achieves an impressive throughput of approximately 1,700 TPS. This presents a significant challenge for industries reliant on swift transactions, like finance, retail, and e-commerce.

Practically, this limitation results in delays and increased costs during high-demand periods when network congestion occurs. It negatively affects customer experience and operational efficiency.

Imagine a financial transaction taking seconds in a conventional system, but stretching into minutes or hours within the blockchain landscape. Despite these challenges, remember that blockchain’s scalability issues represent opportunities for innovation. As this technology evolves, we can anticipate solutions that will increase its TPS.

Stefan Zinke
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Stefan Zinke
CEO, Crypto Academy


Consensus Mechanisms Slow Confirmation Times

Blockchain’s inherent design, consisting of a decentralized and distributed network, ensures transparency, security, and immutability. However, this architecture presents scalability challenges. In public blockchains like Bitcoin and Ethereum, where transactions are validated through consensus mechanisms, scalability limitations become evident. The consensus algorithms demand significant computational power and time to process and validate transactions, resulting in slower confirmation times.

As businesses increasingly adopt blockchain, the limitations become more apparent. The limited throughput of public blockchains restricts the number of transactions processed per second, potentially causing delays and inefficiencies. High-volume applications like payment systems or supply chain management may face obstacles in achieving real-time transaction settlements due to slower confirmation times.

Ali Ubaid
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Ali Ubaid
CEO, Ali & Bros Ltd


Not Suitable for Certain Transaction Types

Blockchain technology is not suitable for all types of transactions, which limits its usefulness. For instance, it may not be ideal for transactions that require a high level of speed or for transactions that involve physical goods.

This limitation can impact business operations by limiting their ability to use blockchain technology in certain areas. Companies need to make sure they assess the types of transactions they are handling and see if blockchain technology is the right fit.

For instance, if a business routinely deals with corporate bonds, blockchain would be an ideal fit. However, it might not be suitable for high-frequency trading applications or applications that deal with more tangible goods such as consumer goods.

Roy Lau
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Roy Lau
Co-founder, 28 Mortgage


Risk of Data Loss in Blockchain Usage

Although the high levels of security provided by blockchain technology are its strength, it can cause businesses to face significant operational issues. If a business loses access to its blockchain or private key, it could be difficult or impossible to recover lost or stolen data.

Companies must ensure they have proper backup and recovery mechanisms in place to avoid any potential data loss. For instance, if a business uses blockchain to maintain its financial records and loses its private key, the company may be unable to access critical financial information, impacting its operations.

Ben Lau
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Ben Lau
Founder, Featured SEO Company


High Energy Consumption of Blockchain Networks

One limitation of blockchain technology for businesses is the high energy consumption required to maintain the network. This can impact operations by increasing costs and contributing to environmental concerns.

For example, the Bitcoin network uses more energy in a year than in some countries, such as Argentina or the Netherlands. Businesses that rely on blockchain technology need to consider the environmental impact of their operations and explore ways to increase sustainability and reduce energy consumption.

Jason Cheung
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Jason Cheung
Operations Manager, Credit KO


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