It needs to be noted that few technologies have been covered by the media, analyzed by the experts and asked about by the community in the recent years as much as the blockchain technology. This technology allows Bitcoin and other cryptocurrencies to be traded. Besides cryptocurrency trading, blockchain allows for making secure, transparent and accessible contracts between users. The need for a third party is no longer necessary. All of these qualities are impressive and unique but keeping in mind that the technology is still young and immature, it has its own weaknesses.
Good qualities of blockchain technology lead to some bad qualities. For a settlement on the blockchain, all the nodes in the network must agree that a transaction is valid. This takes a fair bit of time. Even Bitcoin can only process around 7 transactions per second. In comparison, banks do this in a manner of seconds. The exact time needed for a transaction to be verified is unpredictable, but they can take something between ten minutes and an hour.
2. Human error
If the funds turn out to be, for example, sent to a wrong address, the only way of returning the transaction is if all the parties included agree to reverse it. This procedure would be easily done using a bank as the middleman but once a transaction goes through a blockchain, funds could be lost forever. This can be prevented by double checking information shared on the blockchain before processing it.
Transaction verification is in the hands of individual users called miners who get incentives for their work. Miners won’t try to verify as many transactions as they can, they will just try to settle transactions in the fastest, easiest way. Miners can validate a transaction and earn their incentive but skip the step where they publish and distribute a solution to the rest of the network, which is the step important for the progress of the technology. This is why the community is always closely monitoring miners’ work.
The decentralized nature of the blockchain leads to one more issue. If some information ends up on the blockchain and a user feels it validates his or her privacy and/or integrity, he/she has the right to ask to remove it from the blockchain. Blockchain does have some centralized instances (oracles) that can handle these kinds of issues but this diminishes its decentralized nature.
There are so many users that ask the community to explain Bitcoin and the Blockchain like they are talking to an 8-year-old or a 12-year-old. This means that the language and the technology is at this point too hard to grasp, which may prevent it from becoming widely used.
Even though there are quite a few disadvantages, the Blockchain and Bitcoin are a solution to a longstanding problem of double-spending in digital currencies. The technology is improving every day and it’s impressive how much it can do, having in mind its relatively short existence.