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 intervention. But this new form of money has also been called the “mother of all scams” because of its intense volatility, the difficulty of verifying transactions and the high cost of market entry.
In response to these concerns, some companies have developed blockchain-based digital currencies such as Bitcoin and Ethereum to replace existing financial systems and improve trust, transparency and security. But technology can also have downsides. Here are some of the main disadvantages of blockchain technology:
Bitcoin price volatility
Due to its decentralized nature, the value of a Bitcoin can fluctuate greatly from day to day depending on supply and demand. Volatility can have a significant impact on business operations and the success of startups. Some investors may find the price volatility of Bitcoin too high and may decide to invest in other currencies with lower volatility. But for many companies, Bitcoin’s volatility 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 must consider the risk that the price of that particular currency will rise or fall dramatically over the long term. If a company’s supply chain is entirely dependent on the value of that particular currency remaining high, then the company could find itself out of business very quickly.
Absence of Regulation
One of the biggest challenges facing blockchain technology startups and businesses is the lack of regulation in some areas. Transactions are mostly done on decentralized exchanges like BTC Loophole and Bitcoin Profit. Companies will often seek a license to operate from the government to explore new business opportunities, such as the potential for blockchain technology in food and drug supply chains. But in some parts of the world, such as India, using blockchain technology to track food or pharmaceutical products is still considered a violation of food or pharmaceutical regulations.
In other parts of the world, such as the United States, many companies have been given 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 permits to use certain kinds 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 facing startups and businesses facing blockchain technology is the high cost of entry for small businesses. This is because any new technology often has a learning curve that is too steep for startups and potential businesses to overcome without help. For example, blockchain technology requires a large 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 used by large corporations with massive computing power and large data sets.
Inability to track transactions
One of the biggest challenges startups and businesses facing with blockchain technology is the inability to track transactions. This is partly caused by the distributed nature of technology and partly by the growing popularity of online payments and transactions.
Online transactions currently represent around 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 more difficult to track payments.
Concern about blockchain’s capacity for scalability
One of the biggest challenges that blockchain technology startups and businesses face is scalability. This is partly caused by the distributed nature of technology and partly 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 there is significant potential for blockchain technology to disrupt this sector. But scalability issues can also be overcome by offering more services on the blockchain, such as supporting multiple cryptocurrencies.
To fully understand the advantages and disadvantages of blockchain technology, it is important to remember that it is still in its infancy. It has been in development for over a decade. As such, there is still plenty of room for growth and improvement. As the technology matures, many benefits are expected. However, it can also be difficult to use, expensive to deploy and subject to regulation. For these reasons, businesses and investors should remember that there is a risk when investing in blockchain-based assets.