Blockchain is the technology that is popular among games and apps development companies. However, we all know that despite its marvelous impacts on the industry there are also some risks associated with it. To prevail in the market you must know all of them. Now, let’s accompany us to find out!
We should divide blockchain risks into 3 categories:
Firstly, General Blockchain Risks
The general Blockchain risks that can impact any Blockchain project include the following:
Blockchain Protocols Are Hard to Integrate: Blockchain is a new technology. This means that it becomes hard to include blockchain protocols into a project. According to Deloitte, it is hard to implement different blockchain projects. For example, if they want to share information from Hyperledger Fabric Protocol to Ethereum Protocol, they would need an integration layer that manages these two different enterprise systems.
Lack of Standardization: The wide variety of frameworks means that there is a lack of standardization. This is potentially one of the biggest risks that the current blockchain projects suffer from. These standards apply across the complete blockchain ecosystem including Initial Coin Offerings (ICO), cryptocurrencies, frameworks, and so on.
Poor Valuation of Cryptocurrencies: Cryptocurrency prices are also one of the biggest concerns as they utilize blockchain. A reasonable cryptocurrency price also changes the market sentiment towards blockchain. Bitcoin, which utilizes blockchain technology, can see high jumps that are beyond any investors' guess. This also means that the prices can drop sharply, leaving a lot of investors empty-handed. Clearly, the prices are not stable, and that’s one risk associated with the traders who bank on a project or a cryptocurrency that is utilizing blockchain projects.
Secondly, Blockchain Development Risks
Underdeveloped Standards: Every technology has a necessary standardization behind it. This means that it becomes easy for companies across the world to adopt the technology and enable worldwide usage. Right now, blockchain doesn’t have proper standards due to its rapid growth. With different organizations working on their “own” blockchain or DLT version, it is hard to standardize them. Also, the competition is exceptionally fierce, which makes it even harder for these organizations to work together towards the primary goal. In the end, this leads to risks related to security, privacy, and interoperability.
High Energy Demand: Right now, there are many consensus methods. Considering all of them, it is easy to say that Proof-of-Work (PoW) is the most popular. Both Ethereum and Bitcoin utilize them. Ethereum being more popular when it comes to blockchain implementation. Each of the consensus methods has its own advantages and disadvantages. PoW is an effective way to reach consensus as it rewards the miners for the work they are doing. However, the downside is the high energy cost. In PoW, each node has to compete with each other by solving a highly complex mathematical problem. To solve the problem, the miners have to invest in high-performance machines that require a lot of electricity to run. However, it doesn’t mean that there is no way to deal with this problem, as with time, the blockchain developers understand its impact, and slowly, they are transforming to a more energy-friendly consensus method such as Proof-of-Stake (PoS).
Data Privacy Legislation: Data Privacy is one of the most significant issues with blockchain or distributed ledger technology. Clearly, DLTs are designed, and that can play an impactful role in the current societal infrastructure. With different countries and regions implementing data privacy regulations such as the European Union General Data Protection Regulation, it is essential to do the same for blockchain. The approach is not to declare your identity to the network, but that’s not always the case due to the Know Your Customers (KYC) and Anti-Money Laundering (AML) activities.
Finally, Blockchain security risk:
Human-Related Risks: Even though blockchain is completely decentralized, it still has to interact with humans to work correctly. In that case, new blockchain security risks come in. For example, any business who wants to interact with the blockchain system needs to do it either through a computer or automated systems. When a user interacts through a computer, at that point, there is a chance of credentials to access the systems can be stolen or compromised. It only happens at endpoints, which makes blockchain vulnerable. In fact, this is more of a user-based risk, but as blockchain has to interact with the user, it has to be defined under blockchain security risks.
Risks with Private and Public Key: The whole idea of blockchain or distributed ledger technology relies heavily on the public and private keys. These keys are a series of characters that offers unique security properties. One security property is that it is tough to guess. Blockchain works with these keys. If you do not have the right combination of the public or private key, you simply cannot access the digital content stored within the blockchain. Hackers know that, and they also know that it is a waste of time in guessing those keys. That’s why they try to get the keys by attacking the weakest point, i.e., the system that is used by the user. It can be a mobile device or a personal computer. In any case, the hacker can take advantage of the vulnerabilities shown by these devices. If you are using Android, they will simply try to install malware to get access to the information that you share through your device. If you input your private key, they can make a copy of it, and send it to their own computers. With the private key in hand, they can then access the information stored.
Vendor Risks: Many ad-hoc platforms and services work with DLTs to improve its functionality. With DLTs growth, it is evident that we will also see growth in 3rd party development. These include solutions such as wallets, payment processors, smart contracts, blockchain payment platforms, and so on. These vendors also pose a risk to users. If the platform or service you are using has any form of vulnerability, then you can expect to have issues when accessing it. The security risks can come due to bad code, weak security, and wrong handling by the persons. Also, as most of these vendors use smart contracts, they have to ensure that their smart contracts are free from all kinds of flaws or security loopholes. If there is one, then it can easily lead to a system-wide effect.