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[box type=”note” align=”” class=”” width=””]This article is a book extract from  Mastering Blockchain, written by Imran Bashir. In the book he has discussed distributed ledgers, decentralization and smart contracts for implementation in the real world.[/box]

Today we will look at various challenges that need to be addressed before blockchain becomes a mainstream technology. Even though various use cases and proof of concept systems have been developed and the technology works well for most scenarios, some fundamental limitations continue to act as barriers to mainstream adoption of blockchains in key industries.

We’ll start by listing down the main challenges that we face while working on Blockchain and propose ways to over each of those challenges:


This problem has been a focus of intense debate, rigorous research, and media attention for the last few years. This is the single most important problem that could mean the difference between wider adaptability of blockchains or limited private use only by consortiums. As a result of substantial research in this area, many solutions have been proposed, which are discussed here:

  1. Block size increase: This is the most debated proposal for increasing blockchain performance (transaction processing throughput). Currently, bitcoin can process only about three to seven transactions per second, which is a major inhibiting factor in adapting the bitcoin blockchain for processing micro-transactions. Block size in bitcoin is hardcoded to be 1 MB, but if block size is increased, it can hold more transactions and can result in faster confirmation time. There are several Bitcoin Improvement Proposals (BIPs) made in favor of block size increase. These include BIP 100, BIP 101, BIP 102, BIP 103, and BIP 109. In Ethereum, the block size is not limited by hardcoding; instead, it is controlled by gas limit. In theory, there is no limit on the size of a block in Ethereum because it’s dependent on the amount of gas, which can increase over time. This is possible because miners are allowed to increase the gas limit for subsequent blocks if the limit has been reached in the previous block.
  2. Block interval reduction: Another proposal is to reduce the time between each block generation. The time between blocks can be decreased to achieve faster finalization of blocks but may result in less security due to the increased number of forks. Ethereum has achieved a block time of approximately 14 seconds and, at times, it can increase. This is a significant improvement from the bitcoin blockchain, which takes 10 minutes to generate a new block. In Ethereum, the issue of high orphaned blocks resulting from smaller times between blocks is mitigated by using the Greedy Heaviest Observed Subtree (GHOST) protocol whereby orphaned blocks (uncles) are also included in determining the valid chain. Once Ethereum moves to Proof of Stake, this will become irrelevant as no mining will be required and almost immediate finality of transactions can be achieved.
  3. Invertible Bloom lookup tables: This is another approach that has been proposed to reduce the amount of data required to be transferred between bitcoin nodes. Invertible Bloom lookup tables (IBLTs) were originally proposed by Gavin Andresen, and the key attraction in this approach is that it does not result in a hard fork of bitcoin if implemented. The key idea is based on the fact that there is no need to transfer all transactions between nodes; instead, only those that are not already available in the transaction pool of the synching node are transferred. This allows quicker transaction pool synchronization between nodes, thus increasing the overall scalability and speed of the bitcoin network.
  4. Sharding: Sharding is not a new technique and has been used in distributed databases for scalability such as MongoDB and MySQL. The key idea behind sharding is to split up the tasks into multiple chunks that are then processed by multiple nodes. This results in improved throughput and reduced storage requirements. In blockchains, a similar scheme is employed whereby the state of the network is partitioned into multiple shards. The state usually includes balances, code, nonce, and storage. Shards are loosely coupled partitions of a blockchain that run on the same network. There are a few challenges related to inter-shard communication and consensus on the history of each shard. This is an open area for research.
  5. State channels: This is another approach proposed for speeding up the transaction on a blockchain network. The basic idea is to use side channels for state updating and processing transactions off the main chain; once the state is finalized, it is written back to the main chain, thus offloading the time-consuming operations from the main blockchain. State channels work by performing the following three steps:
  • First, a part of the blockchain state is locked under a smart contract, ensuring the agreement and business logic between participants.
  • Now off-chain transaction processing and interaction is started between the participants that update the state only between themselves for now. In this step, almost any number of transactions can be performed without requiring the blockchain and this is what makes the process fast and a best candidate for solving blockchain scalability issues. However, it could be argued that this is not a real on-blockchain solution such as, for example, sharding, but the end result is a faster, lighter, and robust network which can prove very useful in micropayment networks, IoT networks, and many other applications.
  • Once the final state is achieved, the state channel is closed and the final state is written back to the main blockchain. At this stage, the locked part of the blockchain is also unlocked. This technique has been used in the bitcoin lightning network and Ethereum’s Raiden.

6. Subchains: This is a relatively new technique recently proposed by Peter R. Rizun which is based on the idea of weak blocks that are created in layers until a strong block is found. Weak blocks can be defined as those blocks that have not been able to be mined by meeting the standard network difficulty criteria but have done enough work to meet another weaker difficulty target. Miners can build sub-chains by layering weak blocks on top of each other, unless a block is found that meets the standard difficulty target. At this point, the subchain is closed and becomes the strong block. Advantages of this approach include reduced waiting time for the first verification of a transaction. This technique also results in a reduced chance of orphaning blocks and speeds up transaction processing. This is also an indirect way of addressing the scalability issue. Subchains do not require any soft fork or hard fork to implement but need acceptance by the community.

7. Tree chains: There are also other proposals to increase bitcoin scalability, such as tree chains that change the blockchain layout from a linearly sequential model to a tree. This tree is basically a binary tree which descends from the main bitcoin chain. This approach is similar to sidechain implementation, eliminating the need for major protocol change or block size increase. It allows improved transaction throughput. In this scheme, the blockchains themselves are fragmented and distributed across the network in order to achieve scalability. Moreover, mining is not required to validate the blocks on the tree chains; instead, users can independently verify the block header. However, this idea is not ready for production yet and further research is required in order to make it practical.


Privacy of transactions is a much desired property of blockchains. However, due to its very nature, especially in public blockchains, everything is transparent, thus inhibiting its usage in various industries where privacy is of paramount importance, such as finance, health, and many others. There are different proposals made to address the privacy issue and some progress has already been made. Several techniques, such as indistinguishability obfuscation, usage of homomorphic encryption, zero knowledge proofs, and ring signatures. All these techniques have their merits and demerits and are discussed in the following sections.

  1. Indistinguishability obfuscation: This cryptographic technique may serve as a silver bullet to all privacy and confidentiality issues in blockchains but the technology is not yet ready for production deployments. Indistinguishability obfuscation (IO) allows for code obfuscation, which is a very ripe research topic in cryptography and, if applied to blockchains, can serve as an unbreakable obfuscation mechanism that will turn smart contracts into a black box. The key idea behind IO is what’s called by researchers a multilinear jigsaw puzzle, which basically obfuscates program code by mixing it with random elements, and if the program is run as intended, it will produce expected output but any other way of executing would render the program look random and garbage. This idea was first proposed by Sahai and others in their research paper Candidate Indistinguishability Obfuscation and Functional Encryption for All Circuits.
  2. Homomorphic encryption: This type of encryption allows operations to be performed on encrypted data. Imagine a scenario where the data is sent to a cloud server for processing. The server processes it and returns the output without knowing anything about the data that it has processed. This is also an area ripe for research and fully homomorphic encryption that allows all operations on encrypted data is still not fully deployable in production; however, major progress in this field has already been made. Once implemented on blockchains, it can allow processing on cipher text which will allow privacy and confidentiality of transactions inherently. For example, the data stored on the blockchain can be encrypted using homomorphic encryption and computations can be performed on that data without the need for decryption, thus providing privacy service on blockchains. This concept has also been implemented in a project named Enigma by MIT’s Media Lab. Enigma is a peer-to-peer network which allows multiple parties to perform computations on encrypted data without revealing anything about the data.
  3. Zero knowledge proofs: Zero knowledge proofs have recently been implemented in Zcash successfully, as seen in previous chapters. More specifically, SNARKs have been implemented in order to ensure privacy on the blockchain. The same idea can be implemented in Ethereum and other blockchains also. Integrating Zcash on Ethereum is already a very active research project being run by the Ethereum R&D team and the Zcash Company.
  4. State channels: Privacy using state channels is also possible, simply due to the fact that all transactions are run off-chain and the main blockchain does not see the transaction at all except the final state output, thus ensuring privacy and confidentiality.
  5. Secure multiparty computation: The concept of secure multiparty computation is not new and is based on the notion that data is split into multiple partitions between participating parties under a secret sharing mechanism which then does the actual processing on the data without the need of the reconstructing data on single machine. The output produced after processing is also shared between the parties.
  6. MimbleWimble: The MimbleWimble scheme was proposed somewhat mysteriously on the bitcoin IRC channel and since then has gained a lot of popularity. MimbleWimble extends the idea of confidential transactions and Coinjoin, which allows aggregation of transactions without requiring any interactivity. However, it does not support the use of bitcoin scripting language along with various other features of standard Bitcoin protocol. This makes it incompatible with existing Bitcoin protocol. Therefore, it can either be implemented as a sidechain to bitcoin or on its own as an alternative cryptocurrency.

    This scheme can address privacy and scalability issues both at once. The blocks created using the MimbleWimble technique do not contain transactions as in traditional bitcoin blockchains; instead, these blocks are composed of three lists: an input list, output list, and something called excesses which are lists of signatures and differences between outputs and inputs. The input list is basically references to the old outputs, and the output list contains confidential transactions outputs. These blocks are verifiable by nodes by using signatures, inputs, and outputs to ensure the legitimacy of the block. In contrast to bitcoin, MimbleWimble transaction outputs only contain pubkeys, and the difference between old and new outputs is signed by all participants involved in the transactions.
  7. Coinjoin: Coinjoin is a technique which is used to anonymize the bitcoin transactions by mixing them interactively. The idea is based on forming a single transaction from multiple entities without causing any change in inputs and outputs. It removes the direct link between senders and receivers, which means that a single address can no longer be associated with transactions, which could lead to identification of the users. Coinjoin needs cooperation between multiple parties that are willing to create a single transaction by mixing payments. Therefore, it should be noted that, if any single participant in the Coinjoin scheme does not keep up with the commitment made to cooperate for creating a single transaction by not signing the transactions as required, then it can result in a denial of service attack. In this protocol, there is no need for a single trusted third party. This concept is different from mixing a service which acts as a trusted third party or intermediary between the bitcoin users and allows shuffling of transactions. This shuffling of transactions results in the prevention of tracing and the linking of payments to a particular user.


Even though blockchains are generally secure and make use of asymmetric and symmetric cryptography as required throughout the blockchain network, there still are few caveats that can result in compromising the security of the blockchain. There are two types of Contract Verification that can solve the issue of Security.

  1. Why3 formal verification: Formal verification of solidity code is now available as a feature in the solidity browser. First the code is converted into Why3 language that the verifier can understand. In the example below, a simple solidity code that defines the variable z as maximum limit of uint is shown. When this code runs, it will result in returning 0, because uint z will overrun and start again from 0. This can also be verified using Why3, which is shown below:


Once the solidity is compiled and available in the formal verification tab, it can be copied into the Why3 online IDE available at h t t p ://w h y 3. l r i . f r /t r y /. The example below shows that it successfully checks and reports integer overflow errors. This tool is under heavy development but is still quite useful. Also, this tool or any other similar tool is not a silver bullet. Even formal verification generally should not be considered a panacea because specifications in the first place should be defined appropriately:


Oyente tool: Currently, Oyente is available as a Docker image for easy testing and installation. It is available at https://github.com/ethereum/oyente, and can be quickly downloaded and tested. In the example below, a simple contract taken from solidity documentation that contains a re-entrancy bug has been tested and it is shown that Oyente successfully analyzes the code and finds the bug:

Blockchain 2

This sample code contains a re-entrancy bug which basically means that if a contract is interacting with another contract or transferring ether, it is effectively handing over the control to that other contract. This allows the called contract to call back into the function of the contract from which it has been called without waiting for completion. For example, this bug can allow calling back into the withdraw function shown in the preceding example again and again, resulting in getting Ethers multiple times. This is possible because the share value is not set to 0 until the end of the function, which means that any later invocations will be successful, resulting in withdrawing again and again.

An example is shown of Oyente running to analyze the contract shown below and as can be seen in the following output, the analysis has successfully found the re-entrancy bug. The bug is proposed to be handled by a combination of the Checks-Effects-Interactions pattern described in the solidity documentation:

Blockchain 3

We discussed the scalability, security, confidentiality, and privacy aspects of blockchain technology in this article. If you found it useful, go ahead and buy the book, Mastering Blockchain by Imran Bashir to become a professional Blockchain developer.

Mastering Blockchain




I'm a technology enthusiast who designs and creates learning content for IT professionals, in my role as a Category Manager at Packt. I also blog about what's trending in technology and IT. I'm a foodie, an adventure freak, a beard grower and a doggie lover.


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