Although distributed ledger technologies are considered—by the general public—as almost immune to attacks thanks to their decentralization, evidence speaks otherwise. While Bitcoin might be regarded as relatively safe due to its network size, smaller networks are being attacked on a daily basis.

One primary challenge of the majority of current DLTs lies with analyzing the security of their chosen consensus protocol. Double spending, 51%, and Denial-of-Service attacks are possible vulnerabilities of blockchains and are important to understand prior to using a particular network.

Even if these attacks are just a theoretical threat to some Distributed Ledger Technologies, the lack of proofs and theoretical guarantees make them appear to be less practical to use long term. The technology might change and what seems impossible from computational – or other – standpoints may become a practical threat in the near future.

The early iterations of the technology in the blockchain space do not solve the scalability challenge well in a non-permissioned environment. As observed in Analysis of the Blockchain Protocol in Asynchronous Network paper, in every blockchain protocol there is a trade–off between speed and security.

It is widely known that the most popular blockchains, Bitcoin and Ethereum, are limited by scalability issues. With 3 to 15 transactions per second (TX/s), the technology is nowhere near PayPal or Visa. The confirmation times in Bitcoin are also still counted in minutes, rather than in milliseconds.

There are protocols that are—in theory—much faster than Visa or MasterCard. The only downside is that they do so in a private, closed environments. If we are debating whether cryptocurrencies can be used worldwide as a standard payment system, we need to build them utilizing a true decentralized fashion.

Typical blockchain protocols require special purpose mining rigs to solve computationally intensive, but easy to verify, mathematical problems. The Bitcoin network is an example of how inefficient proof-of-work-based blockchains can be at scale. Since the computational power in the network increases over time, the difficulty of the mathematical puzzle to solve adjusts accordingly and dynamically.

Therefore, the network requires more power, causing high energy consumption and expensive hardware that may have a short lifespan. This also makes mining operations out of reach for the average user due to capital requirements.

Bitcoin confirmations can take 10 minutes to confirm, and depending on the load of the network, they can even take up to 40 minutes, which makes it impractical to use for small, quick purchases like coffee. Projects have jeopardized decentralization in order to increase speed, and while faster confirmations are indeed achieved, the resulting increased centralization can be detrimental.

DLTs should stay as decentralized as possible in order to provide a level of security that can be trusted. Otherwise, they can be manipulated by malicious actions – and that’s not what should be exchanged for speed. 

Ethereum is much faster than Bitcoin. The transactions only take 15 seconds to confirm, but there is a strict limitation of 15-20 transactions per second, which is still not comparable to Visa or MasterCard, and all transfers require fees.