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      "body": "### Abstract\n\nLike any emerging IT technology, blockchain is considered to take business models to the next level, whether by smart contracts, increasing transparency between parties or storing records in a protected way forbidding illegal deletion, tampering and revision. The aim of blockchain is to eliminate intermediaries. On the other hand, the technology has not revealed its the full potential yet, since it is facing many challenges as it develops. The most crucial challenges are the environmental costs and carbon footprint of the mining process, security risks and cyber-attacks. For individuals and businesses to adopt the blockchain technology, issues and challenges faced should be tackled and risks should be mitigated.\n\n### 1. Introduction\n\nBlockchain; a technology that is said to disrupt various industries through transparency, trustiness and immutability of data. On one hand, many benefits are associated with the technology, such as but not limited to, elimination of double-spending problem (Pilkington, 2015), and eliminating intermediaries. On the other hand, issues and problems arise with such technologies. To be able to make use of blockchain, companies, investors and entrepreneurs must evaluate these problems before moving forward with their business ideas.\n\nBlockchain started in 2008 when Satoshi Nakamoto released a peer-to-peer payment system that is based on blockchain, which is the Bitcoin. With no need for a centralized unit, this system records and processes transactions through a distributed computer network. Nowadays, the big challenge is to find beneficial use cases that the blockchain technology can provide a solid basis for, like it did with Bitcoin. Otherwise, the hype of this technology will fade away.\n\nAs far as blockchain has a potential in revolutionizing digital transformation, many barriers, such as technological, organizational and governance, will have to fall. In addition to security issues that might happen such as cyber-attacks and hacking (Iansiti & Lakhani, 2017). Details will be discussed in the following sections. Also, an important point to mention is that blockchain is a relatively new technology, which means that it still lacks expert developers. Currently, various educational institutes are introducing blockchain to their curriculum and some governments are investing in various projects.\n\nThe paper is organized as follows, section 2 will discuss Blockchain and Distributed Ledger Technology (DLT). Then, challenges associated with blockchain technology will be highlighted in sections 3, 4 and 5, specifically scalability of blockchain, environmental impact of the computational power in consensus mechanisms and security issues. Finally, discussions and conclusion are summarized in section 5. \n\n### 2. DLT vs. Blockchain\n\nDistributed Ledger Technology or DLT “refers to the ability for users to store and access information or records related to assets and holdings in a shared database that is capable of operating without a central validation system and based on its own standards and processes.” (Kakavand, Kost De Sevres, & Chilton, 2017). Blockchain, on the other hand, is a type of DLT. Therefore, DLT is the parent technology of blockchain, and not every DLT is blockchain. \n\nIn its simplest form, blockchain is a set of digital data which are stored in a public database (Fortney, 2019). In order to add a block to the blockchain, i.e. add more data, a transaction occurs. Then, the transaction is validated by a network of computers and stored in a block. As soon as the block is verified, it is given a unique ID code called a hash. \n\nThe validation of transaction process is called mining, \"Mining is the process by which transactions are verified and added to the public ledger known as the blockchain.\" (Mishra, Jacob, & Radhakrishnan, 2017). The most common mining puzzles used are proof-of-work (PoW) and proof-of-stake (PoS). In PoW, computing power is used to solve the hashing operation. The miner who solves the hashing operation faster than the others, gets to add the block into the blockchain and win a reward. This results in very high computing power (Cao, et al., 2020). Alternatively, PoS rewards winner according to the wealth of their stake, which consumes less computing power (Pilkington, 2015). Therefore, only wealthy miners benefit from PoS.\n\n### 3. Scalability\n\nThe main limitation of blockchain is the scalability of the technology, which is complicating the uncovering of a valuable use cases. This is due to the nature of a decentralized system, because every transaction is processed and saved on each node on the network (Mosakheil, 2018, p.45 ff.). The more nodes are added to the blockchain, more complex the scalability issue will become. Currently Bitcoin processes 7 transactions per second and Ethereum about 20 transactions per second, which is relatively low compared to other monetary transaction networks such as VISA and PayPal, which can process around 1700 transactions per second and 200 transactions per second respectively (Mosakheil, 2018, p.46). \n\nAnother challenge that limits the scalability of blockchain is the massive amount of redundant data stored. Each node has its own database, which means that there are a number of identical databases as the number of nodes (Huang, Li, & Thürer, 2019). There would be more scalability issues when more nodes are added to the blockchain. Currently, Bitcoin has 11,875 full nodes and Ethereum has 12,263 full nodes (Mosakheil, 2018, p.47).\n\n### 4. Environmental Impact\n\nSince cryptocurrency is currently the only applicable blockchain use case, the following mining example is given as a reference to Bitcoin. As mentioned in the previous section, the most used mining techniques used in blockchain are the proof-of-work and proof-of-stake. Bitcoin uses PoW method to add valid transactions to the blockchain by linking them to the previous block. \n\nPoW's complexity is adapted according to the difficulty of the block, i.e. the block difficulty increases or decreases if the time for adding a block to the blockchain is faster or slower than 10 minutes respectively. The more difficult it becomes, the more computing power it requires. And for miners to stay competitive, they could encounter high operating costs. This competition also leads to miners acquiring more computing power to be able to compete with others. Devices such as ASIC (Application Specific Integrated Circuits) and mining pools are used to solve PoW, they burn 0.8-2 kWh electricity. As a result, the complexity of the cryptographic puzzles with increase and consequently require even more electricity (Mishra, Jacob, & Radhakrishnan, 2017).\n\nIn a recent study conducted by De Vries (2019), electrical energy consumed by Bitcoin equals the energy consumed by Hungary in 2018. In addition, mining devices, ASIC for example, is uniquely designed to mine Bitcoin, therefore it cannot be reused and as a result, they will end up in a landfill or incinerator, causing environmental damage. \n\nAnother study conducted by Elite Fixtures research company states that the cost of mining a Bitcoin ranges between $531 and $26,170. Normally miners are rewarded enough Bitcoins to cover these costs. But if the blockchain used does not deal with cryptocurrency, the miner should be paid enough money or incentivized for their efforts (Jeff, 2018). Incurring such costs is not as beneficial as expected, since returns generated from this consensus mechanism are not significant compared to the costs. Accordingly, PoS consensus was developed because of the high costs and energy inefficiency of PoW.\n\n### 5. Security\n\nSince blockchain depends on cryptography, it is believed that its security cannot be breached, but this is a vague assumption. Firstly, the security of network and equipment on which blockchain is built should be highly secured. Second, it is expected that the ability of quantum computers to break a cryptographic algorithm is high (Ogée & Guinard, 2019). Therefore, the most important issue that should be addressed is the security of blockchain and what are the liability risks that are associated with it, since many hacking incidents were recorded since the start of the technology. \n\nCoding plays a big role in the ability of hacking a system. Inadequate maintenance, inefficient and out-of-date codes increase the risk of a system being hacked. In a distributed ledger technology, such errors when implemented, can be easily spread to the whole system affecting a vast number of nodes, which is not the case in centralized systems. Mt. Gox, a Bitcoin exchange company, and the DAO, a cryptocurrency software venture capital fund, suffered from such attacks because of deficient code (Zetzsche, Buckley, & Arner, 2017). More than $60 Million worth of cryptocurrency was stolen after exploiting a flow in the Ethereum smart contract that governed the DAO (Orcutt, 2019). Thus, smart contracts could be affected as well, since every code could include bugs. Huang et al. (2019) discussed that smart contracts should also be checked for malicious code, where parties included in the contract should be able to read such contracts in order not to manipulate each other. \n\nFurthermore, other operational risks can be found. As mentioned before that currently few expert developers understand the structure of blockchain, and fewer can adapt the code if inadequacy appears. Normally, bugs in any software can be fixed easily. But with blockchain, it is not very simple, since transactions cannot be reversed (Orcutt, 2019). This could attract more hackers because fraudulent transactions cannot be undone. For instance, in the financial sector, security is a very important aspect, and it requires DLT to ensure a certain level of security and processing speed. Also, there should be a key responsible person in case a payment is sent to the wrong address, so that customers can also trust the system (Zetzsche, Buckley, & Arner, 2017). \n\nZetzsche et al. (2017) highlighted risks that could arise from the transparency and immutability feature of DLT. This could result in accessing user information in which data protection laws are violated. Or if inaccurate user’s information like credit worthiness or pictures are distributed on the ledger, there will be a conflict between the immutability feature and data deletion/ removal regulations. Also, individuals might use sensitive data on the ledger for market manipulation, such as price falsification, trades and inventories of participants or competitors. \n\nCyber risks are also a weak point in blockchain. When a transaction occurs between 2 parties, i.e. a buyer and a seller, the attacker will not attack the DLT but the weak link of either the buyer or the seller. For example, in Bitcoin, the weakest link is the owner’s wallet (Zetzsche, Buckley, & Arner, 2017). What makes it more fragile is the fact that when inaccurate data are stored in the blockchain, they remain inaccurate. When dealing with sensitive information like financial data and healthcare documents, users should be cautious and consider protection and security measures, such as using strong passwords, two-factor authentication, and avoid public Wi-Fi networks. Furthermore, users should avoid sharing data like their private key, because the security of the whole blockchain will be weakened (Huang, Li, & Thürer, 2019). \n\nConsequently, weak security measures lead to the exposure of attacks on blockchain. The most know form of attacks is the 51% rule which is common in cryptocurrencies. The attack occurs when a group of miners gain control of more than 50% of the network’s mining power (Fortney, 2019). As a result, verifying new transactions can be prevented and completed transactions can be reversed, which results in double-spending of the cryptocurrency. In other words, attackers will be able to defraud users by sending them payments and creating a fork in the blockchain claiming that payments never happened. Consequently, authorizing the fork and spending the same amount of cryptocurrency again (Orcutt, 2019). \n\nAnother type of common attack which attacks the network is the Distributed Denial of Service Attacks (DDoS), in which hackers overload the network and make it unavailable for its users. In the context of blockchain, hackers submit more transactions than the system can handle, or send fake traffic by controlling multiples nodes in the network, this will result in overcrowding the whole network and preventing valid transactions from being executed (Kesavarapu & Venkatesan, 2019). Tackling a DDoS attack is challenging because it is difficult to differentiate between invalid and legitimate requests.\n\nBlockchain is still susceptible to attacks, although it is argued that hacking a blockchain requires a lot of effort and somehow impossible. For the attacker to revert a valid transaction or to change history data, sunk cost is incurred with the process. This is because of mining process, which requires the attacker to perform extra computations (Catalini & Tucker, 2018).\n\n### 6. Discussion and Conclusion\n\nTo be able to deal with all challenges accompanied with blockchain, there is a need for proper set of rules and regulations. The system is asking people to trust it by eliminating a so-called untrusted intermediary. Given that DLT is a technological and not a legal concept, the question which arises here is who will be responsible and liable for losses that might occur in the case of inaccuracy of stored data. Zetzsche, et al. (2017) stated in their study that “applying law to DLT will entail applying general principles in the absense of specific legislation.” From an accountability point of view, it is crucial to shed light on topics that enhance the reliability of DLT. First of all, it should be agreed on what are the legal standards that should be applied to this technology, and make sure that IT processes are powerful enough to enhance regulations regarding infrastructure. And most importantly, in case of system and algorithm failures, identify who is the concerned party for taking responsibility and liability (Zetzsche, Buckley, & Arner, 2017).\n\nThe idea of a trustless system is not easily acceptable, especially when rules and regulations are yet to be set for the new emerging technology. For example, the anonymity of the blockchain and having no central authority to control what can happen leads to prices of cryptocurrencies fluctuating without proper regulations. Furthermore, several banks are concerned about currencies on blockchain, according to a research report done by Bank of England in 2015, “Further research would also be required to devise a system which could utilize distributed ledger technology without compromising a central bank’s ability to control its currency and secure the system against systemic attack.”\n\nTo conclude, blockchain is the technology that will transform our world, but the right and scalable use cases should be developed, and challenges should be dealt with. In addition, users should be educated about security risks by having awareness campaigns for anyone who wants to transition their business into blockchain. Negative implications should be addressed as well, in order to make full use of the blockchain technology.\n\n#### References\n(1) Cao, B., Zhang, Z., Feng, D., Zhang, S., Zhang, L., Peng, M., & Li, Y. (2020). Performance analysis and comparison of PoW, PoS and DAG based blockchains. Digital Communications and Network. doi:https://doi.org/10.1016/j.dcan.2019.12.001\n(2) Catalini, C., & Tucker, C. (2018). Antitrust and Costless Verification: An Optimistic and a Pessimistic View of the Implications of Blockchain Technology. Retrieved from https://ssrn.com/abstract=3199453\n(3) De Vries, A. (2019). Renewable Energy Will Not Solve Bitcoin’s Sustainability Problem. Joule 3, 893-898.\n(4) Fortney, L. (2019, November 26). Blockchain Explained. Retrieved from Investopedia: https://www.investopedia.com/terms/b/blockchain.asp\n(5) Huang, J., Li, S., & Thürer, M. (2019). On the use of Blockchain in Industrial Product Service Systems: A Critical Review and Analysis. Procedia CIRP 83, 552-556.\n(6) Iansiti, M., & Lakhani, K. R. (2017, January-February). The Truth About Blockchain. Harvard Business Review. Retrieved from https://hbr.org/2017/01/the-truth-about-blockchain\n(7) Jeff. (2018, February 26). Bitcoin Mining Costs Throughout the World. Retrieved from Elite Fixtures: https://www.elitefixtures.com/blog/post/2683/bitcoin-mining-costs-by-country/\n(8) Kakavand, H., Kost De Sevres, N., & Chilton, B. (2017, January 1). The Blockchain Revolution: An Analysis of Regulation and Technology Related to Distributed Ledger Technologies. doi:http://dx.doi.org/10.2139/ssrn.2849251\n(9) Kesavarapu, K. R., & Venkatesan, V. (2019). Security Attacks on Blockchain. International Journal of Computer Applications, 178(16).\n(10) Mishra, S. P., Jacob, V., & Radhakrishnan, S. (2017, November 24). Energy Consumption – Bitcoin’s Achilles Heel. doi:http://dx.doi.org/10.2139/ssrn.3076734\n(11) Mosakheil, J. (2018). Security Threats Classification in Blockchains. Culminating Projects in Information Assurance(48). Retrieved from https://repository.stcloudstate.edu/msia_etds/48\n(12) Ogée, A., & Guinard, D. (2019, August 19). Blockchain is not a magic bullet for security. Can it be trusted? Retrieved from Web Economic Forum: https://www.weforum.org/agenda/2019/08/blockchain-security-trust\n(13) Orcutt, M. (2019, February 19). Once hailed as unhackable, blockchains are now getting hacked. Retrieved from MIT Technology Review: https://www.technologyreview.com/s/612974/once-hailed-as-unhackable-blockchains-are-now-getting-hacked/\n(14) Pilkington, M. (2015, September 18). Blockchain Technology: Principles and Applications. Research Handbook on Digital Transformations. Retrieved from https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2662660\n(15) Zetzsche, D. A., Buckley, R. P., & Arner, D. W. (2017). The Distributed Liability of Distributed Ledgers: Legal Risks of Blockchain. European Banking Institute(14). doi:http://dx.doi.org/10.2139/ssrn.3018214",
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