5 Blockchain Problems: Security, Privacy, Legal, Regulatory, and Ethical Issues

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Blockchain is still an emergent technology. And while it has the potential to do a lot of good in the world, it’s also still dealing with some nascent problems.

Right now, there are five key issues facing blockchains and cryptocurrencies. They are security, privacy, regulatory, legal, and ethical. Here’s what you need to know.

Blockchain Security Issues

A blockchain draws its security benefits from the decentralized nature of its nodes (i.e. the computers that verify transactions on the blockchain). Because the ledger (record of transactions) is public, no one can secretly make changes. And when a change is made, the other nodes on the system all need to agree to the change before it enters the record.

But due to the design of blockchain technology, all public blockchains are vulnerable to 51 percent attacks.

A 51 percent attack occurs when a hacker (or group of hackers) produces more than 50 percent of a blockchain’s computing power. In doing so, they become the network majority and can assume control of the entire blockchain, allowing the hacker(s) to double-spend coins, prevent other miners from creating blocks, and preventing transactions altogether.

The risk level is greater for smaller blockchains with fewer miners since the amount of computing power needed to control 51 percent is lower.

Furthermore, some blockchain architectures are actually vulnerable to less—like in the case of IOTA’s Tangle, which is susceptible to 34 percent attacks. Because of the different way its data is decentralized, someone with only 34 percent of the network’s hashing power could gain control of the blockchain.

And away from the blockchain itself, other security issues continue to plague the wider crypto community. The most pressing issue is exchange security. There’s a long history of cryptocurrency hacks, some of which have cost exchange users vast sums of money.

The issue of vulnerable exchanges can be somewhat mitigated by using cold storage for your coins. (See our list of best cold wallets for cryptocurrency!)

Blockchain Privacy Issues

If a blockchain is public, every transaction ever recorded on the blockchain is available for anyone to look at.

Of course, that doesn’t necessarily mean that someone will be able to identify you. However, the very fact that so much information is available in the public domain runs against longstanding norms, especially in the financial, legal, and healthcare sectors, all of which typically have robust privacy requirements.

Rebecca Herold, CEO of The Privacy Professor, agrees that this is a real issue:

“Implementing blockchain does not fit neatly within most legal and regulatory compliance requirements that exist, and those working to meet compliance are likely new to blockchain and may not realize all the associated compliance issues […] Validating the security and privacy of blockchain is not a simple goal to accomplish.”

For example, consider this: should a patient’s medical records be available publicly, even in a pseudonymous setting like a blockchain? As Arran Stewart, co-founder of, says, “Someone somewhere will list information publicly that is sensitive, and someone else will spend a lot of time figuring out how to get it.”

Note: Permissioned and private blockchains do not necessarily suffer from these same privacy issues. It’s one of the many differences between public and private blockchains.

Blockchain Legal Issues

Blockchain technology is facing lots of legal questions, many of which don’t yet have a resolution. Some of the critical issues facing the community include:

Jurisdiction: In a decentralized environment where nodes exist around the planet, how do we establish the correct set of rules and laws to apply? Different countries have very different approaches to titles, ownership, contracts, and liabilities.

Decentralized Autonomous Organizations (DAOs): Consider a typical legal system where both individuals and organizations participate. In many cases, they even have similar rights. How does that apply to DAOs? They run on smart contracts and require almost zero input from users. They are just lines of code—and yet they can perform tasks like traditional companies. In the case of conflict resolution, who is responsible? Who, or what, can a claim be made against?

Contract enforceability: Much has been made of smart contracts’ ability to cut out the middleman, thus slashing costs and increasing security when undertaking complex legal processes. But given that smart contracts are also pure computer code, it’s debatable about whether they meet the definition of a contract in the traditional sense. In the event of a contract dispute, how enforceable would a smart contract be in a court of law? Quite simply, we don’t know. At the very least, you need to make sure all smart contracts you enter at this stage have a very clear dispute resolution process attached to them.

Leaving a blockchain: Let’s suppose you’ve been using a blockchain in the healthcare sector. What happens if you decide to stop using the service that supplies the blockchain and you don’t hold a copy of the data on the ledger? There needs to be provisions and processes in place that ensure the vendor hands over all your information and a complete record of all the transactions on the blockchain that are linked to your name.

Blockchain Regulatory Issues

Cryptocurrencies are now starting to face regulatory pressures. As their market capitalization continues to grow, governments are taking an increased level of interest.

Regulatory uncertainty comes in many forms and will have many consequences.

For example, some governments have, or have threatened to, make cryptocurrencies illegal in their territories. Bitcoin is only entirely unrestricted in 110 countries and is outright banned in Algeria, Morocco, Ecuador, Iran, Pakistan, and more. In Bangladesh, police have reportedly arrested Bitcoin owners.

On the flipside, a complete lack of regulation also creates issues, like market manipulation.

Many experts now firmly believe that the extraordinary cryptocurrency boom of late 2017 was the direct result of collusion between exchanges. Specifically, a small group of crypto owners with huge holdings allegedly used the shady dollar-pegged Tether to support the price. The University of Texas found that just 87 of the largest Bitcoin purchases made with Tether between March 2017 and 2018 accounted for 50 percent of all Bitcoin’s compound gains over the same period.

Even when governments try to take a slow, steady, and reasonable approach to regulation, issues arise. For example, since blockchains are immutable, what happens if they meet regulations today but fall foul of future regulations? No one will be able to update, change, or amend them.

Blockchain Ethical Issues

Blockchain technology raises some ethical issues, with the two most prominent problems being 1) its effect on the environment and 2) its apparent enabling of criminal activity.

Firstly, the environment. If you’ve read our article on understanding blockchain, you know that raw computing power is what drives the technology. And because blockchain networks rely on encryption and the solving of complex mathematical puzzles, the amount of computing power needed to run them is enormous.

The stats are mindboggling:

  • In 2020, Bitcoin alone will use as much power as the entire country of the Czech Republic.
  • A single transaction uses as much power as a US household uses in 22 days.
  • Bitcoin has the carbon footprint as Azerbaijan.
  • Bitcoin is now responsible for 0.31 percent of the world’s entire electricity usage.

In a world that’s increasingly conscious of skyrocketing energy usage, developers need to find a way to verify transactions much more efficiently.

Secondly, cybercrime. Looking back at the early days of Bitcoin, one could argue that the cryptocurrency’s price increases were driven almost exclusively by criminal activity.

Using dark web websites, cybercriminals could sell drugs, weapons, and other banned items safely and anonymously with Bitcoin—not to mention the obvious benefits that untraceable financial transactions offer to money launderers.

Fast-forward to today and the problem still exists.

Yes, mainstream adoption has increased, but cryptocurrencies are still the payment method of choice for anyone acting illegally. For example, if you’ve ever been unlucky enough to suffer from a ransomware attack, you’ll almost certainly have seen Bitcoin as the payment method. Even less dangerous criminals, such as those selling NZB indexing services, now want to be paid in crypto.

Solving the Issues of Blockchain

It’s clear that none of the issues raised in this piece have a straightforward answer. Yes, it’s easy to make the argument that they’re merely growing pains that’ll resolve themselves as adoption rates continue to increase, but it’s also possible to see the issues as red lines that fundamentally limit blockchains’ usefulness.

Make no mistake: blockchain is here to stay in some capacity. But these pressing problems make it impossible to predict the extent of that capacity accurately. Let me know what you think in the comments below.

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  1. Excellent article, Dan! 👍

    If artificial superintelligence and blockchain technology can’t solve these five problems, then humankind is doomed:

    1 Billions of people (including children!) are going to bed hungry every day till they die of starvation.
    2 Three billion people have not access to working toilets and 1.1 billion defecate in the open.
    3 There are 45.8 million people living in modern slavery in 167 countries, including the US.
    4 Millions of girls under 18 are being used as sex slaves worldwide, including in the US.
    5 One 10th of 1% of people worldwide are swimming in moola—how can these people sleep soundly, knowing (1), (2), (3), and (4)?
    💕 ☮ 🌎 🌌

  2. The article is well explained and easy to understand, Thanks for sharing your knowledge with us. According to academia, Blockchain innovation is a breakthrough in secure computing. Without any centralized system, in an open organized framework, blockchain enables conducting the transactions in the most reliable manner

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