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Five crucial challenges for the blockchain to overcome: Deloitte

A bitcoin mine near Kongyuxiang, Sichuan, China on August 12, 2016.

Paul Ratje | The Washington Post | Getty Images

A bitcoin mine near Kongyuxiang, Sichuan, China on August 12, 2016.

Blockchain is similar to an accounting ledger, only it records transactions across a vast network and is decentralized, which means it does not require any central authority to supervise it.

Technology advocates say it's a huge advantage when it comes to tracking financial transactions and other data.

But there's a problem, says Deloitte.

"Blockchain can be slow," the consulting firm's researchers said in a report released Monday. "Unlike some legacy transaction processing systems capable of processing tens of thousands of transactions per second, Bitcoin blockchain can handle only three to seven transactions per second, the corresponding figure for Ethereum's blockchain is just 15 transactions to the second. "

He adds: "Because of its relatively poor performance, many observers do not consider feasible blockchain technology for large-scale applications."

With bitcoin blockchain, any number of people can participate in the network, as it is public. The so-called network miners solve complex mathematical problems to validate transactions.

It is necessary that there is consensus on the network about the validity of the transaction so that it can be examined. While this system reduces the risk of malicious activities performed on the network, it can also increase the time required for transactions.

However, Deloitte said that it is working to create a more efficient model capable of accelerating transaction speeds. Companies in the industry such as Hyperledger, Stellar and Ripple are using new consensus mechanisms to accelerate this process.

These new models are called "proof-of-stake", where a cryptocurrency miner is required to have some participation in the digital asset in order to participate in the network.

"The evolution of consensus mechanisms is significantly improving the speed of blockchain: good news for applications in commercial finance, supply chain tracking, car leasing, marine insurance, health care and insurance," the report said.

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