2.1.1 Market Needs & Challenges
Last updated
Last updated
High Energy Use & Slower Throughput: By December 2024, Bitcoin’s Proof-of-Work (PoW) network was processing around 350,000 transactions/day, but peak usage continued to push fees above $20 per transaction.
Meanwhile, the network’s total energy consumption surpassed that of entire nations like Colombia or the Netherlands, triggering debates on PoW’s sustainability.
More efficient ASICs became mandatory for nearly all large-scale operations to remain profitable, driving up hardware expenditures by over 50% year-on-year.
Need for Large Stakes (e.g., 32 ETH on Ethereum):
Across major Proof-of-Stake (PoS) blockchains, roughly 65–70% of staked tokens were concentrated among the top 10 validator sets, indicating that well-capitalized players or large staking syndicates could be influencing consensus decisions disproportionately.
Traditional PoW Networks (e.g., Bitcoin) Under Scrutiny:
Green Mining Efforts, Still Contentious:
Despite the rise of “green mining” initiatives in regions like Canada, Norway, and certain US states, the larger global debate continued, as environmental groups called for more stringent legislation on mining operations.
Many Regions Pushing for Sustainable Approaches:
Jurisdictions like the EU introduced stricter guidelines via MiCA on mining footprints, while US states like New York passed partial moratoriums on new PoW mining operations that rely on fossil fuels.
Several major mining pools preemptively relocated to areas with abundant hydro or geothermal power to avoid potential bans.
Fines and Compliance Measures for Carbon-Intensive Mining:
Reports showed over $120 million in cumulative fines or forced shutdowns in 2024 for mining facilities failing to meet local environmental compliance.
Rapid Bull and Bear Cycles Hamper Widespread Trust:
The total crypto market cap rose from $1.65 trillion at the start of 2024 to US$3.28 trillion by year-end, a remarkable 98% growth.
However, many altcoins posted 20–30% intra-week fluctuations even in calmer periods, leading institutional investors to handle crypto allocations with caution.
Institutions Seeking Volatility-hedged Solutions:
2024 saw the collective assets in crypto futures and newly launched spot ETFs surpass $180 billion in inflows.
Rising Hacking Incidents, Bridging Vulnerabilities, and DeFi Attacks:
On-chain data aggregated from multiple analytics providers showed $2.2 billion stolen in high-profile exploits throughout 2024.
Attacks often targeted cross-chain bridges, with an estimated 60% of exploited funds stemming from bridging or liquidity pool vulnerabilities.
Quantum Computing Threat to Existing Cryptography:
While fully capable quantum machines remained a decade away by most expert estimates, at least 25% of existing crypto addresses were flagged as “vulnerable” to future quantum attacks if users had reused addresses and public keys.
This raised calls for accelerated development of post-quantum cryptographic schemes in new protocol upgrades.
Each with Distinct Consensus Rules:
As of December 2024, the top 50 blockchains by market cap included 19 distinct consensus models, complicating the user experience for cross-chain usage.
Developers faced steep learning curves to integrate dApps across multiple ecosystems, limiting user adoption to “chain loyalists.”
Limits Liquidity and Hinders User Experience:
About 70% of DeFi liquidity was locked on just 5 blockchains (Ethereum, BNB Chain, Solana, Polygon, and Avalanche). The remaining 30% was scattered among dozens of smaller networks, fragmenting the overall liquidity landscape.
Layer-2 Solutions Bridging, but Still Complex:
Rollup-based transactions on Ethereum soared from 2 million monthly transactions in early 2023 to over 8 million monthly by late 2024, indicating strong demand. Yet bridging assets from L1 to L2 or across multiple L2s often required multi-step processes, discouraging mainstream users.
Demand for Simpler, More Universal Frameworks:
Surveys showed 65% of new crypto users found cross-chain bridging “very confusing.” In response, projects like Cosmos, Polkadot, and various bridging protocols made incremental progress but still lacked a uniform standard for easy chain-to-chain transactions.
The blockchain industry faces several pressing challenges that hinder its ability to scale and serve a broader audience:
Scalability Issues: Most blockchains have limited transaction throughput, leading to congestion and slow confirmation times. Networks like Ethereum experience high gas fees during peak usage, making them less accessible for everyday users.
Security Risks: Smart contract vulnerabilities and network attacks pose significant risks to users and developers. Exploits such as reentrancy attacks and oracle manipulation have resulted in substantial financial losses.
High Costs: Many blockchain networks require high fees for transactions and smart contract interactions. This cost barrier discourages adoption, especially for microtransactions and smaller-scale users.
Decentralization Concerns: While blockchain technology promotes decentralization, many networks end up relying on a small number of validators or mining pools, creating centralization risks that undermine the core principles of blockchain.
Following Bitcoin’s halving in April 2024, which cut block rewards from 6.25 BTC down to 3.125 BTC, miner profitability .
With Ether’s price hovering around $1,900–2,100 for much of 2024, validators needed over to run a solo staking node.
By Q4 2024, Bitcoin was estimated to consume over of electricity annually (similar to the usage rate of entire mid-sized countries).
Although some mining farms reported “100% renewable energy usage,” global industry data indicated only about used mostly clean energy sources.
