12 Myths about Blockchain Technology
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12 Myths about Blockchain Technology
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Blockchain, the “distributed ledger” technology, has emerged as an object of intense interest in the tech industry and beyond. Blockchain technology offers a way of recording transactions or any digital interaction in a way that is designed to be secure, translucent, very resistant to outages, auditable, and efficient; as such, it carries the possibility of disrupting industries and enabling fresh business models. The technology is youthful and switching very rapidly; widespread commercialization is still a few years off. Nonetheless, to avoid disruptive surprises or missed opportunities, strategists, planners, and decision makers across industries and business functions should pay heed now and begin to investigate applications of the technology world.
Blockchain is a database that maintains a continuously growing set of data records. It is distributed in nature, meaning that there is no master computer holding the entire chain. Rather, the participating knots have a copy of the chain. It’s also ever-growing — data records are only added to the chain.
A Blockchain consists of two types of elements:
- Transactions are the deeds created by the participants in the system.
- Blocks record these transactions and make sure they are in the correct sequence and have not been tampered with.
The big advantage of Blockchain is that it’s public. Everyone participating can see the blocks and the transactions stored in them. This doesn’t mean everyone can see the actual content of your transaction, however; that’s protected by your private key.
Blockchain is a database that maintains a continuously growing set of data records. /Pic: OpenMind
A Blockchain is decentralized, so there is no single authority that can approve the transactions or set specific rules to have transactions accepted. That means there’s a big amount of trust involved since all the participants in the network have to reach a consensus to accept transactions.
Most importantly, it’s secure. The database can only be extended and previous records cannot be switched (at least, there’s a very high cost if someone wants to alter previous records).
When someone wants to add a transaction to the chain, all the participants in the network will validate it. They do this by applying an algorithm to the transaction to verify its validity. What exactly is understood by “valid” is defined by the Blockchain system and can differ inbetween systems. Then it is up to a majority of the participants to agree that the transaction is valid.
A set of approved transactions is then bundled in a block, which gets sent to all the knots in the network. They, in turn, validate the fresh block. Each successive block contains a hash, which is a unique fingerprint, of the previous block.
Advantages of Blockchain Technology / Picture: author
Blockchain ensures that data has not been tampered with, suggesting a layer of timestamping that eliminates numerous levels of human checking and makes transactions immutable. However, it isn’t yet the cure-all that some believe it to be.’
There are three types of Blockchains:
- Public: a public Blockchain is a Blockchain where everyone can see all the transactions, anyone can expect their transaction to show up on the ledger and eventually anyone can participate to the consensus process.
- Federated: federated Blockchain don’t permit everyone to participate to the consensus process. Indeed, only a limited number of knots are given the permission to do so. For example, in a group of twenty pharmaceutical companies we could imagine that for a block to be valid, fifteen of them have to agree. The access to the Blockchain however can be public or restricted to the participants.
- Private: private Blockchains are usually used inwards a company. Only specific members are permitted to access it and carry out transactions.
Blockchain technology certainly has many positive aspects, but there is also much misunderstanding and confusion regarding its nature.
Myth # 1: The Blockchain is a magical database in the cloud
The Blockchain is conceptually a plane file – a linear list of elementary transaction records. “This list is ‘append only so entries are never deleted, but instead, the file grows indefinitely and must be replicated in every knot in the peer-to-peer network”
Blockchain doesn’t permit you to store any type of physical information like a Word document or a .pdf file. It can only provide a “proof-of-existence” the distributed ledger can only contain a code that certifies the existence of a certain document but not the document itself. The file however can be stored in “data lakes”, the access to which is managed by the possessor of the information.
Myth #Two: Blockchain is going to switch the world
We can use Blockchain for sophisticated and technical transactions – such as verifying the authenticity of a diamond or the identity of a person. There is also talk of a Blockchain application for the bill of lading in trade finance, which would be revolutionary in terms of cost reduction and transaction speed.
While Blockchain can support these cases and mitigate the risk of a fraudster tampering with the ledger, it does not eradicate the threat of fraud online and it still raises questions over confidentiality. Additionally, the use of Blockchain technology will still be inefficient for many of these cases when compared to maintaining a traditional ledger.
Myth #Three: Blockchain is free
Despite the commonly held belief, Blockchain is neither cheap nor efficient to run – yet. It involves numerous computers solving mathematical algorithms to agree a final immutable result, which becomes the so-called single version of truth (SVT). Each ‘block’ in the Blockchain typically uses a large amount of computing power to solve. And someone needs to pay for all this computer power that supports the Blockchain service.
Myth #Four: There is only one Blockchain
There are many different technologies that go by the name Blockchain. They come in public and private versions, open and closed source, general purpose and tailored to specific solutions.
Common denominator is that they are shore up by crypto, are distributed and have some form of consensus mechanism. Bitcoin’s Blockchain, Ethereum, Hyperledger, Corda, and IBM and Microsoft’s Blockchain-as-a-service can all be classified as Distributed Ledger Technologies.
Myth #Five: The Blockchain can be used for anything and everything
However the code is powerful, it’s not magical. Bitcoin and Blockchain developers can be evangelical, and it’s effortless to understand why. For many, the Blockchain is an authority tied to mathematics, not the government or lawyers. In the minds of some developers the Blockchain and clever contracts will one day substitute money, lawyers, and other arbitration bods. Yet the code is limited to the number of cryptocurrency transactions in the chain itself, and cryptocurrency is still far from mainstream.
Myth #6: The Blockchain can be the backbone of a global economy
No national, or corporate entity possesses or controls the Blockchain. For this reason, evangelists hope private Blockchains can provides foundational support for dozens of encrypted and trusted cryptocurrencies. Superficially, the Bitcoin Blockchain emerges massive. Yet a Gartner report recently claimed the size of the Blockchain is similar in scale to the NASDAQ network. If cryptocurrency takes off, and records are generated larger, this may switch. For now, tho’, the Blockchain network is harshly analogous to contemporary financial networks.
Myth #7: The Blockchain ledger is locked and irrevocable
Analogous large-scale transaction databases like bank records are, by their nature, private and tied to specific financial institutions. The power of Blockchain, of course, is that the code is public, transactions are verifiable, and the network is cryptographically secure. Fraudulent transactions— dual spends, in industry parlance—are rejected by the network, preventing fraud. Because mining the chain provides financial incentive in the form of Bitcoin, it is largely believed that rewriting historic transactions is not in the financial interest of participants. For now, However, as computational resources improve with time, so too does the potential for deception. The influence of future processing power on the integrity of the contemporary Blockchain remains unclear.
Myth # 8: Blockchain records can never be hacked or altered
One of the main selling points about Blockchains is their inherent permanence and transparency. When people hear that, they often think that means that Blockchains are invulnerable to outside attacks. No system or database will ever be totally secure, but the larger and more distributed the network, the more secure it is believed to be. What Blockchains can provide to applications that are developed on top of them is a way of catching unauthorized switches to records.
Myth # 9: Blockchain can only be used in the financial sector
Blockchain commenced to create flaps in the financial sector because of its very first application, the bitcoin cryptocurrency, which directly impacted this field. Albeit Blockchain has numerous areas of application, finance is undeniably one of them. The significant challenges that this technology brings to the financial world shoved international banks such as Goldman Sachs or Barclays to intensely invest in it. Outside the financial sector, Blockchain can and will be used in real estate, healthcare or even at a individual scale to create a digital identity. Individuals could potentially store a proof-of-existence of medical data on the Blockchain and provide access to pharmaceutical companies in exchange for money.
Applications of Blockchain Technology/ Photo: author
Myth # Ten: Blockchain is Bitcoin
Since Bitcoin is more famous than the underlying technology, Blockchain, many people get confused inbetween the two.
Blockchain is a technology that permits peer-to-peer transactions to be recorded on a distributed ledger across the network. These transactions are stored in blocks and each block is linked to the previous one, therefore creating a chain. Thus, each block contains a finish and time-stamped record of all the transactions that occurred in the network. On the Blockchain, everything is see-through and permanent. No one can switch or liquidate a transaction from the ledger.
Bitcoin is a cryptocurrency that makes electronic payment possible directly inbetween two people without going through a third party like a bank. Bitcoins are created and stored in a virtual wallet. Since there are no intermediaries inbetween the two parties, no one can control the cryptocurrency. Hence, the number of bitcoins that will ever be released is limited and defined by a mathematical algorithm.
Myth # 11: Blockchain is designed for Business interactions only
Experts in Blockchain are persuaded that this technology will switch the world and the global economy just like dot-coms did in the early 90’s. Hence, it is not only open to big corporations; it is accessible to everyone everywhere. If all it takes is an Internet connection to use the Blockchain, one can lightly imagine how many people worldwide will be able to interact with each other.
Myth # 12: Clever contracts have the same legal value as regular contracts
For now, clever contracts are just lumps of code that execute deeds automatically when certain conditions are met. Therefore, they are not considered as regular contracts from a legal perspective. However, they can be used as a proof of whether or not a certain task has been accomplished. Despite their uncertain legal value, brainy contracts are very powerful contraptions especially when combined with the internet-of-things (IoT).
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