The blockchain was shrouded in mystery when it was first made public. Many people stayed away because of the constant stream of negative comments. However, times have changed, and blockchain applications are now widespread.
Apple, Wal-Mart, IBM, Amazon, FedEx, NVIDIA, and PayPal are just a few of the companies that have used it. This is evidence that businesses are benefiting greatly from the implementation of this cutting-edge technology.
Regardless of its utility, the blockchain comes with multiple drawbacks that cannot be overlooked. Understanding the benefits and drawbacks of this type of technology is critical if you intend to use it in your business. This article will help you a great deal since we’ll be discussing the benefits and drawbacks of using the blockchain.
What Exactly Is Blockchain?
The blockchain is a distributed digital record that stores financial data. Information on a blockchain is organized into blocks, which are replicated across the network’s nodes. Each time data is added to the blockchain, these blocks are modified accordingly.
However, miners at those network nodes will need to verify the new data before it can be added. Only when the majority of miners agree on the validity of the new data is it uploaded to the network. As a result, you’ll have access to an unchangeable, chronological database of information.
Pros and Cons of the Blockchain
The blockchain outperforms more traditional data networks in a variety of ways. Many of the traits that make blockchain useful also have the potential to be its downfall. So, while in certain cases these characteristics will benefit blockchain users, in others they will work against them.
We’ll discuss the blockchain’s benefits and drawbacks. You will be able to arrive at a well-informed choice regarding whether or not you want to utilize this public ledger in this manner.
The blockchain is a distributed ledger that stores data on all of the computers connected to it. This is in contrast to conventional information systems, where data is often stored in a centralized database.
The blockchain consists of a distributed ledger of all the nodes, or computers, that share the same set of records. This serves as several redundant sources of information that can be used if any node becomes compromised. So, if a computer gets corrupted or a node crashes, there are others that can take its place.
When new information is added to any node, its changes are reflected in other nodes that form the blockchain network. This means that the various systems in the blockchain network will always hold the same information at any given time.
Information only gets stored on the blockchain when a majority of the nodes on that blockchain verify it. There is very little chance of human error because computational algorithms verify information on the blockchain.
Even when a few nodes make mistakes, the accurate calculations of the majority will prevent it from being an issue. That’s because new data can only be added to the blockchain when it’s unanimously approved.
The decentralization factor of this distributed ledger technology ensures that all nodes in a blockchain network bear the same information. So, when one of the nodes in a blockchain gets hacked, the hacker cannot compromise the integrity of the blockchain. The new information that the hacker is trying to introduce won’t be accepted until a majority of nodes agree to it.
This doesn’t mean that the blockchain is unhackable, however. Any hacker that can take over the majority of the nodes in a blockchain can hack it. Nonetheless, such a scenario is unlikely to happen as the computational and energy requirements are astronomical.
In a related vein, nobody else can change any data that was previously entered into the ledger. This makes the blockchain immutable, and this immutability makes it reliable. The immutability of the blockchain is an effect of the cryptographic hash that is assigned to every information block in the blockchain.
Each of the blocks on the blockchain is assigned a distinctive hash ID. So, when anyone makes a change to that block, the hash ID will reflect the new information, and it won’t be the same. That way, any little changes that are made to already-added information would be singled out.
Every change that’s been verified and accepted on the blockchain is reflected on all nodes in that network. So, no one can hide any transactions that are made on the blockchain, as everyone would be able to see them.
This is why many people love the incorporation of blockchain into the finance industry. It takes away all the ambiguity that surrounds the movement of funds through financial companies. So, every change that’s made to an individual’s funds would be visible to everyone on that blockchain.
Traditional financial systems have always had issues when it comes to the processing speeds of transactions. You are able to transfer money to a bank account, but the process may take several hours. If the funds are going overseas, you’ll have to wait weeks for the banks to finish processing the transaction.
That’s why the blockchain is a welcome change, as it transfers information or funds between its nodes within seconds. So, if you’re transferring funds from one user in Europe to another at the north pole, it would still take seconds.
Low Transaction Costs
Transferring funds using traditional financial systems isn’t free, as you’ll have to pay transaction fees. The blockchain isn’t free either, as there are transaction fees for transferring funds. The distinction between these two choices is that blockchain transaction fees are extremely minimal.
You won’t even feel the pinch when you transfer huge amounts of funds during off-peak periods. If you use traditional financial institutions, however, the transaction fees will be visible, especially when you transfer funds overseas. Sometimes, it can cut deep into the funds that you are transferring.
Modifying Data Is Difficult
One of the advantages of using the blockchain is that no one can alter the information that has been stored. But what if you make an error in the data that you save and wish to change it? This advantageous feature of the blockchain would make your endeavor very difficult.
You would have to get a majority of the nodes in the blockchain network to agree with your endeavor. Even if you (hypothetically) succeed in modifying the old data, things wouldn’t really remain the same. The hash IDs of the modified data would be different from the old ones, and this could complicate things down the line.
The Danger of Private Keys
All transactions on the blockchain are authorized by a public key, which is an alphanumeric code. These private keys also act as proof of assets on this public ledger, as they offer access to those assets. As such, the private key for any account is meant for the owner’s eyes only, as the blockchain doesn’t store it.
So, if you lose your private key, you’ve lost access to your assets, as there is no way to recover them. Those assets would then be lost forever. If someone else gets a hold of those private keys, they would be able to withdraw those funds in your place.
There is no regulatory body that oversees and controls the activities of the blockchain. Of course, if there were any, this would defeat the purpose of a decentralized system that’s not controlled by anyone.
Nonetheless, this lack of regulation in this public ledger system means that scams will be rampant. Unsuspecting individuals can fall into elaborate scams that cause them to invest their funds in phony blockchain systems.
Many industries survive in their cut-throat environment today because of trade secrets that are kept out of the public eye. Some of them are able to do business when they keep confidential information away from their competitors.
When these industries switch over to the blockchain, they won’t be able to hide anything anymore. All their transactions would be done in front of the public.
The proof-of-work system on which most blockchain networks run relies on heavy computational power. These heavy computational requirements are only possible with a large power requirement. So, the blockchain isn’t eco-friendly at all, especially when its power requirements come from burning fuel.
For blockchains, the proof-of-stake algorithm is a more environmentally friendly solution. However, this system isn’t widespread yet, as older blockchains still rely on a proof-of-work system.
Most blockchains run on numerous computers of varying capacities. The blockchain’s whole size grows as additional data gets uploaded to it from multiple nodes. This continues until it exceeds the hard drive capacity of some computers.
When this happens, those computers will be pushed out of the blockchain, as they won’t be able to house it anymore.
After considering the pros and cons of the blockchain, you’ll also understand that this technology isn’t as miraculous as it seems. This shouldn’t discourage you from using the blockchain for gaming and other activities. As long as you keep its downsides in mind, you can make a good plan for how to benefit from this technology.