The term blockchain has been a buzzword for the last few years. However, like other technologies, it has been associated with certain misconceptions. The blockchain is a distributed ledger, recording the transactions publicly in chronological order. The single ledger does not store the entire database but is shared across a network.
The technology is considerably new. Thus, the strategists, planners, and decision-makers have started to pay attention to it in finding applications of this technology. Since many of us alienate ourselves from this nascent technology, it is essential to burst the bubble of misconceptions. Here are the 15 misconceptions of blockchain, which we will clear one by one.
Misconceptions of Blockchain
Blockchain is the magical database in the cloud.
The blockchain does not allow the usersto store any physical information, like a word file. It just provides ‘proof-of-existence’ to its users. The distributed ledger only contains a code that would certify the existence of a specific document, not the document in specifically.
However, the data lakes store the files. The owner controls the information in terms of its access. Therefore, the blockchain is ideally a list of transactional records. The affix list helps to abstain from the deleted data while ensuring that the files grow indefinitely and replicates in the peer network.
Businesses are not ready for blockchain.
There is a famous misapprehension that blockchain has certain flaws. It is related to its performance, security, and privacy that creates barriers for businesses to adopt it. However, this is not the case. In the last few years, industry-specific blockchain consortiums have played an essential role. It has educated the businesses while setting the benchmarks in terms of the performance of the network.
The 2018 Global Blockchain Survey of Deloitte reveals 29% of the business fraternity are adopting blockchain. Further, 45% are planning to in the upcoming year, while 13% of those who responded plan to start their consortium. It indicates on a global level that businesses are keen to adopt blockchain technology and are working to reap the benefits of it.
The transactions on the network are anonymous.
One of the common fallacies is related to its anonymity. Every beginner within the blockchain arena thinks that blockchain-based cryptocurrencies make anonymous payments, but this is false. However, the truth lies in the fact that the blockchain aims to record the public address of the wallet. It does it without disclosing the wallet owner’s identity. Nonetheless, the system can trace the cryptocurrency used for making illegal payments. In the case of linkage of the wallet’s public address with personal identity, there is a high chance of being able to trace the entire blockchain list address with sheer ease.
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Blockchain is entirely secure.
One of the essential features of the blockchain network lies in the encryption of data associated with the transactions between both parties. Many of the blockchains, such as Bitcoin, use SHA-256 cryptographic algorithms. As per the experts in this field, the recommended algorithm is SH-256 due to catering encryption needs.
However, in the case of the algorithm being at risk, there is a high chance of attack on blockchain. It contradicts the belief that technology is entirely invincible. Even experts understand the fact that it can break the small blockchains with easy effort. On the other hand, public and large blockchains are secure from cyber-attacks.
All blockchains are public entities.
It is a common assumption emerging after the launch of a globally renowned public blockchain such as Bitcoin. However, this is one of the most common misconceptions of blockchain that can stun any newbie. In real terms, the public blockchain is not the only type. There are hybrid and private blockchains, operating in this network globally.
The Bitcoin invention has led to this spectacle across various private enterprises and financial institutions. It is commonly known as permissioned blockchains, referred to as private and federated blockchains. Many ledgers are public in their entity. But permissioned blockchains are private, which bursts this bubble of misconception.
Blockchain and cryptocurrencies are the same things.
It is possibly the most common myth of blockchain. When people hear about cryptocurrency, the first thing that comes to mind is blockchain and the utilization of terms interchange. Cryptocurrency is the digital currency serving as the medium of exchange, like dollar or pounds. Whereas, blockchain is a broader umbrella that has served technologies such as Bitcoin and the Islamic compliant cryptocurrency such as Caizcoin.
But there are other uses too. It includes incorporating identity verification, supply chain management, and assisting the health care and insurance sector. Thus, the blockchain supports Bitcoin, and in return, Bitcoin uses blockchain technology to buy and sell digital currency. In reality, blockchain usage is much more than only Bitcoin.
Blockchain is solely used for digital assets.
Blockchain has real-life applications that go beyond digital assets or cryptocurrencies. With the transparency in nature and public accessibility, there is a broad range of applications. It is used in digital voting to eliminate the electorate and voting frauds in the system. Similarly, non-profit organizations use blockchain to record funding, and to stay transparent to the donors.
The blockchain, to a large extent, has revolutionized electronic medical records. In the same way, the blockchain assists in tracking the fair and equitable COVID-19 vaccine distribution. Thus, the blockchain’s domain is not restricted to strengthening digital assets.
Blockchain is free.
A commonly held belief is that the blockchain is free of cost. However, the blockchain is neither cheap nor efficient to run on its own. It combines different computers held together for solving the numeric algorithms to reach the final immutable result. It is known as the Single Version of Truth (SVT). The block in the blockchain uses a large amount of computing knowledge and power to offer solutions. So, one needs to pay for supporting the blockchain service and making optimum use of it.
Blockchain can be the economy’s backbone.
Currently, there is no single national or corporate entity that takes control or ownership of the blockchain. Consequently, private blockchains are hoping to offer fundamental support to encrypted and credible cryptocurrencies. In this case, the Bitcoin Blockchain appears to be huge.
As per the Garner Report, the blockchain is similar in size to the NASDAQ network. It may change once cryptocurrency takes off and generates more records. Till then, the blockchain network is equivalent to any contemporary financial network, nothing massive as such.
The ledger is locked and unable to be altered.
The analogous transactional databases, such as bank records, are private and linked with specific financial institutes. On the contrary, the power of blockchain lies in code being public. Besides, the transactions are verified, and it achieves a secure network cryptographically. The network does not accept fraudulent transactions and double spending, which helps prevent scams.
The experts strongly believe that rewriting past transactions does not fall in participants’ interests. It is because the mining in the network offers financial incentives in the form of Bitcoin. But, at the moment, there is vast room for improvement of computational resources and the potential for deception as well.
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Blockchain is limited to the financial sector.
Another fallacy linked with blockchain is that it is just for the financial sector. The blockchain started to create headlines in the arena with its application, Bitcoin. Thus, a strong belief was that the network only serves the finance industry. Although the blockchain has numerous applications, finance constitutes one of them. This technology posed a significant milestone when it pushed heavy investments from international banks such as Goldman Sachs and Barclays.
But there is a world beyond the finance sector too. The usage is reliably in health care, real estate, insurance, or digital identity creation. The individuals can store their proof-of-the-existence of medical records on the network and share them with pharmaceutical companies for money.
Transactions on the blockchain are immutable automatically
The immutability has become the hallmark of the technology, primarily due to Bitcoin’s blockchain resilience to attacks. But this comes with a cost, which needs to be understood. The Bitcoin blockchain is for the untrusting partner. Besides, it requires high computation cost, making it impractical to eradicate the past.
However, other blockchains work on a different mechanism, such as proof-of-stake. This is where the companies are allowed to write to the known blockchain. Therefore, it is noticeable in case of tampering. Just like any other software system, bugs are possible. There are cases where blockchains are hacked as well.
Blockchain enterprises will rapidly change business operations.
The experts predict a bright and exciting future for blockchain, as it provides limitless communication, and had the potential to drive a massive change in the industry. But when it comes down to finance and supply chain management, it is going to take time. As per the recent study, the blockchain will turn around the supply chain processes and is the next big thing, but its adoption on a mass level will take a decade. Similarly, when it comes to financial institutions, it will take even more time, anticipating from five to twenty-five years.
Smart contracts hold the same legal value as regular contracts.
Smart contracts are code pieces that execute actions as soon as they fulfill certain conditions. Thus, this makes them different from a regular contract in terms of legal perspective. Nonetheless, it serves as a piece of evidence or to ensure the accomplishment of a specific task. Despite their legal value, smart contracts are powerful tools when combined with Internet-of-Things (IoT).
Tokens and coins are the same in the blockchain network
The blockchain application in the financial sector has led to this myth about terminologies. Many people interchange the terms token and coins without identifying the real difference between them. The crypto coin localizes for specific blockchains such as Ether or Bitcoin. These serve as a currency in the blockchain network.
On the contrary, the token is the asset issued by the blockchain project. These are utilized as payment methods while having the same functionalities as the coin. The main difference between coin and token is that the former offers the privilege of participating in the network, whereas, the token serves as an essential element of the digital resource.
As we have covered all the misconceptions of blockchain, we have achieved a better idea of it. With extensive research, one can further list down its features, drawbacks, and advantages. With this technology just being half a decade old, it has attained the highest level of success. The person who is willing to capitalize on it needs to view it beyond the lens of misconceptions.
Frequently Asked Questions
The concept of blockchain is that it is an open ledger storing all transactional data in a transparent and immutable way. It makes it a decentralized notion without any intermediaries involved.
The primary benefits with blockchains are that it enhances trust, security, transparency and traceability of data across the business network while delivering cost-effective and efficient solutions
Last year, the global blockchain market size was valued at $3.67 billion USD. It anticipates increasing at a compound annual growth rate of 82.4% from 2021 to 2028, making it a promising technology of this decade.
The blockchain network is an open-source one. It means any software developer can obtain source code and create something unique from it. Since many developers have been doing this, it has resulted in more than 4500 different cryptocurrencies in circulation. Moreover, this number is consistently increasing and is expected to double in the next decade.