Blockchain Technology | Pro And Cons | Advantage and Disadvantages
Blockchain is a system of recording information in a way that makes it difficult or impossible to change, hack, or cheat the system.
A blockchain is essentially a digital ledger of transactions that is duplicated and distributed across the entire network of computer systems on the blockchain. Each block in the chain contains a number of transactions, and every time a new transaction occurs on the blockchain, a record of that transaction is added to every participant’s ledger. The decentralised database managed by multiple participants is known as Distributed Ledger Technology (DLT).
Blockchain is a type of DLT in which transactions are recorded with an immutable cryptographic signature called a hash.
This means if one block in one chain was changed, it would be immediately apparent it had been tampered with. If hackers wanted to corrupt a blockchain system, they would have to change every block in the chain, across all of the distributed versions of the chain.
Blockchains such as Bitcoin and Ethereum are constantly and continually growing as blocks are being added to the chain, which significantly adds to the security of the ledger.
Why is there so much hype around blockchain technology?
There have been many attempts to create digital money in the past, but they have always failed.
The prevailing issue is trust. If someone creates a new currency called the X dollar, how can we trust that they won’t give themselves a million X dollars, or steal your X dollars for themselves?
Bitcoin was designed to solve this problem by using a specific type of database called a blockchain. Most normal databases, such as an SQL database, have someone in charge who can change the entries (e.g. giving themselves a million X dollars). Blockchain is different because nobody is in charge; it’s run by the people who use it. What’s more, bitcoins can’t be faked, hacked or double spent – so people that own this money can trust that it has some value.
- Block: Each block contains a cryptographic hash of the previous block, a timestamp, and transaction data.
- Ledger: The ledger provides a complete record of financial transactions over the life of the company. The ledger holds account information that is needed to prepare financial statements and includes accounts for assets, liabilities, owners’ equity, revenues, and expenses.
- A Smart contract is computer algorithms which execute themselves, based on incoming data from the network. The self-fulfilling nature of such applications allows them to run without reliability issues associated with human operators.
For Example: A smart contract could technically say, “pay Alex $10 if he submits an article by 18th April 2018” and it would pay Alex once the conditions are met.
Blockchain: A Blockchain is a public ledger that facilitates the process of recording transactions and tracking assets in a business network.
Now from the above statement, it means decentralized ledger is not controlled by any financial institution or government for that matter. In fact, it can be accessed by everyone who has a good internet connection. Other than virtual currencies, there are many companies such as messaging apps, critical infrastructure security, ride sharing, cloud storage, etc. are harnessing the power of blockchain technology.
Tangible Assets: Tangible assets can be touched and have a physical substance e.g. machines, buildings, motor vehicles and Intangible Assets, virtually anything of value can be tracked like intellectual property or patent can be traded on a blockchain network, reducing risk and cutting costs for all involved.
Advantages Blockchain Technology :
- Greater Transparency
Transaction histories are becoming more transparent through the use of blockchain technology. Because blockchain is a type of distributed ledger, all network participants share the same documentation as opposed to individual copies. That shared version can only be updated through consensus, which means everyone must agree on it. To change a single transaction record would require the alteration of all subsequent records and the collusion of the entire network.
The decentralized nature of the blockchain is what makes them immune to takeovers or corruption by centralized entities such as banks and governments. It goes further while distributing this data across a wide network of unrelated computers and systems also means the blockchain’s ledger is available for anyone to access, verify & audit data and transactions.
Blockchain allows you to record transactions that virtually eliminates human error and protects data from tampering. The data is verified every single time they are passed on from one blockchain node to the next. In addition to the guaranteed accuracy of your records, such a process will also leave a highly traceable audit trail.
- Supply Chain Management
This revolutionary technology offers the benefit of traceability and cost-effectiveness. Blockchain allows for the tracking of goods, their origin, quantity and more. This simplifies processes like ownership transfers, production process assurance, and payments.
- Peer to peer global transactions
Bitcoin which uses blockchain technology allows for the fast, secure and cheap transfer of funds across the globes. While there are already services like PayPal that processes international payments, they usually have specific limitations
- Process Integrity
Users can trust that transactions will execute exactly as the protocol commands and removes the need for a trusted third party. Due to the security reasons, this program was made in such a way that any block or even a transaction that adds to the chain cannot be edited which ultimately provides a very high range of security
- Lower Transaction Costs
The elimination of exchanging assets through third-party intermediaries allows blockchain to greatly reduced transaction fees.
The format of Blockchain designs in such a way that it can easily locate any problem and correct if there is any. It also creates an irreversible audit trail.
Blockchain technology is highly secure because of the reason each and every individual who enters into the Blockchain network is provided with a unique identity which is linked to his account. This ensures that the owner of the account himself is operating the transactions. The block encryption in the chain makes it tougher for any hacker to disturb the traditional setup of the chain.
- Faster processing
Before the invention of the blockchain, the traditional banking organization take a lot of time in processing and initiating the transaction but after the blockchain technology speed of the transaction increased to a very high extent. Before this, the overall banking process takes around three days to settle but after the introduction of Blockchain, the time reduced to nearly minutes or even seconds
Disadvantages Blockchain Technology :
- Large energy consumption:
The consumption of power in the Blockchain is comparatively high as in a particular year the power consumption of Bitcoin miners was alone more than the per capita power consumption of 159 individual countries.
Keeping a real-time ledger is one of the reasons for this consumption because every time it creates a new node, it communicates with each and every other node at the same time.
- Maintenance Cost:
An average cost of the Bitcoin transaction is $75-$160 by the energy consumption. The storage problem might be covered by the energy issues cannot be resolved
Every bitcoin network client stores the entire transaction history, it became as large as 100GB. The more transactions processed on the network, the faster the size grows.
- Uncertain regulatory status:
In each and every part of world modern money has been created and controlled by the central government. Blockchain becomes a hurdle for Bitcoin to get accepted by the preexisting financial institutions
Many of the cryptocurrencies that use decentralized blockchains are extremely volatile. For example, it is not uncommon for Bitcoin prices to fluctuate 20% or more in a single day. The governments, investors, businesses, and other groups of people are trying to decide whether or not they want to adopt them which can cause a lot of volatility.
- Transaction delays:
One of the biggest drawbacks of the major blockchains that have been created so far is that they usually take a fairly long time — typically a few hours — to register transactions. There are ways to work around this limitation, such as using “off-chain” transactions. Still, in most cases writing data to a blockchain is not instantaneous.
- Unavoidable security flaw
There is one notable security flaw in bitcoin and other blockchains: if more than half of the computers working as nodes to service the network tell a lie, the lie will become the truth. This is called a ‘51% attack’ and was highlighted by Satoshi Nakamoto when he launched bitcoin.
For this reason, bitcoin mining pools are monitored closely by the community, ensuring no one unknowingly gains such network influence.
- Doesn’t Guarantee full transparency:
Moving data to a blockchain can be one way to help make your software project or company more transparent. But it doesn’t suddenly make everything about “open.” You could have a closed-source application that stores data on a blockchain, for example. In that case, no one except you would know exactly how your software operates, despite the fact that its data lives on a blockchain.
- Performance, Redundancy, Indestructible
The blockchain has many nodes whereas centralized databases process transactions once or twice, the blockchain must process independently by every node in the network for the same end result.
The blockchain is stored on each network node, then special services or authorities cannot shut down Bitcoin because it’s decentralized and has no centralized server
- Signature Verification,
All transactions made on the blockchain network needs to be signed using a public-private cryptography scheme called Elliptic Curve Digital Signature Algorithm (ECDSA) This is necessary because transactions propagate between nodes in a peer-to-peer fashion. The generation and verification of these signatures are computationally complex. In centralized databases, once there is a connection there is no need to individually verify every request that comes over it.
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