Bleeding edge technologies are often subject to controversy, especially when there is a lack of awareness surrounding them. Discussions — lacking the necessary understanding — with friends and on social media can also lead to them forming misinformed opinions.
Blockchain is no different. Even after being in existence for 12 years, the technology remains a mystifying topic for many, leading to much confusion. With varied perceptions coming from the public to government officials, there are many myths and misguided facts that surround the technology.
Here are just a few of the most common misinterpreted facts and myths about blockchain.
Blockchain = Cryptocurrencies
A couple of years ago, I found myself at a gathering, sitting with a high-level banker and a national economic-financial policymaker. As the conversation steered towards my career in promoting blockchain, they took an aggressive stance towards cryptocurrencies. The next half hour was spent telling the two apart.
Yes, blockchain was created by Satoshi Nakamoto to drive the first modern cryptocurrency, Bitcoin. But that’s it. This is a technology that runs digital money and isn’t a cryptocurrency. In fact, crypto are just one of the many different applications that can run using blockchain. Blockchain is simply a secure and trustless technology that can digitally record data. You can use it for just about anything that can be represented in digits. Supply-chain, government-issued IDs, salary systems, educational records, gaming — you name it.
Blockchain is Unhackable
This is both a myth and a fact, depending on the blockchain in question. Blockchains do offer a higher level of security because of the sophisticated hash-based cryptography applied to protect data. It is physically impossible, at the moment, for anyone to guess your private key and access your data or assets on a typical blockchain — even the most modern supercomputers aren’t capable of this.
The network security, that is, how safe the network is from malicious tampering or hostile takeover, is also unprecedented when dealing with larger ones like Ethereum and Bitcoin — although smaller networks are still relatively vulnerable to being exploited.
Private blockchains or permissioned ones also can be vulnerable to instances in which transactions or data can be overwritten, since private or enterprise blockchains are controlled by firms and certain such administrative rights are assigned to specific users.
Blockchain is Free to Use
By eliminating the money-hogging middlemen in the whole ecosystem, one would tend to believe blockchain is free. People believing this end up surprised to find that this is not the case when they try to use it. There are a number of consensus methods used today (proof of work and proof of stake being the primary ones) and this requires either dedicating computing power or staking finances, both requiring compensation. When making any kind of transactions or transfers in a blockchain, you will need to pay the nodes and miners who maintain the network a fee as compensation for their efforts.
While an enterprise blockchain may not have a transaction charge, it does pay for it through computing power consumption.
Blockchain is an Ecological Disaster
The world woke up one day to believe that blockchain is a planet killer, all due to one little Tweet. While it has been known for some time that the top blockchain networks are consuming a lot of power, crucifying them is simply misguided.
Image Courtesy of www.cbeci.org
Take Bitcoin’s network as an example. According to Cambridge’s Bitcoin Electricity Index, it uses around 96.3 TWH, which is more than what some countries use. But this completely ignores the benefits of what the network offers: a store of value that is the most fraud-resistant and secure in the world, not under the control of any entity, has not a single employee and has never been successfully hacked or maliciously controlled.
Compare this to a typical banking or financial network that has many, many points of failure and inefficiency: thousands of brick-and-mortar offices that need to be rented to store countless servers, each vulnerable to hacking, damage and fraudulent activity, requiring millions of salaried employees running them, with many instances of bank databases getting hacked.
It is right to question energy consumption, but without considering the benefits of an industry, and making an objective comparison, one might as well vilify the gaming industry.
Blockchain is the Holy Grail of Software Solutions
Blockchain only acts as the distributed system which records all transfers of data within the ecosystem. It isn’t an all adaptable software that can be used for different industries and applications. It is smart contracts and dApps (decentralized Apps) that developers build that use blockchain as an immutable means of appending and reading verifiable data.
One Blockchain Size Fits All
Blockchain isn’t for everything and everything cannot benefit from it. Consequently, there are numerous variations and other technological changes in each blockchain created, aimed to solve specific requirements.
But because of its design, blockchain can be very inefficient for some applications. Data storage is an obvious example — a distributed blockchain would require every computer securing it to have the same data. Bitcoin’s database (it’s blockchain) is currently over 350 GB — and every node would need to verify this in its entirety, downloading the entire piece before helping to secure it. This only after 12 years, storing only the bare minimum of transaction data.
From the way they secure the network to the programming language involved, each iteration can only be used in so many ways. That’s why today there are several different blockchains in existence, and no, you can’t use this technology to cure cancer.