Clearing the Air About Blockchain
Coming out of the last decade, crypto seems to be one of the most popular financial topics across the internet. Billionaires, celebrities, businessmen and politicians have all shared their opinions on it in one way or another. While crypto has shown remarkable ability to provide value, many misconceptions about its underlying technology, the blockchain, have been phrased. Its security, usage and even what exactly it is have been repeatedly questioned and debated. Some of the statements made are far from the truth or just a tad misinformed. Here, we’ll look at a few of these misconceptions and explain the reality to better clarify the concept for you and make you a bit more informed.
Misconception #1: Blockchain and Cryptocurrency are synonymous.
If you search “blockchain” on the internet, references to cryptocurrency are never far behind. Therefore, someone who is not familiar with the space can be forgiven for using the two terms synonymously. However, it is important to understand the difference between the two. A blockchain is a distributed ledger shared over several nodes or computer stations. It is the underlying technology that allows cryptocurrencies, among many other things, to work.
A cryptocurrency, on the other hand, is a digital currency in which transactions are verified and records maintained by a decentralized system using cryptography, rather than by a centralized authority. The relationship between cryptocurrency and blockchain is that crypto is an application of blockchain technology. A car and its engine are two different things.
Misconception #2: Blockchains are costly and inefficient
The world’s largest cryptocurrency, bitcoin, consumes more electricity annually than the country of Argentina — that much is true. In our last point, we already established that blockchains and cryptocurrency are not the same. In this point, we’ll establish that there are multiple blockchains and they’re all built differently. Not all blockchains are created equal. They work by employing different consensus algorithms. These algorithms function differently and the way they consume resources is also different. For example, Bitcoin employs the Proof of Work (PoW) algorithm. This algorithm encourages bitcoin mining, which is what makes it so expensive and inefficient. However, there are other algorithms which consume less energy, like Proof of Stake. In fact, Ethereum aims to switch from PoW to PoS to help save the environment. These consensus algorithms are like vehicles — you can either choose a gas guzzling loud monster, or you can choose a Prius.
Misconception #3: All the data on a blockchain is public
Blockchains can be divided into a few subcategories. There is a category called a public blockchain, where transactions can be accessed by anyone however the user’s identity may be decoupled from the transaction and thus not everything is public. There are other subcategories like private/permissioned blockchains, which can restrict certain information from being publicly viewed if the governing body of that blockchain chooses and so, again, not all data on a blockchain is public.
Misconception #4: Blockchains are 100% secure
Unfortunately, no system is 100% secure. The goal of cybersecurity is to implement methods to act as a deterrent to any malicious actor. Now although this may be a dismal outlook, the fact is that Blockchains are designed in such a way that it would take a lot of resources to perform a compromise of the system. There are certain specific attacks that Blockchains are vulnerable to, such as a sybil attack or a 51% attack (where hackers take control over a majority of the network). But imagine a network made up of 100,000 nodes. A successful hacker will have to compromise more than 50,000 nodes to gain control of that blockchain. Possible of course, but highly improbable. Another attack seen within the blockchain industry — particularly with crypto — are wallet attacks, where attackers have been able to steal coins from users. There are cases where the user never gets the coins back or those coins are blacklisted and can never be used. These attacks are usually carried out by exploiting the code on platforms using cryptocurrencies. As you can see, while it can be pretty difficult to hack a blockchain system, someone with extreme motive and hefty means could certainly pull it off. This is why people should be vigilant and be careful with where they use their crypto.
Misconception #5: Blockchain is the most effective solution for everything
While Blockchain has found very useful applications in certain domains, applying blockchains to everything will not be best in many cases. It may be the equivalent of using a sword to do the work of a knife and vice versa. Blockchain is not a silver bullet to any problems. Adequate research may suggest another technology which would be suited for the job.
Think about the problem of tracking a newborn within a hospital ward and beyond. Storing the records that contain the baby’s current location seems like a great use for blockchains because losing or swapping a baby is a scary thought. The problem, however, comes with knowing which record is for which baby. You would need some kind of physical identifier to attach to the baby and (unless we’re talking RFIDs — which we’re not) a physical identifier can be switched. Blockchains won’t be of any use in this situation.
Hopefully by the end of this you can add something to the barbecue conversation. Blockchain is an undeniably remarkable technology with enormous potential and it is still continuously being researched and developed to determine new and more effective use cases. That said, there will of course be failures and there will be updates, but the technology is here to stay and 2140 is a long time away.