It is a well-known fact there are many benefits to blockchain technology to be unlocked. However, one cannot ignore the potential drawbacks of implementing this technology either. It is always essential to see the whole picture rather than the fact that is of personal interest.
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The Basic Blockchain Concept
Although we have highlighted the idea behind blockchain technology before, it is essential to repeat why this technology exists. As a decentralized database capable of storing any form of data, there are many reasons to begin paying attention. As all information is stored in blocks to create a chronological sequence, a link between data is created. That link is possible through cryptographic proofs, ensuring one can alter none of the previous data. Nor can future data be validated without a connection to the last network block.
While a blockchain is designed to be entirely decentralized, the approach also creates some friction by removing central points of failure. The efficiency of a blockchain and the increasing demand for storage capacity can pose significant problems. Solutions need to be found to address these concerns before the technology can achieve widespread adoption.
The core advantage of blockchain technology is how it is distributed. More specifically, a distributed ledger is, as the name suggests, distributed across many devices capable of storing the information. In most cases, the network is made up of thousands of computers all sharing the same distributed ledger and its history,
As the network becomes more distributed and decentralized, it will become more difficult to attack a blockchain. With no single point of failure, one would need to control a significant part of the network to become a threat. The economic incentive to pull off such an attack may not necessarily outweigh the drawbacks, however.
Compared to traditional databases – which have multiple points of failure – a blockchain is a far more secure option. Moreover, one cannot “cyberattack” a blockchain, unless one wants to pull off a significant attack against the entire network. However, that is a lot more complex than people anticipate, whereas shutting down a centralized database can sometimes be a trivial matter.
Blockchain Technology Introduces Stability
It may not necessarily seem like it, but centralized databases and other data storage solutions are far from stable. Their overall accessibility and performance are questionable, even on a good day. This is rather apparent when trying to access popular services, such as online banking or government-related services.
Blockchains, on the other hand, are more stable in every way. Not only are they more reliable in terms of uptime – as long as nodes are online, so will the network – but they are also stable through immutability. one cannot alter any information recorded on a blockchain later on. Once the network validates the data into a block, it is impossible to remove it.
The Bitcoin network is a good example of storing financial records on a blockchain. Over the past 12 years, no one has been able to modify previously recorded data. Any attempt to do so will be tracked and can still be rejected by the network. Businesses need to prevent fraudulent activity at all times. Proper data storage and information recording are two ways of ensuring that can happen correctly.
Even if a blockchain is used by corporations internally, there will be more stability. Employees or nefarious upper management members cannot hide suspicious transactions in a ledger visible to and accessible by everyone. It makes sense to explore this new technology for record-keeping purposes, although few companies are willing to take the plunge today.
No Trust Required
A blockchain can provide numerous advantages as a trustless system with no intermediaries who can wrest control away from users. Traditional payment systems are dependent on the involved parties and an intermediary. That intermediary is often a bank or payment provider. While that system works, there are many points of failure that require trust in this equation.
By using distributed ledger technology, those intermediaries are no longer required. Instead, transactions occur in a peer-to-peer manner and are validated by the network nodes. Negating the risk of trusting singular entities is a big step forward for any industry looking to leverage this technology.
51% Attacks And Blockchain Technology
The biggest threat to a decentralized and distributed network is someone- or a group of individuals – looking to control the network. One can achieve this goal through a process known as the 51% attack. In essence, it would give users control of 51% of the network, allowing them to cause havoc and even nullify transactions. Executing a 51% attack is a lot more complex than people give it credit for, however.
Executing such an attack will either require control over 51% of the network nodes or 51% control over the mining capacity. For popular blockchains, such as Bitcoin, Ethereum, and Litecoin, the financial cost associated with such an attack does not outweigh the potential benefits. It is insufficient to gain control for a brief moment, as one needs to maintain this control for hours, if not days. The longer this attack lasts, the higher the cost will be.
It is worth noting there has never been a successful 51% attack against Bitcoin, Ethereum, or Litecoin. Smaller networks have seen their fair share of problems with people trying to take over, with some coins even noting multiple attacks over time. It is unfortunate to see how such attacks can easily disrupt lesser secure networks. Companies looking to incorporate blockchain technology will need to find ways to secure their network properly.
Even if a 51% attack occurs successfully, an attacker – or group of attackers – will only control the network briefly. Modifying the most recent transactions may not prove worthwhile for most attackers unless they can extend their control over the network with ease. The linking of blocks through cryptography makes it impossible for attackers to adjust any data recorded days, weeks, months, or years ago.
No Data Modification
One of the crucial strengths of the blockchain is how it makes it impossible to alter data. Unfortunately, that may also be one of the downsides. If any incorrect information is recorded on the ledger, it is nearly impossible to modify it or remove it again. There may be reasons as to why one would need to alter data, yet a distributed ledger might make this nearly impossible.
One way to solve this issue is by executing a hard fork of the blockchain. It requires abandoning the old chain and moving to a new one with the correct data. However, a hard fork can trigger a network split where some users will remain on the old chain. Such a situation cannot always be avoided, unfortunately, making this option less favorable.
Private Key Management
As we have highlighted before, the private key is an essential piece of information for anyone using a blockchain network. The private key is a personal identifier corresponding to ownership of cryptocurrency or other data stored on that blockchain. Without the private key, a user would not be able to access that information ever again. That makes it all the more important for users to store this information securely, which causes another problem in terms of convenience.
Recovering a private key is not possible in the world of blockchain technology. It can only be generated once and is usually only provided to the user. If they lose access to it, a severe problem occurs, which isn’t easy to fix either. The private key usage aspect remains one of the drawbacks of blockchain technology today, yet it is an essential part of exploring this industry.
Blockchain Technology Inefficiency
Even though a blockchain has tremendous potential to remove central points of failure, it may not necessarily be a more efficient solution. Blockchains heavily depend on their underpinning consensus algorithm to relay and store information. Opting for the Proof-of-Work algorithm – which requires mining – may not be ideal for networks that have nothing to do with cryptocurrency. An enterprise blockchain should never require mining, as it would be a wasteful effort.
Choosing a different algorithm is the logical option for non-crypto purposes. Whether it is Proof-of-Stake, Proof-of-Identity, or any other mechanisms, carefully reviewing the options is essential. With a correct consensus algorithm capable of suiting your needs, there is no reason to run anything on a blockchain. Hooking into an existing chain -either directly or via a sidechain – can be a worthwhile option as well.
Another inefficient aspect of blockchains is their storage. More specifically, as more data is added to the primary chain, its size will grow by leaps and bounds. It is not uncommon to see a ledger grow to several hundred gigabytes over time. Storing such amounts of data has become a lot easier over time but is still a potential constraint to consider. When distributing such a chain over multiple nodes, every node needs the storage space to store the entire chain, creating even more inefficiencies.
As can be seen from the list above, there are many benefits and potential drawbacks to blockchain technology today. The advantages are significant, yet finding the one that suits your needs will depend on how well it can overcome the potential downsides. One also has to consider the current generation of ledgers is still the “first generation”. All of them receive regular updates and upgrades to improve stability, efficiency, and transaction fees.
That being said, there is no single blockchain capable of doing everything. Nor does there need to be, as competition in this space is very healthy. Different ledgers are built in various ways to do one or two things better than their competitors. It creates a somewhat fractured landscape yet also allows developers worldwide to submit their ideas and improvements. Competing theories will help push the boundaries of what is technologically possible and give birth to more competitive ecosystems.
Slowly but surely, the industry is evolving toward a multi-chain state. It revolves around one parent chain processing things normally, with multiple side chains capable of doing their work. Although there will be a limit to the number of side chains initially, this concept can have tremendous long-term potential. There is never a dull day in the world of blockchain, yet there is still much work to be done.