‘Blockchain’ is a term that evokes a strong response, comment or opinion — valid or not. In the most basic terms, blockchain is a distributed ledger, which records transactions or digital interactions in a way that is designed to be transparent, efficient, and ultimately secure. It is as novel as it is complex: those working on blockchain solutions and development are, in many ways, creating a future with completely new rules of trade, and unprecedented organisational and operating models. Hence, the ascription of ‘disruptive’ to the technology.
However, much like Satoshi Nakamoto, the mysterious creator of blockchain’s first and most famous implementation, the technology has become an elusive appellation built on hype and hearsay rather than verifiable fact. This is propagated by evangelists, whose voices seem to resonate more with the general public than the more temperate voices of the developers and researchers in the space.The truth of the matter is, blockchain is more carnival strongman than Hercules — impressive, but far from omnipotent. Here are some of the most pervasive misconceptions about blockchain.
1. There is only one blockchain
This is categorically false. Blockchain is commonly compared to the internet and, in terms of disruptiveness and technological significance, this is fair. However, unlike the internet, there are numerous blockchains — each designed to serve different purposes. The prevalence of this misconception has greatly waned with the rise and increasing popularity of other blockchain networks beyond bitcoin. Blockchains such as Zcash offer infrastructure and services that bitcoin does not, namely the ability to process private and anonymous transactions. Other blockchain networks have been developed for specific use cases, such as Intel’s Sawtooth Lake and the Microsoft Coco framework.
2. It is a hub of criminality
The association of blockchain with criminality, especially Bitcoin, has its roots in the Silk Road, the dark web and the mistaken belief the blockchains offer complete anonymity. In actuality, most public blockchains are incredibly traceable — it is possible to track what is being sent as well as from and to where it is being sent As UCL researcher, Patrick McCorry, notes contrary to media misreporting over the last few years, “Bitcoin is one of the most traceable currencies on the planet”. Companies which specialise in blockchain analytics can very simply employ transaction analysis tools and blockchain explorers to track illicit transactions to their sources. If anything, most blockchains offer pseudonymity, not anonymity.
3. Blockchain is Bitcoin; Bitcoin is blockchain
This is probably the most common fallacy that continues to evade something. As mentioned previously, while bitcoin is the first and, undeniably, most well-known implementation of blockchain technology, there many, many other blockchain networks. Blockchain is just one of the technologies that underlie the bitcoin protocol upon which the Bitcoin cryptocurrency is built. The bitcoin network itself consists of various solutions and cryptographic technologies. Within this, blockchain technology records peer-to-peer transactions in real-time.
4. All blockchains are public
While it is true that bitcoin, along with many of the most well-known blockchains, are in fact public, not all blockchains are. There are also private and semi-private blockchains which have varying degrees of accessibility and transparency. On a public blockchain, everyone can see all transactions and anyone can participate at all levels of the consensus process. This is limited on a private blockchain as only parties with the necessary keys can view private transactions. In technical terms, public blockchains utilise proof of work consensus methodologies whereas private blockchains use proof of stake.
It is also important to note, that is is possible to stack a private blockchain on top of a public blockchain. Some blockchain use cases require a private ledger which offers limited access to transactions; building on top of a public blockchain allows for crowd-based auditing and authentication without exposing private information.
Many believe that blockchain records can never be hacked or altered. The reality is, no system is ever completely secure. For example, any person or group within the bitcoin network is capable of gathering enough mining resources to take control of the blockchain. Although extremely unlikely, as they would require a mining capacity larger than the rest of the network, it is theoretically possible. This is called a ’51 per cent attack’. It is generally understood that the larger and more distributed a network is, the less likely that this is to happen and, ultimately, the more secure it is. In truth, the only real promise a blockchain makes is to catch any unauthorised changes made to the records of applications that choose to build on top of it.
6. Blockchain for all
It seems like the list of companies and industries attempting to integrate blockchain technology is constantly getting longer. While it is true that blockchain has the potential to disrupt and transform how most industries operate, there are still very few cases where it is more efficient than a traditional ledger. On this issue, Patrick McCorry explained “ people see blockchain as this global truth or global cloud, that can do anything. And, as I like to show, blockchain is the most inefficient database in the world”. He added, “we can’t actually do that much with it, and a lot of the things that people want to do today just aren’t feasible”. This isn’t to suggest that we should give up on developing viable blockchain solution, but instead make makes a case for a more realistic and research-driven approach.
If blockchain is to be implemented commercially there are many issues that need to be addressed — a key one being scaling. Mika Lammi Head of IoT Business Development and Project Manager at Kouvola Innovation Oy, makes the important point that “the scaling problem is actually a multifaceted one — we are currently dealing with questions regarding the complexity of logical relationships within the data mass, as well as transaction volumes and the sheer mass of data we are projecting to handle in the near future”.
7. File storage
The misconception that blockchains work like the cloud is most likely due to their intangibility. A blockchain cannot store physical information such as a word or pdf file but instead provides a proof-of-existence. In essence, the blockchain holds code that certifies the existence of a particular document. Like a traditional ledger, it is a record of transactions.
8. Finance sector only
As touched upon, the potential of blockchain technology extends far beyond its financial and cryptocurrency beginnings. As a blockchain is just a list of records, it can be used to record any type of data and can thus be applied in a variety of industries, including real estate, healthcare and even government services. For example, the proof-of-existence model can be used for medical records, digital identification, proof of ownership, voting systems and general authentication.
9. New global economy: the end of fiat
As no nation or corporation owns or controls the blockchain, it is often lauded as the revolutionary technology that will do away with financial intermediaries and bring into being a new global economy. And, in many respects, this is true. However, it is extremely unlikely that blockchain technology will render traditional currency useless. Not anytime soon, anyway.
First of all, the cost of mining is exorbitant and, beyond that, blockchains are simply not scalable or efficient enough to support global usage. Bitcoin, for example, is only capable of processing a maximum of seven transactions a second and has a recording time of one every ten minutes. Visa, on the other hand, can process thousands of transactions a second. When you consider that only around one in a thousand people use blockchains compared with the millions that use convention money, the idea that it will take over seems a little grandiose.
10. Smart contract = legal contract
Despite the word ‘contract’ in the name, smart contracts are not in fact contracts. A smart contract is a software code written into a program which follows instruction written within an agreement between parties. They are basically a list of if/then statements that operate automatically when a certain condition is met, ie. if x happens, then y must be enacted. They are not legally binding and can only exist within the blockchain. In this respect, they can be considered a tool rather than a contract.
While, in many respects ‘blockchain’ has come to signify everything but what it actually is, this still doesn't negate from its vast and exciting potential. These misconceptions are only a few of many, however debunking and refuting them may provide developers and researcher with the impetus to produce viable, scalable and more efficient solutions. Blockchain technology is very much still in its developmental stages — or experimental, as some would argue — and mass commercialisation is definitely a long way off. Nevertheless, blockchain technology remains the most disruptive technology since the internet with the potential to transform society at all levels.
Margarita Khartanovich, Head of Insight, Binary District (opens in new tab)
Image Credit: Zapp2Photo / Shutterstock