Six common myths about Blockchain, debunked
Blockchain has been a buzzword for a few years now. But what does it really mean? Blockchain is essentially a distributed ledger that records transactions chronologically and publicly. Its database is not stored in any single location; instead, it is shared across a network.
Blockchain is applied in various ways, from banking to the music industry, and it’s only going to become more prevalent in the future. However, since the technology is still nascent, there are many misconceptions about what exactly it does for us.
Myth #1: Everything on blockchain is the truth
Blockchain establishes the truth or validity of transactions through various individuals, also known as miners, who analyse them and certify their genuineness.
Blockchain is supported by thousands of mining nodes with thousands of servers that are further linked to each node. iners are generally incentivised to carry out this exercise, like in the case of Bitcoin.
However, if a majority of the miners collude and hack the process, they can carry out fraudulent transactions that others may not pick up. The risk is heightened if the blockchains are smaller and more private in nature, like in banks.
Moreover, even if the miners assess independently, incorrect inputs can lead to false outputs. For example, fake invoices will be treated as valid if blockchain’s conditions are met. It cannot judge if the inputs given are factually correct.
Myth #2: Blockchain is public
With the remarkable rise and hype around cryptocurrencies like Bitcoin and Ethereum, people have only heard about public blockchains and assume that is the only way it works. However, blockchain can be divided into three different categories—public, private, and hybrid.
Public blockchain means that it is open to everyone, and there is no restriction on who can access information and participate in transactions. This ensures decentralisation because no entity controls the network. Each member of the network has a copy of the same data, and others will not accept any member’s ledger that is modified.
On the other hand, private blockchains have limited access and are primarily used by organisations that want to use the technology but be in control of the way it is used. Network access is granted by the administrator, who also has a say in the way transactions are carried out, their speed, and other factors.
The hybrid model clubs both public and private blockchains. The members decide who gets access to the network and which transactions are made publicly available.
Myth #3: Everyone is anonymous on blockchain
For transactions carried out on blockchain systems, like in cryptocurrencies, it is often assumed that identities cannot be traced. In reality, the technology is based on pseudonymity as opposed to anonymity. To take the case of Bitcoin, whenever you make any transaction, your wallet address is kept in the records and is accessible to everyone.
Until no one can correlate your wallet address with your identity, real-world or digital, you are pretty much anonymous. However, if someone can link the two, your cover is blown.
Transactions can be made more anonymous using Virtual Private Networks (VPNs) or tumblers and mixers, but nothing can be guaranteed. Additionally, implementing these tactics also requires some technical knowledge which the general public may not have.
Myth #4: Blockchain cannot be tampered with
Blockchain works by combining different blocks of information, and each of those is given a digital signature in the form of a hash value based on cryptographic principles. Each block carries its own hash value as well as the one for the previous block. This makes the system resistant to tampering because changes need to be made on each server in the system.
Although more extensive networks can enforce greater levels of security, attacks can still be orchestrated for slightly smaller and private blockchains.
For example, the 51 percent attack [a type of blockchain attack] can occur if a group of participating individuals control the majority of the network’s hashing power and threaten the immutability of the blockchain.
This can also lead to a double-spending attack in the case of cryptocurrencies, wherein high-value transactions can be reversed, and amounts can be spent a second time. Moreover, the improvement in computing powers has made it easier to carry out such attacks, especially in smaller networks.
Myth #5: Blockchain is only used for cryptocurrencies
Cryptocurrencies can be credited for bringing blockchain to the limelight, but the two terms are not synonymous. Blockchain is only the technology behind some cryptocurrencies, but it has multiple use cases across different industries.
For example, due to its decentralisation and resilience against tampering, companies have used blockchain to implement more stringent security measures for their data.
Moreover, it has been extensively used in the healthcare industry to secure the records of patients, especially after the COVID-19 pandemic. Blockchain also finds a place in other areas like supply chain management, real estate, trade, and artificial intelligence.
Myth #6: Blockchain implies efficiency
While blockchain is quite powerful, it is not a magic wand that can make everything better. Some sectors have genuinely benefited from it and have made their systems faster and efficient.
However, it cannot work this way for everyone. Some businesses might be better off with centralised non-blockchain solutions, so a thorough analysis is required before implementing anything.
Further, blockchain is expensive to implement since it requires a huge amount of computing power, servers, and electricity, and someone needs to foot the bill. Smaller organisations may not be able to afford such costs. Blockchain should be evaluated just like any other technology since it can have long-term consequences for a business.
There is no question about the potential of blockchain, but the technology is far from perfect, and misconceptions only make matters worse. Finding the truth behind the technology is critical to improve its implementation.
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)