A lot in blockchain seems unknown and hard to understand; therefore, there are several misconceptions and myths due to a lack of proper understanding of the technology. Additionally, blockchain is mostly known for its use in enabling cryptocurrency. However, blockchain offers a lot of applications beyond cryptocurrency, and I will highlight them in this post.
Also, because of blockchain's popularity, there are many myths surrounding it. This post will arm you to make well-informed decisions about the blockchain by explaining what's true and what is a myth in the blockchain. And answer most of your questions about Blockchain technology.
Explanation of Blockchain
First, let us look at what a Blockchain is to understand better what it is not. Blockchain technology is a sophisticated database technique that enables the transparent sharing of information within a business network. Data is housed in blocks that are linked together in a chain in a Blockchain database. Because you cannot delete or amend the chain without network consensus, the data is chronologically consistent. Consequently, Blockchain technology can be used to establish an immutable ledger for recording orders, payments, accounts, and other transactions. Also, Blockchain technology includes techniques for preventing unauthorized transaction submissions and ensuring consistency in the shared view of these transactions.
How does Blockchain Technology work?
Blockchain Technology encompasses the following major components:
Smart contracts are used by businesses to self-manage business contracts without the assistance of a third party. They are programs saved on the Blockchain system and are executed automatically when certain circumstances are satisfied. Additionally, they run to ensure that the system works confidently without the need for trust, a trustless system. A logistics company, for example, may have a smart contract that automatically makes payment whenever items arrive at the port.
A Distributed Ledger
The Blockchain network's shared database that maintains transactions is known as a distributed ledger. The distributed ledger is similar to a shared file in a text editor that everyone on the team can update, and anyone with editing rights can even remove the entire file. But in the case of a distributed ledger, there are rigorous restrictions governing who can edit it. And, once an entry is recorded, no one can delete it.
Public Key Cryptography
The security mechanism used to identify Blockchain network participants uniquely is known as public key cryptography. For network members, this technique creates two sets of keys. One key is a public key that everyone in the network shares. The other is a private key that each member has. The general public and individual private keys work together to unlock the ledger's data.
For example, Jacque and Anna are network members. Jacque logs a transaction encrypted with his private key. With her public key, Anna can decode it. This way, Anna is sure that Jacque completed the purchase. If Jacque's private key were tampered with, Anna's public key wouldn't work.
Putting all of these components together, this is how the blockchain works:
- Each transaction is captured as a packet of data in real time. These packets are transactions showing the movement of an asset, tangible (a commodity) or intangible (a service). This packet of data called "block" can store any information about the transaction you want, including who, when, how much, and anything relevant to the transaction – for example, the expected delivery time and temperature of the drug compartment.
- Each block is then linked to the ones before and after forming a blockchain. These blocks could be transactions or products that enter any stage of a supply chain or even ownership of an asset changing hands. The blocks' program ensures that these transactions' accurate timing and sequence are valid and securely linked together, preventing them from being modified or any new block inserted between existing blocks.
- Transactions are linked in an irreversible chain called a blockchain. Each block reinforces the previous block's verification and hence the entire blockchain. Therefore, making the blockchain tamper-evident and providing the critical feature of immutability. In addition, it eliminates the risk of tampering by a malicious actor — providing a trusted record of transactions for network users, which can only be changed if all validators, miners, or managers agree to edit it. In a public blockchain network, this is next to impossible.
Five Myths of Blockchain Technology
As many blockchain misconceptions exist due to little to no understanding of this emerging technology, it is common for people to see only the dangers of blockchain, which like any other technology, has its pros and cons.
Here are five negative and scary things I am sure won't happen in blockchain:
Our data will become public
Thinking your data will become public is a common blockchain myth, as most people are familiar with the public blockchain network, which is the mainstay of cryptocurrency. In a public blockchain network, while all transactions in this type of blockchain network are public, identification is dissociated from the transactions. Blockchain addresses indicate the transaction's parties (which look like a random string of characters). Furthermore, a piece of data, such as a document, can be stored in a standard safe cloud with a hash that is useless to other users since they cannot connect to the document in the cloud. Access is regulated and managed by an administrator in a private blockchain network, much like any internal system.
Your next thought may be, how about my data going public if a blockchain is hacked?
It is unlikely, but if it happens, only transactions would be leaked with only addresses, which means very little unless you have the address of the various nodes, which is highly unlikely. So, your data going public is impossible in blockchain.
Blockchains make it more difficult for individuals with evil intent to access or change information. No one can modify transactions committed to a public blockchain; however, private blockchains lack that property because they lack a consensus method. By definition, an administrator can make changes.
People will end up owning useless assets whose value depends on current blockchain economics
This myth is a generalization error and a common blockchain myth. Many good projects, especially in the NFT space, ensure usability, like
- Represent ownership of digital assets
- Create decentralized marketplaces
- Gaming applications
- Create digital collectibles
- ID verification and authentication, patent, supply chain, and many more beyond arts.
The challenge is that most people see cryptocurrency as the primary blockchain technology application and a get-rich scheme. They fail to carry out proper due diligence to ensure their optimal potential. Also, consider that investing can be risky, but such risks are reduced if you do your due diligence before investing in a project.
For instance, carry out a proper analysis on the tokenomics of the project you want to invest in, thoroughly research the website of the project, the founders or the project team members, and find out what people are saying about the project. And in cases where agencies are talking about the project, ascertain their credibility. Also, you can even go as far as checking out the project’s medium and Reddit account. Other key factors include the venture capitalists of the project, the project’s use case or the solution the project promises, and the potential market value, all these will help you easily identify a Ponzi scheme from a viable project.
Cryptocurrency enables criminal activity
Technology in itself can't be described as bad or good; it depends mainly on how that technology is used. Regulators and governments are concerned that blockchain technology, specifically as applied to cryptocurrency, has the potential to facilitate illicit activity. Cryptocurrency organizations and blockchain forensics firms disagree, citing research such as Chainalysis's second annual Crypto Crime Report, which found that illegal activity accounted for 0.34 % of all cryptocurrency activities in 2020. It is worth stating that this study only reviewed known illegal activities.
Because tampering with the transaction history means that each following block would reflect wrong data, the blockchain's method of chaining data can hinder illicit acts such as fraud. Another essential aspect of blockchain is that the larger the network improves security, as one must convince all these people to change a block collectively. This unique trait makes a massively popular network like Bitcoin so safe.
Technology enables many things, from growth in manufacturing, medicine, and agriculture to music and art. Blockchain, like other technologies, promotes growth and development.
It’s already too late to build in web3
The massive buzz around blockchain's potential contributes to a widespread misperception that all uses for blockchain technology have been exhausted. However, PwC estimates that blockchain technology will have a $1.76 trillion influence on global GDP beyond the next decade; this implies that it has not yet reached its full potential. And every day, more and more startups show up with new ideas. Web3 is one of the applications of Blockchain technology; it is a blockchain-powered internet, which brings about tremendous potential, like increased security, accountability, and transparency.
We are at a point where everyone overestimates what can be accomplished in a year and underestimates what can be accomplished in ten. Don't just believe the hype created by macroeconomic cycles. Instead, educate yourself on blockchain technology's long-term sustainable use applications.
Blockchain won’t grow out of its niche
Blockchain technology keeps evolving by creating new efficient use cases or modifying existing applications. This evolving cycle demonstrates how blockchain technology can change the world without the help of cryptocurrency. Blockchain development is driven by Fortune 500 organizations in various industries, including banking, fintech, pharmaceutical, technology, agribusiness, retail, and others.
Now, let's look at some of the use cases of blockchain in industries:
Health care: Blockchain has an immutable architecture; it is possible to store electronic health record data in a form that is safe from all instances of hacks and breaches. Several skilled blockchain app developers are also utilizing the technology to aid in developing individualized treatment regimens and eliminating counterfeit medicines.
Internet of things: Infused with blockchain, IoT allows you to exchange data on the platform rather than with a third party. Furthermore, because the devices are addressable with the benefits of technology, businesses gain access to the usage history of the connected devices, which is useful during troubleshooting.
Cybersecurity: When you save all of your business data on a single system, you expose yourself to dangers such as corruption, data loss, human mistake, and hacking. However, the risk of being hacked is almost impossible when you put your data on a distributed, decentralized system using the Blockchain-as-a-Service paradigm. Also, the authentication methods are unbreakable due to the advanced cryptographic techniques used to encode the data and ensure that there’s no alteration.
Government: With rapid change and economic shifts, the government must become more transparent, efficient, cost-conscious, and real-time, resulting in a citizen-centric government. Various Blockchain use cases increase government service quality, protect citizens' property rights, and increase efficiency while increasing system transparency.
Supply chain: A business can monitor its supply chain process from the raw material to the end delivery stage by identifying the production processes and components and then recording the information on the blockchain. Walmart, for example, uses blockchain to enable its staff to scan goods in the shop's application and track the goods' transition from the harvesting stage to the store floor.
Interestingly, a previous issue with blockchain cryptocurrency, high-energy consumption, is gradually fading away in light of further development of the blockchain and use case in CO2 gas emission.
It is safe to conclude that Blockchain technology has already grown beyond cryptocurrency, its present niche, and possesses more applications beyond those discussed here.
Now that you are sure of some things that won't happen in blockchain and what is obtainable, I recommend you seize the opportunity to be part of the blockchain revolution. I understand utilizing new technology can be daunting, and coupled with many misconceptions about blockchain, one could steer away and miss out on the benefits. While blockchain has immense benefits, you should not blindly implement or invest in any opportunity without sufficient due diligence, research, and an excellent technical team to help build your desired blockchain-powered solution.