The creation of Bitcoin marked the day when people could finally transact with each other directly, without the involvement of a centralized entity and without paying any fees to them. It is hard to say if Satoshi Nakamoto, the pseudonym of the person or group that created Bitcoin blockchain and cryptocurrency, ever envisioned that these technologies would disrupt as many industries as they are doing now. The way blockchain is known and used by the world today has changed drastically as compared to how it was in its infant days.
Although Bitcoin was initially only seen as a digital form of money, it soon gained recognition for the high-potential underlying technology — blockchain. This realization led to further experimentation and the creation of new types of blockchain, such that the technology became more efficient, powerful, and offered more use cases than just a system for transacting money digitally. The same has come true in the past few years as blockchain has found its place in almost every major industry across the world, with innovators trying to go even further with the technology.
Banking, healthcare, supply chain, online gambling, marketing, trade, and finance are only a few of the many industries that blockchain is helping streamline the processes of.
However, as is widely known, every coin has two sides to it, and so does blockchain. Blockchain has its potential disadvantages or threats, along with the benefits it has to offer. In this article, we discuss both the opportunities and benefits that blockchain provides and also the drawbacks and the threats that it comes tagged with.
Blockchain is a distributed ledger system where records of transactions can be written without the involvement of any central party. Unlike centralized bank ledgers, where a bank official approves the transaction details manually and by oneself, blockchain deploys a more decentralized approach to do the same. Several miners calculate a highly complex mathematical puzzle that proves the authenticity of the transaction. Once the solution to the problem is found, more than 51% of the validators on the blockchain must verify the answer before the transaction gets listed on the blockchain.
Apart from financial transactions, the same method can be used to copy all forms of data onto the blockchain and store it in an immutable manner. At present, this is the predominant property of blockchain that all industries are implementing to disrupt their workflow and various industrial processes.
Advantages and Opportunities
The list of benefits and opportunities brought by blockchain can be endless, considering the massive variety of use cases it has for different industries. Let us go through some of the most important of those and see how blockchain could bring about the fourth industrial revolution.
Efficiency for the Banking System
The banking industry today works on the cornerstones that were laid decades ago. Although there have been many improvements with the advent of new technology, it is hard to say that the banking industry today functions at the peak of its efficiency.
That being said, many consider that blockchain is the solution to many of the problems that the banking industry is faced with today.
Blockchain has the huge potential to change the way international transactions are settled with the current system. It can decrease the time for transaction settlement and the fee paid by the customers for the transaction. Also, financial organizations can use blockchain to store their transactions and other forms of data, which would make the data shielded against cyber attacks.
Applications built on blockchain and powered by crypto-currency can also potentially ease the access to money and other financial services for the 1.7 billion people around the globe who still remain unbanked.
One Ledger, One Data Source
Blockchains are a highly efficient form of distributed ledger which can be used to store data in different industries and disrupt the way people store and access data.
In the healthcare industry, there is a lack of an electronic health record system that is interoperable and can be accessed from anywhere. This makes the system unreliable.
The implementation of blockchain as an EHR management system has already begun. The vision is to create such a system that health organizations and patients can rely on at all times. All health record data of a patient can now be stored on a single ledger, which can be accessed by only those authorized by the patient. This will help curate exclusive health solutions for patients based on their past health records.
Most industries rely heavily on the data they receive through their supply chain systems. These, however, are handled manually, which increases the chance of errors in the input data. Additionally, every party involved in the supply chain maintains its own record, which further makes the processing time consuming and prone to errors.
Blockchain is a ledger that can be accessed by anyone on the network. Hence, all authorized parties managing a supply chain can view the real-time data on it, and they would not have to create individual copies all the time.
This would reduce the probability of any error and cut down the time and cost of operation.
Another benefit of using blockchain for supply chains is the ability to provide customers with the exact data about the products they are buying. A living example of this is Starbucks using blockchain to track the coffee beans it uses in its stores. Users can scan the QR code to easily see the journey of the coffee beans from the farms to their coffee mugs
On more of a general note, any corporation that deals with several documentations at the same time can manage and track their documentation by using blockchain. This will reduce the cost of management and lag in task completion as all required data would be readily available with the concerned parties at any given time.
Utmost Security for Data of All Kinds
When data is written onto a blockchain, a new block containing the data gets attached to the blockchain. This block, like all the other blocks, is cryptographically secured, meaning that there is no possible way of tampering with the data on the block unless more than 51% of the validators on the node do not agree on it. This security system makes blockchain the most secure system for storing data.
Although blockchains are still not advanced enough to store a large volume of data, innovators are making rigorous efforts to make it possible. Once done, this property of blockchain will bring unprecedented opportunities in many different fields.
Everyone on a public blockchain network can easily see the record of a transaction carried out on the blockchain. But the more critical part of the transparency feature of blockchain is that they are transparent in terms of displaying transaction listings without actually revealing the identity of the transacting parties.
Companies can use this feature to keep all their sectors updated with the live progress of each other, hence making their processes more transparent and less prone to malpractices. It also gives them a chance to prove their dedication towards their consumers by making the exact data available to them.
In the healthcare industry, this property of blockchain can help prevent the inclusion of counterfeit products along with the original ones. Over $200 million worth of counterfeit drugs are sold annually, and blockchain can be an effective way to cap the sales to a minimum possible limit.
Disadvantages and Threats
What we saw above was a small fraction of the huge stream of benefits that blockchains tend to offer, and the weaknesses or threats from blockchains may seem trivial. But it is essential that we know the downsides of technology as precisely as we know its advantages.
Blockchains are undoubtedly one of the most secure ways of transacting money and data digitally. And we know that data, once written on to a block of a blockchain, is immutable. However, as we already discussed, a blockchain validates a transaction based on the approval of at least 51% of the validators on the network. This is what makes the strongest and weakest point of the blockchain.
Strongest because it makes blockchain decentralized, and no one can get a fake transaction verified over a blockchain because it would be next to impossible for them to gain authorization from more than 51% of the validators.
Weakest in the sense that a large entity could possibly slowly gain control over more than 51% of the validation power, a.k.a. Hashing power. Once that happens, they could exploit the validation process by writing transactions at per their own will, without ever needing authorization from any other validators.
Though it is highly unlikely to happen with massive networks such as Bitcoin, there are possibilities of this in new networks where the number of validators is comparatively very few.
High Energy Consumption
Energy consumption is a world scale issue today, and blockchains seem to add to it. Major blockchain networks such as Bitcoin rely on computers with high computational power to validate the transactions. These computers together consume a massive amount of energy, which equals or surpasses the total energy consumed by many countries.
With the increasing size of the blockchain and the forthcoming large scale adoption of the technology, the energy consumption is expected to increase multifold. This can be a grave concern considering that we’re already faced with global warming and its adverse effects on our planet.
Size of Blockchain
The size of a blockchain is not a concern for the end-users, but it is so for the nodes on the network that validate the transactions. Every time a new node joins a network, they first need to download a copy of the data stored on the blockchain. According to Blockchain.com, the size of the Bitcoin blockchain is approximately 235 gigabytes at present.
With the fast increase in the size of the network and the decreasing rewards for validating transactions on the network, there are chances that the blockchain network loses out on the number of nodes.
Identity management on the blockchain is easy but has its own risks. On a blockchain network, there are no central entities in control of the identity which could be reached out to in case of any unwanted situations. The identities are stored in the form of cryptographic keys, and it is easy for people to lose their keys. If that happens, there is no way to gain access to their assets that were managed through that identity.
Also, if another person somehow gets access to a person’s private key, they could easily steal the funds or other forms of digital goods secured under that key.
Blockchain is still evolving. We’re years away from seeing a blockchain system that can be considered highly mature and is integrated on a mainstream level. We still have a long way to go where blockchains are as standard in our lives, as is the internet today.
It is true that blockchain has enormous potential and could lead to the next industrial revolution, but companies working with this technology must also take the drawbacks of the technology into account. They must realize that the idealized version of blockchain may differ mainly from how it functions in the real world.