Advantages and Disadvantages of Blockchain Technology | OWNRWallet
Get an in-depth comparison of blockchain pros and cons. Find out what makes it a great technology, how it benefits users, and what hinders massive adoption
Although this is a relatively young technology, we cannot deny the major blockchain advantage: it has the potential to drastically improve the way we handle money and data overall. However, just like any innovation, it also has certain downsides that hinder massive adoption and make people wonder whether a distributed ledger system can somehow solve their issues without compromising money and security. This article provides an in-depth analysis of the pros and cons of blockchain technology: you will find out how it accelerates and simplifies transactions, whether it is safe enough, and why it is not being adopted as quickly as expected.
Pros and Cons of Blockchain Technology
Before we delve into the details, here is a quick comparison of the pros and cons of blockchain technology:
Decentralization for ultimate trust
|Some blockchains have high fees
|Moderate operational expenses
|Vague regulations in the majority of countries
|Immutability to attacks
|Lack of in-house capabilities
|Lack of scalability in first-generation blockchains
|Security and privacy
|No control for enterprises
What Is Blockchain Technology?
Blockchain technology is a disruptive innovation because it leverages decentralized and transparent cooperation and value exchange. It is a distributed ledger: it is decentralized and keeps track of financial transactions over a network of computers, or network nodes. Any digital asset's history is made immutable, safe, and visible via blockchain, which employs decentralization and cryptographic hashing. In 2008, Satoshi Nakamoto unveiled blockchain as the fundamental technology underpinning Bitcoin.
How Popular Is It Among Enterprises?
Many businesses are currently very interested in blockchain technology: they have already begun implementing this innovation after discovering its advantages. One poll found that more than 36% of businesses are prepared to spend $5 million or more on blockchain technology. In recent years, 40 enterprises made about $6 billion in blockchain-related investments, with Samsung being among the most active contributors.
Blockchain Technology Pros
Let us find out what makes blockchain such a disruptive technology, and why it proves to be useful for both enterprises and regular users.
Decentralization & Trust
One of the major blockchain advantages is that it eliminates the need for middlemen or intermediates in the process of peer-to-peer value transfers between participants. Both parties do not need to be acquainted with one another because the data is handled across a decentralized network of servers once it has been verified by consensus, so they work together in a trustless environment. This makes transactions more available, since intermediaries sometimes demand a fee for their services, and these commissions can build up over time, particularly if a procedure requires several steps. Besides, there is no guarantee that intermediaries would conduct themselves honestly and openly – there is always a risk of corruption.
Low Operational Cost
The overhead expenses are reduced since a blockchain does not require centralized infrastructure to perform the activities. Transactions take place directly over a blockchain without the need for a middleman or centralized authority, therefore there are no fees associated with banking or payment processing. Since the contracts and transactions are part of the network, there is typically no need for human intervention. When it comes to P2P payments and basic financial transfers, blockchain technology can provide reduced rates and faster transactions and settlements.
No Single Point of Failure
Blockchain is a distributed network that is very secure and doesn't allow for a single point of failure because each node shares the database. A distributed ledger system records information and employs a consensus mechanism to confirm the accuracy of the information before it is written. This significantly lowers the likelihood of mistakes and fraud since it is impossible for anybody to upload fake or erroneous data to the blockchain or change current data. Furthermore, using a consensus method and not requiring manual data entry can assist in lowering the possibility of human error.
Enhanced Security and Confidentiality
Anyone with enough strength can shut down a centralized system or servers unilaterally for a variety of reasons. And throughout history, we have seen similar situations like broken records, having a much greater impact on common people than the wealthy. It should be noted that censorship is often done for unjustified reasons. This what leads us to the next of the blockchain technology pros: it is intended to limit the influence of centralized financial institutions. A blockchain network is decentralized and contains a high number of nodes, so it would be exceedingly challenging for a single entity to censor data.
Transaction processing can sometimes take a long time when users send money via traditional banks, especially when money is being moved abroad. When transactions take place on a blockchain network, they can frequently be executed in only a few seconds. This is particularly helpful when there needs to be a quick resolution, such as in an emergency.
Protection Against Fraud
In a decentralized network, every transaction is authenticated and its provenance checked from the blockchain database by a consensus, preventing the possibility of manipulation or tampering, making any attempt to duplicate transactions impossible. In other words, once information is uploaded to the ledger and kept on the blockchain, it cannot be changed and is accurate. The integrity of the data on the blockchain can also be preserved by using a distinct hash identifier for each block of data.
Transparent & Universal Recording System
Blockchain transactions are recorded in a public ledger that is accessible to everyone online. Owners are not known – only wallets’ public keys are shown, but everyone can see how much money is in the account. A wallet might be associated with an individual or a group. Hence, there are two important blockchain advantages: it establishes transparency while protecting privacy. Another feature of blockchain technology is its capacity for immutable data storage, which prevents data from being altered or removed after it has been entered into the ledger. This is accomplished by using cryptographic methods like hashing, which gives each block of data a special identification. A new hash identification would occur from any effort to alter the data in a block (a transaction, for instance), making it clear to other users that the data has been changed. The ledger system on a blockchain is also often visible to all users, which adds to the transparency of the network.
A public blockchain network is available to everyone – all a user needs is a computer and internet access. Everyone may participate and use a blockchain since there is no single authority to manage membership. Users frequently lack direct control over their data in traditional centralized systems, making them susceptible to abuse or exploitation by dishonest people. In contrast, consumers might have more control over their own data thanks to the peer-to-peer aspect of a blockchain network since they can decide which data to share and with whom. Users may further guarantee that they have ownership over their own information and that it is not exploited by others by taking advantage of the high degree of security and transparency offered by blockchain technology.
No Double Spending
The act of spending the same asset more than once is known as double spending. A blockchain is a public distributed ledger that uses cryptographic methods to record and verify transactions. A transaction is recorded in the distributed database and cryptographically verified by the majority of network nodes when it is made. As a result, an unchangeable and traceable record of transactions is produced, which may be used to verify subsequent operations. Hence, one of the blockchain technology pros is that double spending is also avoided by validating transactions using a consensus mechanism. A majority of the network nodes must agree on a transaction for it to be deemed genuine. This makes it difficult for anybody to spend the same digital asset more than once, and guarantees that only legal transactions are uploaded to the blockchain.
Seamless Integration Into Existing Systems
There are two basic ways that blockchain technology may be smoothly incorporated into current systems: as an application platform or as a service (BaaS). Anyone may create and deploy blockchain-based applications using decentralized technology with the aid of an application platform. Various forms of data, including financial transactions, supply chain records, and identification information may be tracked and verified using these tools. Utilizing an application platform might be a flexible and affordable approach to make use of blockchain technology's advantages. The Blockchain as a Service (BaaS) model, on the other hand, enables companies to connect directly to blockchain networks and utilize them to create and deploy applications. BaaS companies provide a variety of services to assist organizations in implementing and utilizing blockchain technology, including infrastructure, maintenance, and consultancy. Businesses that plan to embrace blockchain technology but lack the funds or technical know-how to construct and manage their own infrastructure may find BaaS to be particularly helpful.
Cons of Blockchain Technology
Despite a number of benefits, this innovation is not devoid of vulnerabilities and inconveniences – here are the major cons of blockchain technology and hindrances to massive adoption.
Lack of Scalability
Given that the first blockchains like Bitcoin cannot handle large-scale transactions, scalability is likely its biggest drawback. Blockchain technology allows for the processing of fewer transactions per second since each transaction must first be validated by the majority of nodes in order to be accepted and included in the block. This results in problems like high transaction prices and network congestion.
Blockchain is a distributed ledger that is open to the public, which means any person can keep an eye on your wallet and its transactions. Even though there are a number of ways to add encryption and privacy layers to achieve your desired privacy, none of them are currently widespread. Furthermore, a lot of your data is directly linked to your digital identity, which raises the possibility that it will reveal aspects of your private life that you might not necessarily want shared online. People frequently give up ownership of their personal assets when they trust third-party solutions (like exchanges) over direct blockchain transactions due to security concerns.
The fact that blockchain technology uses a lot of energy is one of its main issues. Miners need strong rigs that use a lot of electricity since they must solve challenging mathematical problems in order to receive a reward. As a result, some blockchains are extremely expensive to maintain, especially for individuals or tiny organizations.
There is a lot of buzz around blockchain nowadays. Businesses use this technology and squander their time, money, and efforts even when it is not useful for their industry, which creates wasteful rivalry amongst them. To stay up with their competitors, businesses will have little choice but to make significant investments. A high level of competition is also observed among blockchain creators. There are more than 20,000 different cryptocurrencies and around 1,000 blockchains, with developers striving to grow a big audience and promote their technological solutions among crypto geeks and regular Internet users. On one hand, competition motivates market participants to come up with better technological solutions that outperform previous blockchains. On the other hand, many of them start lacking investments for development, not to mention that regular users get confused because of the extensive choice.
The speed of blockchain technology is another important drawback. Blockchains need miners (owners of powerful computers and specialized software) who solve computational problems in return for fresh crypto tokens, in contrast to centralized databases that rely on centralized servers. Simply said, transactions on the blockchain might take longer than those made with cash or credit cards or other conventional payment methods. If you're considering utilizing blockchain technology as a regular payment method, it may be challenging, because blockchain debit cards are only starting to gain traction, and there are not so many places where you can actually make such payments.
Lack of In-House Capabilities
Blockchain is a new and complex industry, and there is a limited pool of skilled developers who are capable of writing smart contracts and handling codes. Finding a skilled team to manage the creation of a unique blockchain solution may be challenging for businesses. Some companies may decide to hire a BaaS provider to assist them in creating and advertising their blockchain solution in order to handle this difficulty. These companies offer a myriad of services, including access to top developers and marketing teams. In general, the market has not reached maturity yet, so there are not enough competent developers of blockchain and Web-3 ecosystems.
Lack of legislation in the majority of countries is one of the biggest cons of blockchain technology, and a great hindrance to its adoption. This is why we witnessed a boom of ICO scams in 2017, when hundreds of projects sold of tokens that did not have any inherent worth, and founders disappeared with investors’ money, staying anonymous and scot-free. Since there is little regulation in the cryptocurrency industry, fraudsters can easily organize Ponzi shemes and cajole money out of people's pockets because blockchain is not subject to the same level of regulation as other financial technologies. On top of that, absence of applicable laws makes it challenging for companies to adopt the technology, and well-established projects and exchanges face unfair accusations by organizations like the SEC that require full transparency and ban crypto businesses in different countries.
No Control for Enterprises
One of the blockchain technology cons is that it may not give businesses the same amount of control as conventional systems. Public blockchains in particular cannot offer the same degree of authority and control as other conventional systems, which might be problematic for some businesses. But the emergence of private and consortium blockchains, also known as enterprise blockchain frameworks, has the potential to solve this problem by providing a more cutting-edge strategy that combines the control and distributed nature of blockchain technology with the strength and authority that come with conventional applications.
Utilizing blockchain may potentially undermine corporate strategies and cultural norms. This is due to the potential for the technology to fundamentally alter how systems and industries function, and it may be difficult for companies that have relied on conventional business models for a long time to adjust to these changes. Also, some markets and sectors may become obsolete as a result of the adoption of blockchain since it can change how companies function and interact with one another.
Like any other groundbreaking technology, blockchain is a coin with two sides. It can significantly improve the speed of transactions, making it possible for people to send money instantly without geographical borders. Full transparency and immutability of data make it less prone to fraud, however, users’ transactions are visible to everyone, which removes privacy from the equation. With more legal regulation and more competent blockchain developers jumping on board, blockchain technology has every chance to become globally adopted, and it may potentially exist side-by-side with the traditional financial system. Meanwhile, it serves as the foundation for other innovations, such as cryptocurrencies, NFTs and metaverses.
What are the blockchain technology cons and risks?
Some blockchains are vulnerable to hacking and attacks, for example, when one party owns a large part of the native coins (as with Bitcoin). Also, first-generation blockchains lack scalability and cannot process transactions when there are thousands of them coming simultaneously – that means a low operational speed and high fees.
What are the blockchain technology pros?
Blockchain is a fully transparent system, meaning there is a reduced risk of fraud. Written data cannot be deleted or faked, which eliminates double spending and corrupting actions. Also, new-generation blockchains are capable of processing thousands of transactions per second.
What are 3 potential benefits of blockchain for the government?
The benefits include increased transparency and accountability in public transactions, enhanced data security and integrity, and streamlined administrative processes through the use of smart contracts. Blockchain can potentially improve efficiency and trust in government operations.
Why is blockchain a trusted approach?
All the data that is written in blocks cannot be changed or deleted, which makes blockchain a fully transparent system. Although users may stay anonymous, their transactions are visible to anyone.
What are the ethical issues of blockchain?
Since transactions in blockchains are made anonymously, these networks can be used to make payments on the dark web, to hide money laundering and perform other illegal transactions without being revealed.
What is a blockchain in simple words?
A blockchain is an open distributed ledger – a system where transaction details are registered once and forever. It is impossible to delete or fake the data that is written in the blocks. Transactions are validated by nodes (participants that provide computational data or stake coins). *DISCLAIMER: None of the authors, contributors, administrators, or editors connected to OWNR Wallet encourage readers to invest in Litecoin or Ethereum without doing proper research on their own. This article is purely for educational purposes only.*