BLOCKCHAIN TECHNOLOGY – PROS AND CONS
Have you ever wondered that is it possible to do transactions without using the third parties or intermediaries in business like banks, online wallets, etc.? No? Well, It is possible. Thanks to Blockchain technology.
What is BlockChain Technology?
According to Wikipedia blockchain is a growing list of records, called blocks, which are linked using cryptography. Each block contains a cryptographic hash of the previous block, a timestamp, and transaction data.
It is “an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way”.
It is a futuristic technology!
“We have elected to put our money and faith in a mathematical framework that is free of politics and human error.” – Tyler Winklevoss, Co-creator of Facebook
“Online identity and reputation will be decentralized. We will own the data that belongs to us.” – William Mougayar
STATISTICS – What Numbers have to Say?
- In 2019, the global spending on blockchain solutions is projected to reach about 2.9 billion U.S. dollars.
- In 2017, global investment into blockchain/bitcoin focused startups amounted to just over one billion U.S. dollars.
- Worldwide around 18 percent of respondents stated that they considered China to be the leading territory in blockchain technology development as of 2018. When asked to consider which territory would be the leader in blockchain technology development from 2021-2023, the percentage of respondents answering “China” grew to 30%.
- According to the survey of global organizations adoption phases for blockchain technology in April 2018, the consumer products & manufacturing industry has been the fastest to adopt blockchain technology. Around 74 percent of respondents from the consumer products & manufacturing industry stated that their company was in either the experimentation or the production phase of blockchain development.
- The number of Blockchain wallets has been growing since the creation of the Bitcoin virtual currency in 2009, reaching nearly 35 million Blockchain wallet users at the end of March 2019.
- The size of the Bitcoin blockchain has experienced consistently high levels of growth since its creation, reaching approximately 210 gigabytes in size as of the beginning of April 2019. The bitcoin blockchain is a distributed database that contains a continuously-growing and tamper-evident list of all Bitcoin transactions and records since the date of its initial release in January of 2009.
DESCRIPTION – Let’s take a Deep Dive
Blockchain technology has overcome many drawbacks of the third parties or the intermediaries like transaction issues in banking which consisted of high transaction fees, various restrictions(rules and regulations) about the number of transactions per day or minimum balance in a particular account, Net Banking Frauds in which the centralized server is hacked which creates financial crisis. In short, Blockchain Technology helps to remove third-party mismanagement, maintenance and security expenses.
The Blockchain is an internet-based, distributed/decentralized, public database where transactions can only be added once they are validated through complex mathematical problems which prove the authenticity of data. It does not require the trusted third party to validate the transaction. A consensus mechanism is used to agree on the validity of transactions.
How does it work?
Consider Virat wants to send digital currency to Rohit. The transaction is represented online as a ‘Block’. This block is also called as the ledger. The ledger consists of all the information about the transaction with a unique identification number. This block is then broadcasted to every node in the blockchain network. All the nodes within the network in which transaction is not taking place are called miners. Now, these miners in the network approve the transaction if it is valid by solving the complex mathematical problems/cryptography.
This whole process of solving the problem is called a Proof of Work. Once the transaction gets a green signal from the miners, the block can then be added to the chain, which provides an indelible and transparent record of the transaction. In this way, the money is transferred from Virat to Rohit. Also, the miner who solves these complex mathematical problems is rewarded with some monetary benefits in the form of bitcoins(cryptocurrency).
PROS/ ADVANTAGES OF BLOCKCHAIN TECHNOLOGY
- Security is one of the main advantages of blockchain technology as it is a distributed system and it is difficult for hackers to visit each node within a network and access the data. This implies that data stored within the blockchain is immutable.
- Lower Transaction Costs as it does not require the intermediaries which facilitate multiple maintenance and security expenses.
- Cryptocurrencies are not frozen in case of the economic crisis or if the bank shuts down. The transactions can still be continued.
- Blockchain technology is fault tolerant. If for some reason a node or a set of nodes is shut down the whole network will not be affected because the remaining nodes will continue working as usual.
- It also allows transactions between the parties which do not have trust in each other because the technology behind it is based on the consensus before adding a new block in the network.
- Blockchain technology is finding its way in various applications like Voting, Real Estate, Supply Chain Business
CONS/ DISADVANTAGES OF BLOCKCHAIN TECHNOLOGY
- Even though the blockchain technology is fault tolerant but it can cause slow processing if there are not enough nodes in a network.
- It is generally assumed that the honest nodes control the network but if the attacker nodes are more than the honest nodes and they control the network then the network is vulnerable to 51% attack.
- The blockchain concept is complex. Existing implementations mainly depend on the rare design patterns which one is not aware of.
- Blockchain technology is not mature enough. Developing decentralized apps over a blockchain is a pain.
- Privacy is not maintained as the data is public within the blockchain.
Keeping in mind the decentralized storage and security it is possible to say without any hesitation that Blockchain Technology is futuristic and revolutionary with the prowess to improve and develop new systems in various applications and different fields but like any technology, it is no silver bullet. So it is exciting to see what blockchain’s next big achievement could be.
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Author – Vishal Malpure
Scrutiny – Mitali Shingne