Blockchain has been presented as a breakthrough technology that has proven its potential in not just one industry but across sectors from finance, supply chain, healthcare and beyond. But this versatile technology is far from perfect and has certain limitations to its use. We’ve jotted down some of the advantages and disadvantages of blockchain to give you a better outlook on its capabilities.
Pros of Blockchain Technology
Blockchain technology supports immutability, which means that its technology makes it impossible for any data recorded on its network to be erased or replaced. This helps prevent any data tampering and manipulation, making blockchain a great network to store data like financial records where an audit trail is needed. What makes this feature stand out is that traditional data storage methods do not exhibit this capability making it prone to manipulations and third-party attacks.
A blockchain network is decentralised allowing any member of the network to scrutinize the data recorded and verify it. This is possible because every transaction recorded can be viewed through a personal node or through blockchain explorers – which allows anyone to visualise all the latest transactions occurring on the blockchain in real time. This creates transparency and builds trust among the public using the network.
- Free from Censorship
When you refer to censorship the first thing that comes to mind is ‘free speech’ and ‘freedom of the press’. In the case of blockchain, censorship has a similar connotation. It refers to the suppression of activity on the chain pertaining to who can use the network, for what purpose and who can change it as well. Blockchains, particularly public blockchains, are free from any such kind of censorship since it doesn’t have central authorities or governments controlling them, which means no one can interrupt their operations.
Blockchains are designed in a way to create an irreversible audit trial that helps trace the provenance of an asset throughout its journey. This is particularly beneficial for industries where users have concerns about issues centred around environmental or human rights with respect to a product, or apprehensions related to fraud and counterfeiting. This is because blockchain technology can help provide proof so that records can be traced and issues can be found and fixed.
- Reduced Transaction Fees
Blockchain networks characterized by their decentralised nature allow for transaction verification and validation without the need for an external third party or middleman. This helps significantly reduce transaction fees for the users significantly.
Blockchain networks provide several layers of security for their users. Each person joining the network has a unique identification number that can help verify that the transactions are legitimate. Every transaction that is executed also requires validation from network members to be considered real and accurate. The fact that the transactions are immutable also ensures that there is no room for the data to be prone to a rouge administrator or third-party attacks. This creates tight security for all trades and transactions in the network.
Cons of Blockchain Technology
- High Cost of Implementation
Blockchain is a double-edged sword. Though blockchain technology reduces costs for users it requires high costs for companies to implement which can hinder mass adoption. Companies need to ensure proper planning and implementation if they wish to successfully integrate this technology into their processes.
Since blockchain technology carries out more operations than conventional or traditional databases it is seen to be much slower. Blockchains are also deemed inefficient, particularly those using the proof of work consensus mechanisms since that can take about 10 minutes just to add a new block. There are also redundancies that arise when it comes to every node or computer in the network being required to store each transaction.
- Modification of Data
The immutability of data on the blockchain network can also be a big obstacle when necessary modification is required or when mistakes occur. The process of rewriting the code is incredibly time-consuming and expensive.
- High Energy Consumption
While blockchain technology has helped us advance in several areas in the realm of executing secure P2P transactions, one primary obstacle to using this technology is its significant energy consumption. All nodes on the blockchain need to maintain a real-time ledger every time a new node is created. The energy consumed during every one of these cycles is massive. The Bitcoin network itself has grown exponentially and so has its energy consumption. Today the network could be said to consume more energy than countries like Denmark, Ireland, and Nigeria.
- Private Keys
Blockchains are engineered to provide the highest level of security, but this can also be the technology’s Achilles heel. Each blockchain user has a private key that gives them access to their assets, funds, or data, and it must be carefully stored. Losing the private key can have severe repercussions because once misplaced, it is almost impossible to recover.
- Prone to Illegal Activity
The fundamental elements of blockchain guarantee privacy and confidentiality. However, this can also make the network more susceptible to illegal trading and illicit activities. A perfect example could be ‘Silk Road’, an online dark web that operated from 2011-2013 to launder money and sell drugs.
Closing thoughts – Blockchain is still the way to go!
Despite the drawbacks, blockchain has proven itself as a technology of significant importance and unique benefits. Every disruptive technology comes with certain downsides, but understanding how to minimise them and fully leverage the benefits is the only way forward. Blockchain is here to stay and it’s only a matter of time until legacy companies start adopting it.
To embed this technology into an organisation and reap the benefits of lower costs, accuracy, and security of data and transactions – leaders must come to grips with the pros and cons and ensure proper planning and execution. The next decade is bound to be a memorable one for blockchain and there’s no reason not to embrace it.
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