Recently you must be hearing a lot about blockchain ,although its not a very recent invention but keeps getting mentioned along with bitcoin and every other cryptocurrencies news.
To put it simply, a blockchain is like a database, its a way of storing records of value and transactions.The real difference lies in the way how blockchain stores these records.Here is a link to understand how blockchain works in simplest words.
Why is blockChain so hyped and considered to be one of the most futuristic technologies ,lets understand some of its benefits and judge ourself.
It can run on a complete decentralized network of computers ,reducing the risk of hacking, server downtime and data loss and corruption since manipulating data on a blockchain would require manipulation over 50% of computers of network at the same time which is almost unfeasible. Also unlike now people and companies do not have to give up control to a single institution when using a blockchain ,thus making collaboration between parties faster and easier to manage.
2.No Middle Parties
It has the ability to remove of all intermediaries and allow transactions to occur directly between people instead of involving any third parties.
It offers significant improvements in transparency compared to existing record keeping and ledgers because all changes to the ledger are visible to everyone in the network and the transactions can’t be altered or deleted once entered onto the blockchain.
The trust is placed in the blockchain network instead of any third party institution like bank ,remember a blockchain network is a very large network of computers on the internet and all the decisions are taken by approval from the majority of systems in this network.Its like a democratic network of systems.
In the past we have seen many frauds and scams.Usually when a fraud is committed the trail leading to the occurrence of fraud is altered by people with power or influence which makes it it difficult or impossible to investigate the actual fraud transaction. But data entered onto a blockchain is immutable ,meaning it can’t be altered or changed.Every Block of data on the blockchain can also be traced all the way back to the first block of blockchain which is easy for performing any audits on the transactions at any point of time.
In current system every asset transfer requires multiple ledgers and databases that each organization maintains but that is very costly, time consuming and manual. Blockchain based ledgers reduce the cost by replacing the individual ledgers with a shared one and providing realtime settlements and auditing from all parties in network on each transaction.
When you transfer money from a bank account ,you may have noticed that funds were removed from your account however they were not received in the other account until hours or days later.Yes this happens due to multiple ledgers and databases that each third party organization involved in transaction.
But since blockchain based systems can work on a shared distributed ledger ,it can settle transactions almost instantly without keeping anyone on waiting.
Although blockchain is great but that does not mean is it ready to serve the masses ? lets understand the issues with blockchain.
1.Lack of Centralized Control
Blockchain based systems are designed to replace third-party intermediaries putting back the responsibility of every transaction on all the people involved in it leading to a democratic system.So a company or business owner may end up losing all its decision making control to entire network instead of themselves.
Even though it looks unfeasible but the possibility of manipulating more than 50% of computers in a large network to change or influence the decision making process in blockchain based system still exists in theory and must be solved soon.
Humans are not perfect and keep making mistakes ,like mistake in transfering money to wrong person or merchant and in those cases third-party organizations like banks and credit card companies helps us by identifying and reversing transactions.
But in BlockChain based systems transaction’s can’t be altered or revered and there are no third parties to assist in case of mistake which may result in losing valuable asset forever.
Decentralized blockchains lack privacy since the identity of people and transaction details is published to the entire network of computers. Although there are few decentralized blockchains that retains privacy still the popular ones like bitcoin are not operational in this way.
5.Lack of Solid Proofs
Blockchain based systems are unproven new technology that has mainly bee applied to only cryptocurrencies and lack any other real-world implementation to prove its theoretical effectiveness.
Due to the infrastructure and computation requirements of processing complex blockchain transaction including electricity and processing power also the block size limitation for every currency the scalability of blockchain based systems are questionable. For example an bitcoin network process only few transactions as against tens of thousands of transactions by credit card networks today. Although there are many new blockchain networks who claim to be much faster still they are not as popular as bitcoin and there acceptance in market may take some more time.
Blockchain based assets are facing a long process of regulation and integration issues with existing systems.Governments, financial Institutions and Banks are resistant to change due to the scale and cost of replacing existing systems.
Leaders in every area specially those in technology and finance understanding and participation in blockchain systems will play an important part in bringing this technology in mainstream acceptance towards masses and eventually allow general public to trust and comfortably transact with them.