Author: Binary District Journal / Source: The Next Web
With every new technology, there is hype and there is reality. Binary District Journal attempts to separate the wheat from the chaff and put to rest the common myths surrounding blockchain.
Everyone and their grandmother has heard of blockchain technology by now — unless you’ve been living under a rock, that is.
The best way to understand blockchain is to think about it as a collection of records, or as a sort of ledger which contains transactions (financial or otherwise).Now here’s the twist: this ledger is shared between a network of computers and is updated and reconciled regularly. In other words, it is a distributed ledger. This is the essence of blockchain.
Blockchain technology came to prominence with the advent of Bitcoin in 2008 – the cryptocurrency credited to the mysterious Satoshi Nakamoto. The potential applications of Blockchain are numerous: it is already being put to use in everything from transferring money and arranging gigs for musicians to fighting world hunger.
Myth 1. There is a singular blockchain
Considering the way blockchain is discussed, you’d be forgiven for assuming that there is only one blockchain. In fact, reading this article so far, you might have fallen under the same impression.
The reality is that there are numerous blockchains and each blockchain serves a different purpose. Blockchains can be open and public, or they can be privately run by enterprises or even individuals. The idea is to think in plural rather than singular.
This myth exists partially because of the media, which often talks about blockchain as if it were a computer program that everyone is using to do the same thing.
Myth 2. Blockchain is all about money
While it is true that the first blockchain was used for the digital currency Bitcoin, the potential of blockchain technology goes far beyond money and finance.
Today blockchains are being used to building services on smart contracts, digital identity solutions, cloud storage, voting systems, and even aircraft safety. The blockchain does not care what type of data is contained in the ledger, as it is effectively just a list of records.
The reason why many people think that blockchains are all about money is perhaps because Bitcoin is the most popular of all blockchains, and both the terms are used in close conjunction with each other.
Myth 3. Blockchain and Bitcoin are the same thing
This brings us to the common misconception that blockchain and Bitcoin are one and the same thing. While Bitcoin is a digital currency that is based on blockchain technology, it is not the same thing as blockchain.
There are many other blockchains out there like Ethereum, Waves, and Ripple. Each blockchain is conditioned for a different purpose. Bitcoin may have gotten there first but it is not the same thing as blockchain. If you think of blockchain as the base on which Bitcoin is built, you will get it right each time.
This myth is widespread because many people assume that Bitcoin Blockchain is the only blockchain, and that the two are interchangeable.
Myth 4. Blockchain is the solution to fraud
If a medicine promises to cure all diseases, you probably know it is not going to cure any. Blockchain has assumed an aura of being a security blanket of impenetrable goodness. It is touted as being the panacea for ills like hacking, identity theft, fraud etc.
Due to the very nature of the blockchain, anybody wanting to tamper with it would have to make changes to records which are stored on multiple computers, or use a lot of computing power to mine a new branch of the blockchain.
Having said that, there have been instances where vulnerabilities in a blockchain or a blockchain based system have been exploited. The Hong Kong-based exchange Bitfinex lost US$ 65 million in a hacking incident, then there is the well documented Decentralized Autonomous Organization (DAO) hack, which led to losses of US$ 60 million.
There is also an infamous group of hackers, known as the 51crew, who have attacked Shift and Krypton blockchain clones.
The reason why Blockchain is thought to be fraud-proof by many is perhaps that it is represented as immutable and completely safe by many of its proponents. This is nothing more than fanciful thinking.
Myth 5. Blockchains are immutable
Well sort of. As the DAO case demonstrated, Blockchains are open to exploits. In response to the hack, Ethereum conducted a fork to reverse the transactions; thereafter the digital currency split into two.
The Bitcoin blockchain also has its vulnerabilities. Anyone capable of gathering the mining resources can overwhelm and take control of the blockchain. All they would need is a mining capacity larger than that of the rest of the Bitcoin network. This type of attack is called a 51% attack.
Given the difficulty in gathering these resources and the…
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