For years, blockchain has been heralded as a technological game changer with incredible potential and perspectives. Yet, despite the aggressive popularization and all the talks about the technology, there’s still a surprising amount of misconceptions and straight-up myths about it. These misconceptions are common for investors and general public alike, and make it difficult to see the real possibilities and shortcomings of blockchain.
Here, we’ll clear up some of the blockchain’s most widespread myths.
Myth #1: Blockchain and Bitcoin Are the Same Thing
Arguably, this is the most popular one of the bunch. It’s pretty understandable, since blockchain first emerged in relation to Bitcoin as its foundational platform.
However, there are fundamental differences:
- Blockchain is a distributed ledger technology. Essentially, it’s a decentralized way of storing data and checking its authenticity through consensus mechanisms.
- Bitcoin (or Ethereum, Ripple, Tether, etc.) is a digital currency operating on blockchain, which enables transaction verification and uses cryptography for security.
Bitcoin and other cryptocurrencies are just one of the many possible use cases of blockchain technology. Other cases include but are not limited to traditional and digital record storing systems, such as for electronic medical records, securing digital financial transactions, monitoring public transportation and administration systems.
Now that cryptocurrencies are struggling to stay afloat, it would be good to add that these use cases are what actually ensure the future sustainability of blockchain as a technology.
Myth #2: All Blockchains Are Open and Decentralized
This one is a widespread idea promoted by many articles and news of the “blockchain basics in X minutes” variety. What’s so wrong about it? The short answer: there’s more than one type of blockchain with varying degrees of openness and decentralization.
The longer answer is that there are three main types of blockchain:
- Consortium (federated)
Of these three, only public blockchains are open and usually fully decentralized and anonymized. Meanwhile, private and federated ones have a permitted limited access, require authorization, and can be semi-decentralized. Good examples of the latter are existing enterprise solutions based on Hyperledger and Ethereum for education, healthcare, banking, etc.
This variety allows for more flexible custom solution development and provides more technical options based on what better suits the goals and priorities in each particular case. For business-grade purposes and applications, blockchain consultants generally recommend public blockchains for cryptocurrencies and private or federative ones for supply chain management projects, IoT solutions, banking, and corporate systems.
Myth #3: Blockchain is Unhackable
This is based on the popular belief that blockchains are heavily encrypted and too decentralized to be breached. So even if a hacker gains access, there are always so many nodes (that is, network devices with ledger copies that verify and keep track of any changes to the system) that it is virtually impossible to override enough of them (more than 50 percent) to truly corrupt the system.
The problem with this line of thinking is that it oversimplifies the issue. There are many additional variables that matter:
- Is the network private or public, decentralized or with certain centralization?
- How many nodes are there in the first place?
- Does the blockchain communicate with external systems and in what way?
- How long does it take to update the ledger?
In the past, hackers have already exploited these variables on numerous occasions: the recent successful 51-percent attack on Ethereum Classic, the flaw in smart contracts that led to the DAO hack in 2016, and others.
The idea of the innate immutability of blockchain is blown out of proportion. Like any system, it can be hacked with enough effort and processing power put into it. Nonetheless, there is truth in that in most cases, decentralization is a strong additional advantage for public blockchain security, in addition to the encryption and other standard measures of data protection, of course.
Myth #4: Blockchain is for Criminals and Shady Stuff
Unregulated, anonymized, digital, speedy, global – there are plenty of reasons why cryptocurrencies can be appealing to the underworld. And since many believe that Bitcoin and blockchain are the same, it’s easy to see how that casts the shade onto the underlying technology by extension.
However, there are no known examples of digital ledgers being used or developed for criminal use. In fact, there are numerous ways blockchain can help law enforcement trace and locate perpetrators, store and process information, keep track of evidence and witnesses, and at least partially eliminate human error when it comes to data checks, standardization, and integration.
Considering all of the above, as well as the fact that criminal use of cryptocurrencies is on the decline right now, it’s long past time to retire that myth entirely.
Myth #5: Blockchain is Already Everywhere
On the other side of the spectrum sits the idea that blockchain potentially has an answer to everything and should be used everywhere. A complete opposite to the previous myth, this has been capturing the zeitgeist for some time now. A hot trend alongside AR, IoT, AI, and Big Data, blockchain is what IT giants, food chains, and governments invest in – and anyone in any industry should probably do the same, right?
Rather than jumping on the bandwagon just because it’s currently a big thing, companies should first understand the limitations and strengths of the technology, as well as whether it’s actually suited for a particular project. Blockchain should be applied when it’s relevant and can prove more efficient than traditional databases or transaction systems.
Here’s a shortlist of the signs that blockchain might be a better option:
- Historical data should be protected from tampering and override.
- It would be more efficient to automate contract creation, signing, and verification.
- The project would benefit from full or partial decentralization.
- Currently it relies on intermediaries or third-parties that ideally should be removed from the equation to cut costs or processing times.
If most of the answers are “yes,” then there is a chance a business would benefit from a blockchain-based system. Still, further research should always be conducted before arriving at the decision.
Blockchain as we know it is as old as the iPhone, but in reality it’s nowhere near as polished or all-permeating as smartphones have become. It’s a promising disruptive technology at the early stage of its development, but not yet fully established or standardized. The hype around it has put it at the forefront of digital transformation, but it has also sprouted a lot of misconceptions and overestimations.
It’s important to separate facts from fiction and recognize the real capabilities and limitations of the technology. In 2019, it rings particularly true, as blockchain hasn’t quite lived up to all the buzz just yet, Bitcoin crashed and burned (or so it seems), and both the overblown hype-machine and investment craze of the last year seem to finally be slowing down.