10 Shocking Blockchain Technology Misconceptions
The amazing properties of blockchain technology have spread far and wide. However, several misconceptions have cropped up in the process. These fallacies could be attributed to the complex nature of the blockchain, which most people struggle to comprehend.
Also, blockchain technology has received a “deity” and an “all-powerful” status, creating misconceptions about what we can actually use it to achieve. Yes, it is disruptive. But as with any other technology out there, the blockchain has its limitations. In this guide, we will debunk ten shocking blockchain misconceptions that you probably thought were factual.
Blockchain Technology and Cryptocurrencies Are Similar
If you are still thinking that the blockchain and cryptocurrencies are similar, then think again. The blockchain is the underlying technology, while cryptocurrencies like bitcoin are the digital assets that people can exchange among themselves.
Bitcoin is the first and most widely known application of the blockchain, but they are not the same. Simply put, the blockchain records peer-to-peer (P2P) bitcoin transactions in real-time.
There is Only One Blockchain
Blockchain networks do not stop at bitcoin. There are many blockchain networks in the market, all with different purposes. For instance, some blockchain networks like Dash and Zcash aim to offer anonymous transactions. On the other hand, blockchain networks like Dragonchain offer a platform where businesses can deploy applications.
As more and more projects launch new blockchain networks, the misconception of one blockchain will gradually decline.
Blockchains Can Only Be Public
One of the most attractive features of the blockchain is that it is a public ledger. That means that anyone can use it and participate in the network. However, private blockchains exist, as well. Organizations create these types of blockchains because they only want a few people to use and participate in the network.
Therefore, organizations can create blockchains depending on the level of transparency they want to provide. For example, a country’s blockchain-based election platform is only effective if it is public.
Blockchain Technology Is Only Applicable in the Financial Sector
The blockchain has many disruptive use cases for the financial sector. Nonetheless, its applications extend beyond this industry. For example, sectors like health, supply chain, government, agriculture, and real estate are using blockchain technology in various ways.
Our project has used the Ravencoin blockchain to create a security token that represents our beach property in the Philippines. That means that another blockchain use case is the tokenization of real-world assets. Tokenization makes traditionally inaccessible assets like real estate and art more accessible through tokens.
Blockchains Work Like Cloud Storage
Blockchains do not work like cloud storage. While you can use a cloud service to store data like PDF and Word files, you cannot store such files on a blockchain.
The blockchain proves that a file exists. In other words, the blockchain holds code that proves that a file exists. As an illustration, code is used to certify the existence of a land title deed on the blockchain. Consequently, fraud cannot take place as long as you carry out all land transfers attached to that title deed on the blockchain.
All DLTs are Blockchain
Have you been using the blockchain and DLT interchangeably? Well, we have news for you. The blockchain is a type of a distributed ledger technology (DLT) but not all DLTs are blockchain. For instance, R3’s Corda is a shared ledger that does not broadcast transactions to all network participants, as is the case on blockchain networks.
Furthermore, some DLTs do not record transactions in blocks, and they restrict access and network participation. Therefore, do not replace blockchain with DLT the next time the temptation arises.
Blockchain Is Applicable in All Businesses
Most companies want to deploy blockchain solutions. However, does your business need it? Well, if there is nothing to fix, then no. Most companies might rush to implement blockchain solutions from the fear of missing out only to find out that it is not necessary after spending thousands of dollars. As a result, businesses should conduct thorough research before deciding to implement blockchain solutions.
It is worth noting that while the blockchain appears like the solution to every problem, you cannot apply it everywhere.
Smart Contracts Are Legal Contracts
Smart contracts have been all the rage for some years now, and they promise to tie all the loopholes when two parties are making a transaction. However, they are not legally binding.
A smart contract is only a string of code with the terms that two or more parties have agreed on. As a result, parties must also involve lawyers to create a contract that a court of law can interpret.
Blockchain Is Free
People will often compare the internet to the blockchain and wonder why it is not free. First of all, the internet is not free, and neither is the blockchain.
The bitcoin network, for example, has to incentivize the nodes that are validating transactions and keeping the network secure. Therefore, you have to pay mining fees whenever you make a bitcoin transaction.
Enterprise Blockchains Do Not Perform
Despite the scaling issue of blockchain technology, enterprises can still implement solutions that perform well. It all depends on factors like the consensus algorithm, the infrastructure provider, the volume of peers, and the payloads being processed.
For instance, this Hyperledger project shows that Fabric, “an open-source system for deploying and operating permissioned blockchains,” can achieve 3,500 transactions per second on certain deployment configurations.
No single technology is perfect, and blockchain technology is no different. However, it is a disruptive technology for a reason. Going forward, it will be interesting to see how this technology evolves and the impact it will have on various sectors.
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