Introduction
Blockchain technology was first launched in 2008 and has recently gained traction due to its numerous benefits and uses. Blockchain is essentially a distributed ledger that records transactions chronologically and publicly. Its database is not stored in any single location; instead, it is shared across a network.
The impact of any new technology on the everyday lives of individuals generally affects the wider adaptability of the technology. Any new technology that is introduced, brings with itself a list of myths based on the misconception and personal interpretation of the people. Among the various technological advancements in recent times, Blockchain has been a prominent contender. So, the lack of clarity in understanding Blockchain has resulted in the creation of many Blockchain myths over the years.
Myth #1: Blockchain and Bitcoin are the same things
Blockchain became popularized because of the introduction and the bull run of bitcoin. Thus, is a very common misconception, owing to the lack of knowledge surrounding blockchain technology, that bitcoin and blockchain are synonymous with each other.
Fact: Blockchain is a type of Distributed Ledger Technology (DLT), whereas bitcoin is a type of cryptocurrency. Cryptocurrencies are an application of blockchain and are built of the blockchain itself. Blockchain stores the records of the transactions of cryptocurrency. Therefore, blockchain and bitcoin are co-related but completely different.
Myth #2: Blockchain is a storage mechanism like cloud databases
Blockchain technology and cloud database technology have emerged around similar time periods and are both related to data storage. Therefore, comparisons have been made between blockchain and cloud storage.
Fact: Cloud databases are used to store files in their native formats and run on a cloud computing platform. Its primary use is storage and accessing files anywhere through the internet. Blockchain, on the other hand, is a DLT that stores the record of transactions using different methods of encryption and hashes.
Further, Blockchain stores the records with Proof of Existence, which essentially means that it provides a code that certifies the existence of a document without showcasing the actual document, unlike cloud storage where the document itself is stored.
Myth #3: Blockchain is 100% secure and immutable
One of the main and most attractive features of blockchain technology is the encryption of data and inherent permanence and transparency. This often translates into invulnerability to outside attacks, thus, creating the misbelief that blockchain can never be subject to cyberattacks.
Fact: Blockchain works by linking different blocks in which data is stored, where each block has a unique digital signature in the form of a hash value based on cryptographic principles. Each block carries its own hash signature as well as that of the previous block, creating a chain. In order to make changes to one block, one has to change all other connected blocks and transactions before that. Thus, blockchain does not completely prevent all outside attacks, however, it creates a system where all unauthorized changes can be easily caught.
Further, blockchain is composed of algorithms. Therefore, there is the possibility of the algorithm being attacked. If the algorithm is put at risk, the entire blockchain can be at risk.
Myth #4: Blockchain runs on anonymity
It is the general belief amongst beginners in the field of blockchain that blockchain transactions are completely anonymous and therefore, cannot be trusted.
Fact: Blockchain technology is based on pseudonymity and not anonymity. Blockchain records the user’s wallet’s public address without disclosing the wallet owner’s name and identification. The risk factor of anonymity is minimized since the wallet address can easily be traced back to the users’ real-life identity and all the transactions related to that wallet address.
Myth #5: Blockchain can only be used for financial transactions
It is a wide misconception that the key application and benefits of blockchain are limited to financial transactions and cryptocurrency.
Fact: While cryptocurrency is responsible for the mainstream recognition of blockchain, it is not the only use case. Blockchain started out focusing on financial transactions, but sectors like real estate and healthcare have started to explore the uses of blockchain for instance, for identity management, storing patient details, etc. Moreover, the development of AI has been enhanced owing to the capability of blockchain-based solutions due to its immense data mining and processing capability. Blockchain has the potential to significantly impact the manner of data storage due to its inherent advantages.
Myth #6: All blockchains are public
A majority of the people, who are not educated in this field, are under the impression that all blockchains are public since it is the only type of blockchain that is talked about in the mainstream media.
Fact: In reality, blockchains may be public, private, or hybrid.
Public blockchain — These are the types of blockchains that are open for participation to everyone, without having any restrictions on who can access the information and perform the transactions. This ensures decentralization as no single entity controls the blockchain.
Private blockchain — Often referred to as “permissioned blockchains”, private blockchains have limited access. The network access is granted by an administrator. They are primarily used by organizations that want to enjoy the benefits of blockchain while also being in control of accessibility.
Hybrid blockchain — this type of blockchain combines the features of both public and private forms of blockchain. The blockchain is owned by members, who get to decide who gets access to the network and what transactions are to be made public.
Myth #7: Blockchain is free and efficient
Another common myth surrounding blockchain is that it is a free and cost-effective method to scale operations.
Fact: While this may be true for some sectors using permissioned blockchains which are usually more cost-effective, it should not be considered to be the general truth. There are many factors on which the efficiency of blockchain may depend. Blockchain can be expensive to implement since it requires a huge amount of computing power, hardware, servers, and electricity. Thus, before diving into the blockchain, it is necessary to evaluate the suitability of blockchain technology to the business, focusing on the long and short-term expenses and benefits.
WACEO is a non-profit organization that helps blockchain organizations to be legally compliant. It enters into contracts on behalf of blockchain organizations with service providers. It also provides support to stakeholders in the form of contracts, policies and procedures.
For more information on WACEO and our work and to keep yourself updated on the latest developments in blockchain organizations, visit our website.
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