Understanding the advantages and dangers of blockchain

Mihai-Alexandru Cristea 09/11/2022 | 15:07

The global blockchain technology market was valued at $5.92bn in 2021 and is projected to grow at a compound annual growth rate (CAGR) of 85.9% from 2022 to 2030, according to Grand View Research.

 

However, it still may be challenging to figure out whether it is safe and worth investing in blockchain.

On the one hand, decision-makers across organizations tend to perceive blockchain as an essential factor for business growth – 73% of Deloitte’s 2021 Global Blockchain Survey respondents consider their companies to lose a competitive advantage without adopting blockchain and digital assets.

On the other hand, some experts and researchers still perceive blockchain more as a disruptor, especially regarding information security. For example, a report released by the U.S. The Department of the Treasury reads: “The potential for blockchain technology to transform the provision of financial services, as espoused by developers and proponents, has yet to materialize.”

So who is right? The truth is somewhere in the middle. Like any emerging technology, blockchain has several limitations and risks, but in the right hands, its potential can be truly enormous.

This article covers the benefits and risks of adopting blockchain for your enterprise. However, each organization has a unique business case and can’t be 100% confident in the blockchain viability for their project without involving blockchain consultants.

Blockchain and its potential advantages

A blockchain is a digital ledger, either public or private, where every transaction is recorded and verified. For example, Bitcoin makes the ledger publicly available—anyone can see the entire transaction history.

Not every blockchain solution uses a public ledger. For certain applications, it makes more sense to keep the ledger private.

With Bitcoin, the number of stakeholders is massive. Everyone who owns Bitcoin has an invested interest, thus necessitating the public ledger. With private transactions, say, B2B deals, only the parties involved need to be privy to the ledger.

Blockchain technology offers several advantages. First, the processing power can be distributed. Second, once confirmed, each transaction record becomes immutable. It leads to one more advantage: blockchain allows mutually mistrusting parties to engage in a transaction without a third party to validate it.

These attributes could prove beneficial but not really competitive in some cases. For investors and companies looking to adopt blockchain solutions, it is important to consider whether both the processing power and the ledger need to be distributed and whether mistrust is a serious impediment.

Today, decentralized applications built on blockchain gain popularity in many sectors and areas. From blockchain in retail to data verification and supply chain management, dApp development may become the next frontier of blockchain proliferation.

For example, in 2018, the Swiss city of Zug successfully tested the first electronic voting system based on blockchain. The citizens of the electoral age can vote on significant city events via smartphones. Considering the ease of use and a high level of security, everyone, the mayor included, are enthusiastic about further adoption of this voting system.

The same year, the Danish shipping company Maersk adopted a blockchain-based shipping tool called TradeLens in cooperation with IBM. In 2019, Maersk announced a couple of other major shipping partners on board. As of now, TradeLens covers almost half of the world’s cargo container shipments.

According to State of the dApps, there were 4,073 decentralized applications, attracting more than 95,000 daily active users as of September 2022.

Is blockchain dangerous?

Beyond assessing blockchain viability regarding their particular business cases, organizations should investigate how specific blockchain disadvantages may affect their projects.

With Bitcoin, one major flaw in the system is the 51% attack. If a party is able to secure more than 50% of the mining processing power, they can prevent new blocks from being added to the chain and reverse transactions during their control of the network.

Given how massively the blockchain network has grown, such an attack is unlikely—it would require immense computing power to pull off. For example, if we take the size of the Bitcoin blockchain, it grew to 428GB as of September 2022.

But how about smaller blockchains? If a hospital sets up a blockchain to process medical records, hackers may break in and overwhelm the system.

The prospect of the 51% attack raises the question of whether blockchain ledgers are truly immutable. There is another question: do we really want immutable ledgers?

Bitcoin exchanges and wallets were hacked several times in the past. Once Bitcoins are stolen, they are lost forever. Those who have had their Bitcoins stolen have no recourse. They do not know the identity of the hackers, while the ledger has already transferred the Bitcoins to the new parties, making the transactions official.

Companies could face another challenge applied to business transactions and data transfers. For example, if businesses used an immutable blockchain to record transactions and an accidental transaction occurred, correcting the records might be an issue.

Final thoughts

The digital asset market has been exponentially growing despite a lot of controversy. Today, technology continues to attract the attention of organizations and investors as they see its competitive and transformational potential. For example, the companies offering digital marketing services are using blockchain to increase customer engagement and build trust. The decentralized ledger technology helps marketing and advertising specialists better manage data and gain deeper insights into audience interactions with ad campaigns.

Even though blockchain implementation may bring benefits such as increased transparency and improved operational efficiency, it is worth remembering that, like any disruptor, the technology may have its drawbacks, for example, vulnerability to cyberattacks and scam projects.

Therefore, we would recommend assessing the blockchain viability in detail from the perspective of a particular organization and its business case before initiating a project. It is how enterprises can ensure they invest wisely.

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