The Power of Blockchains: How This Technology Can Benefit the World
A blockchain is a decentralized digital ledger, which can be programmed to record transactions between two parties efficiently and in a verifiable and permanent way.
What is a Blockchain?
A blockchain is a decentralized digital ledger, which can be programmed to record transactions between two parties efficiently and in a verifiable and permanent way. Each blockchain links together blocks in a time-stamped sequence — a block is the set of cryptographically linked transactions. Each block contains information relating to time-stamped purchases or sales between two parties in a secure, chronological order.
Another good analogy is to imagine a giant endless book that everyone has in their home, magically updating to contain every purchase we make.
Think of it like a giant record of everyone's purchases, set in stone, that everyone in the world has access to. At any time, you could go and take a peek to verify transactional information, however, checking them in real-time. This is one of the many ways blockchain can eliminate the need for trusted third-parties while at the same time reducing costs and risk of fraud. When transactions are recorded in chronological order on a publicly verifiable set of data, it's easy to see who did what, sent at what time and to whom, making it possible to detect tampering or fraud. Another good analogy is to imagine a giant endless book that everyone has in their home, magically updating to contain every purchase we make. After each transaction, we can flip through the pages to see everything that has happened in the past and verify each transaction.
Advantages of Blockchain
- Blockchains are transparent. As discussed, a blockchain is a transparent database that anyone can access. It's open and decentralized. Its data is shared, accessible and verifiable by all parties at any time — stored on millions of computers at once, and anyone with access to the blockchain can see changes or irregularities. Therefore, businesses, governments, and everyday people can use blockchains to improve transparency.
- Blockchains are decentralized. Projects built on blockchain technology typically have no central authority controlling the data or the money within them. There's no single point of failure, and it is the network and all its participants — collectively through consensus — that decides what is valid and what is not. If a blockchain project is decentralized, then it can put its users in control of their assets. No omnipotent actor has the ability to change, disable or erase any records of a blockchain. As such, decentralized systems are more resilient, reliable and trustworthy.
- Blockchains are programmable. The blockchain can be used to track many types of information, making it ideal for financial transactions of all types. For example, a blockchain can be used to track a diamond from the moment it's mined all the way to when it's purchased. Not only can buyers and sellers trust that they are buying a legitimate product, but they can follow its entire lifecycle to make sure it hasn't been swapped for a knock-off. Additionally, a blockchain can be used to track and verify voting, land ownership, and even patent information. Any information that requires verification is a good candidate for blockchain tracking. We're still in the early innings of blockchain adoption, and much of its power is yet to be realized.
- Blockchains are immutable. The information provided within the blockchain cannot be altered retroactively without the alteration of all subsequent blocks and collusion of the network majority. The blockchain makes data immutable by creating an indelible record of all transactions that have ever occurred on it; this means that for a transaction to be reversed, every block on the chain would have to be altered — which would need enormous amounts of computational power to be done, and would require agreement of the entire community. In many ways doing so would be extremely cost-prohibitive and unlikely. Blockchains leverage game theory to incentivize people to play by the rules. It's more profitable to play by the rules than it is to try and cheat the system.
- Blockchains are generally secure. A blockchain's decentralization, immutability, and transparency (as discussed) create a robust security model. Most legacy systems use centralized servers to store their data, making them more vulnerable to attacks, the larger of which can potentially bring down an entire network (as we've seen happen before with centralized services like Yahoo, Equifax, Capital One).
Proprietary or opaque corporate blockchains that don't possess decentralization, transparency, and immutability resemble legacy databases and are likely to spawn legacy-like problems. Not all blockchains have perfect security; they're still in their infancy and any technology that is so powerful will have vulnerabilities. However, it's important to note that on average as a technology, blockchain systems are more secure than traditional systems.
Disadvantages of Blockchains
While the disadvantages of blockchain technology present some hurdles to widespread adoption, they will likely fade over time as the technology improves.
- Blockchains are not fully able to protect from cyberattacks. Many blockchains interface with legacy technological systems, opening up avenues for hackers to exploit. Many people think they own their coins if they hold them on custodial exchanges, but it's a little more complicated. The data essentially belongs to the exchange itself, and in some cases that can become an attack vector. As the adage goes — not your keys, not your coins.
- Not all blockchains are user-friendly. Since we're in the early stages of blockchain adoption and innovation, most projects are designed to solve specific problems — and users have to be tech savvy in order to access and use them. In many cases, users have to understand how the blockchain works in order to participate. Creating user-friendly application layers is essential to bringing crypto to billions of users on the planet, which is why we created NOAH with a focus on simplicity and ease.
- Blockchains are self-reliant. While blockchains can be designed to work with other blockchains, there are currently no "official" standards for platforms working together. While there are new solutions, for now, the ecosystem of interoperable blockchain communication is just emerging, and products won't be fully integrated until there's more time and development.
There are many thousands of cryptocurrencies, each with blockchains based on Ethereum (ERC-20 standard) or other competing platform blockchains. Each also has it’s preferred consensus mechanism (Proof of Work, Proof of Stake, Proof of Authority, Byzantine Fault Tolerance etc). What separates Bitcoin from other blockchains is that it is the most successful Proof of Work blockchain by a long-shot, dwarfing all other Proof of Work chains combined.
While the disadvantages of blockchain technology present some hurdles to widespread adoption, they will likely fade over time as the technology improves. With any nascent technology, there are always issues that surface as it evolves and takes on a life of its own. But the advantages are so promising and revolutionary that the road-bumps will just be stepping stones on a massive journey to global adoption.