Most blockchains act as a decentralized database, managing and storing data in digital blocks. These blocks are ordered chronologically and linked together through cryptographic proofs. By design, blockchains function as distributed digital ledgers. Blockchain technology has changed many industries for the better by providing increased security in trustless environments. However, it also has some advantages and disadvantages because it is decentralized.
Blockchains, for example, have slower processing speeds and require larger storage capabilities than centralized databases. Blockchain technology has been marketed as a disruptive technology that offers, largely, security levels never seen before, and is necessary, not only by the IT or finance sector but also for all types of industries.
It is a very flexible technology because it may be applied to any industry. Most experts agree that blockchains are a disruptive technology with the potential to revolutionize finance, gaming, entertainment, and more. The blockchain database architecture and associated protocols provide a solid foundation for creating new classes of applications.
That’s the idea. In reality, blockchain technology has proven to be less than astounding. It is strong and successful in a variety of sectors, but practitioners have also identified a set of drawbacks associated with blockchain technology.
Although it has many advantages, Blockchain technology is not perfect. Like any disruptive technology, there are both benefits and drawbacks to its implementation. Let’s explore some of them now.
One of the benefits of blockchain transactions is that they don’t require approval from third parties, which means you can make a crypto investment without hiring an investment advisor, or make a purchase without needing a bank to process your credit or debit card payment.
You may provide or borrow money without the need for costly financial institutions. Because you don’t require bankers’ approval, you can make transactions in minutes rather than days or weeks. That’s one of blockchain’s biggest benefits: its open ledger feature.
Because blockchain data is generally kept on thousands of devices across a decentralized network of nodes, the system and the data are highly resistant to technical malfunctions and unscrupulous assaults.
Reliable and resilient, blockchain networks rely on a decentralized architecture with no single point of failure. Because each network node has the ability to replicate and store a copy of the database, there is no single point of failure: even if one node goes down, the network remains functional and secure.
In contrast, many traditional databases rely on only a single or a small number of servers and are therefore more vulnerable to technical failures and cyber-attacks.
Once data has been registered and confirmed as a block in the blockchain, it is very difficult to remove or change it. This makes blockchain ideal for storing financial records or any other type of data where an audit trail is necessary because each change is logged and permanently recorded on a public and decentralized ledger.
For example, let’s say a business wanted to prevent fraudulent behavior from its employees. In this case, the blockchain would provide a secure and reliable record of all financial transactions made by the company. Consequently, it would be much harder for an employee to commit fraud without being caught.
In most traditional payment systems, transactions are not only reliant on the two participants involved, but they’re also reliant on an intermediary such as a bank, credit card company, or payment provider.
This is no longer necessary because of the decentralized network of nodes that verifies transactions using a process known as mining. This is why Blockchain is often called a ‘trustless’ system.
As a result, blockchain technology eliminates the danger of depending on a single entity and lowers overall expenses and transaction fees by eliminating middlemen and third parties.
Another benefit: blockchains are always up and running. You won’t have to wait for a bank or other organization to open on Monday morning to accomplish things with blockchain-based apps.
Aside from the potential money-saving advantages, blockchain technology also allows for new classes of applications and business models that didn’t previously exist. A great example of this is NFTs which are changing the way sports clubs interact with their fans in a big way.
Blockchain is the foundation of a new generation of innovative decentralized finance apps. New applications in finance, entertainment, gaming, and other fields are being created using blockchain technology.
Blockchain technology, in its current form, has several limitations. However, it is flexible and powerful enough to support a wide range of new applications and services. Blockchain technology also has a number of drawbacks in its current form.
Blockchain technology is still relatively new and complicated, which implies there are few blockchain-ready software developers.
Over the years, Bitcoin’s Proof of Work consensus mechanism has proven to be very effective. However, there are a few ways in which blockchain networks may be attacked and 51% attacks are one of the most discussed.
An assault of this type might succeed if a single entity has 51% or more of the network hash power, enabling them to disrupt the network by intentionally delaying or excluding transactions.
Despite the fact that it is theoretically possible, there has never been a successful 51% attack on the Bitcoin blockchain. As the network grows larger and more diverse, security improves, making it less likely that miners will invest enormous amounts of money and effort to harm Bitcoin.
Aside from that, a successful 51% attack would only be able to change the most recent transactions for a short time because blocks are linked via cryptographic proof (changing earlier blocks would require intangible amounts of computing power).
Furthermore, the Bitcoin blockchain is extremely robust and would swiftly adjust as a result of an assault.
Another disadvantage of blockchain technologies is that once data has been put on the blockchain, it is extremely difficult to change it. While one of blockchain’s advantages is its stability, it isn’t always beneficial. Changing blockchain data or code is usually time-consuming and need a significant amount of hard work.
Blockchain provides users with ownership over their cryptocurrency units (or other blockchain data) via public-key (or asymmetric) cryptography. Each blockchain address has a corresponding private key.
While the address may be shared, the private key should be kept secret since it is essential to access funds. Users require their private key in order to access their money, thus they are their own bank. If a user’s private key is lost, all of their money is effectively lost; there is nothing they can do about it.
Inefficiency and storage
Blockchains, particularly those that employ Proof of Work, is extremely inefficient. Because mining is fiercely competitive and there is only one winner every ten minutes, the work of every other miner is pointless.
As miners strive to increase their computational power, so they have a better chance of finding a valid block hash, the Bitcoin network’s resources have grown dramatically in recent years, and are consuming much more energy.
Over time, blockchain ledgers may become quite large. The Bitcoin blockchain currently takes up around 200 GB of space. The current expansion in blockchain size appears to be outpacing that of hard drives, and the network would suffer nodes if the ledger became too enormous for individuals to download and store.
Despite the potential disadvantages, blockchain technology also offers some distinct advantages that warrant its continued presence. We still have a long way to go until it becomes mainstream, but many industries are already starting to see the benefits and drawbacks of implementing blockchain systems.
In the next few years, we will likely see more businesses and governments testing out new applications to find where blockchain technology would be most beneficial.