Firstly, what is Blockchain?
Blockchain is a decentralized distributed ledger technology adept in fast and efficient data processing and recording, while also ensuring secure precautions. Nodes (users) in the network function in a peer-to-peer manner and are provided identical copies of information in order to help mutually maintain the stability, security, and transparency of the blockchain system.
This piece will help guide readers into the benefits and limitations of blockchain technology for your investment knowledge.
One of the main advantages is that the blockchain network is decentralized, meaning that there are no central authorities or third parties needed. The system is instead driven by the participation of users through the validation of transactions.
The matter of data storage security is crucial, especially when it comes to coordinating with organizations and third parties, which can further increase the risks of being hacked. Also, securing assets and immensely work time.
The decentralized functionality of the blockchain network allows both time and cost reduction when securing a network as every transaction is recorded straight to the network and becomes immutable, always leaving evidence of its validation. Essentially, every piece of data regarding transactions would be copied to computers throughout the network, meaning that there is a sense of freedom to access information, making it transparent and impossible to change.
With the blockchain technology applicable as a distributed ledger, it is able to record actions, data, and transaction records that can never be changed. The transaction records are transparently seen throughout the public space, making the network and its users trustworthy, without ever having to know them personally. The users abide by the consensus algorithm for the purpose of achieving the blockchain network’s purpose.
Generally, trading or implementing a contract must be processed through numerous procedures before it becomes finalized. In some industries, this step could take up to days and weeks, especially when dealing with international partners. However, the utilization of blockchain technology aids users through the reduction of time and costs, making this matter accomplished within minutes or even less, further shortening the international gap.
Disadvantages of Blockchain Technology
This topic is rather a disadvantage disguised within a point of advantage. With information being immutable, or unable to be changed, once placed in the blockchain network, its state can never be rendered. Therefore, it is advised for users to double-check their inputs ahead of time.
From a case point in November 2020, a user transferred 0.0108859 BTC (≈ 5,893 THB) with a fee of 2.66 BTC (1,428,377 THB). Evidently, the user had swapped the two fees and transferred amounts with a wallet that allowed the specification of transfer fees. Case in point, it is incredibly important to be attentive when making such immutable transactions.
Using the blockchain network can consume high amounts of energy as it is needed for the storage of real-time ledgers of every current transaction. Miners are required to use such high quantities for maximum computational power when validating, storing and solving transaction equations.
It is still technically hackable
The possibility of a blockchain network being hacked would only be achieved if 51% of the entire system were to conspire and create false consensus by feeding falsely validated transaction information. Networks established with a low count of nodes/users would be prone to such events, however, in pragmatic terms, it is nearly impossible as, for example, in the Bitcoin blockchain network, the immensely large number of nodes are scattered around the world in a very decentralized manner.
Meaning, with bigger numbers, come a higher sense of strengthening, security and transparency.
Some blockchain networks are not only immutable, but also difficult to scale to handle increasing amounts of users, like in the Bitcoin blockchain, wherein users would need to wait for hours for transactions to be verified.
Nonetheless, nowadays, solutions have arisen for the resolution of this matter for networks to be able to handle large numbers of nodes to reduce bottleneck issues and respond to user needs better.
Private key storage
Though storing private keys can be easier nowadays, it can still be difficult for new users as its safe storage requires a fundamental level of understanding in technology.
Keeping private keys safe can be done in numerous ways, but if not secure enough, traders would still be prone to risks or permanent dislocation.
Blockchain technology is beneficial in numerous ways, such as storing data through safe and decentralized means, however, it is still prone to its downsides which can render it unsuitable for some industries.
The technology itself cuts out the middleman entirely, making it transparent and trustworthy. Nowadays, the area is being developed by programmers and developers worldwide for the collective goal of eliminating obstacles and responding to the ever-growing needs of users.