Blockchain technology is often touted as the next big thing in a variety of fields. Its most prominent application so far has been within alternative finance, where it underpins the ledgers of various digital currencies. However, the possibilities are much broader than that, thanks to the distinctive advantages blockchain has over traditional alternatives such as databases and spreadsheets:
- Immutability, meaning its entries cannot be tampered with.
- Transparency, such that all parties can rely on a single shared source of truth.
- Auditability, with a comprehensive and easy-to-follow audit trail of all transactions.
That said, there is no shortage of myths out there about blockchain and its implications for different industries. Let's debunk a few of the biggest ones:
Myth #1: Every blockchain is open to the public
"Many blockchains for enterprises require everyone to be authorized beforehand."
This assumption stems from the fact that many of the most famous blockchains, like the one for Bitcoin, are publicly viewable and don't require new members to be approved before joining. In contrast, many blockchains for enterprise purposes are permissioned, meaning they require everyone to be authorized beforehand. These controls allow for implementation of security best practices such as know your customer (KYC) that verify everyone's identity. KYC is often paired with anti-money laundering (AML) to shore up a blockchain against fraud as well as cyberattacks. Which brings us to our second myth:
Myth #2: Blockchain is inherently secure
The fact that blockchain is almost mathematically irreversible is often treated as a sign that it is fully secure from the get-go, without the need for additional measures like KYC or AML. In truth, a lot can still go wrong with a poorly secured blockchain, including hijacking of the network by someone who controls over half of the nodes on it, problems with the original data (amplified by the immutability of blockchain) and breaches of the supporting IT systems like in the incident that brought down the Mt. Gox platform in Tokyo in 2014. Performing cybersecurity due diligence is always worth it.
Myth #3: Blockchain is an unreliable technology
This myth stems in large part from the comparisons of some blockchains to commercial payment card networks like those run by MasterCard and Visa. Older blockchains can process only a fraction of the transactions of those networks, due to design limitations established years ago. However, more recent blockchain technologies like Hyperledger are much more responsive. Plus, in many cases an enterprise blockchain – e.g., one for recordkeeping purposes – won't need to perform operations at the same massive scale as one handling payments.
Myth #4: Smart contracts are too risky
A smart contract is an agreement that executes automatically when its conditions are met, without the intervention of a third-party. This has obvious advantages and disadvantages. The biggest drawbacks are the vulnerability to hacking and the presence of coding errors, either of which could trigger a dire sequence of events in which, say, funds governed by a contract are repeatedly stolen or lost. The good news is that these situations are avoidable through a combination of data governance, careful development, and permissioned structures. Limiting network access through enforced permissions is particularly important, as is having a clear process for writing smart contracts in mainstream, well-understood programming languages.
Myth #5: Blockchain is a just database for electronic storage
As a relatively new technology, blockchain might seem like it has a lot in common with other recent innovations like cloud computing, but it really doesn't. For starters, it can't store anything – it's basically just a file containing a list of entries that can only be expanded and not deleted. It can also be hosted exclusively on-premises, without needing to enlist any cloud infrastructure. The overall lesson here is that blockchain implementations vary considerably from one use case to the next and cannot be easily pigeonholed or compared to other technologies.
The technical complexity of blockchain can make any project involving it seem really daunting. Fortunately, Paramount can help you navigate the process of designing and implementing a blockchain specifically for your business needs. Contact our team of experts today to learn more.