- Transactions are the actions created by the participants in the system.
- Blocks record these transactions and make sure they are in the correct sequence and have not been tampered with.
Blockchain ensures that data has not been tampered with, offering a layer of timestamping that removes multiple levels of human checking and makes transactions immutable. However, it isn’t yet the cure-all that some believe it to be.’
There are three types of Blockchains:
- Public: a public Blockchain is a Blockchain where everyone can see all the transactions, anyone can expect their transaction to appear on the ledger and finally anyone can participate to the consensus process.
- Federated: federated Blockchain don’t allow everyone to participate to the consensus process. Indeed, only a limited number of nodes are given the permission to do so. For instance, in a group of 20 pharmaceutical companies we could imagine that for a block to be valid, 15 of them have to agree. The access to the Blockchain however can be public or restricted to the participants.
- Private: private Blockchains are usually used inside a company. Only specific members are allowed to access it and carry out transactions.
Blockchain technology certainly has many positive aspects, but there is also much misunderstanding and confusion regarding its nature.
Myth # 1: The Blockchain is a magical database in the cloud
The Blockchain is conceptually a flat file – a linear list of simple transaction records. “This list is ‘append only so entries are never deleted, but instead, the file grows indefinitely and must be replicated in every node in the peer-to-peer network”. Blockchain doesn’t allow you to store any type of physical information like a Word document or a pdf file. It can only provide a “proof-of-existence” the distributed ledger can only contain a code that certifies the existence of a certain document but not the document itself. The file however can be stored in “data lakes”, the access to which is controlled by the owner of the information.
Myth #2: Blockchain is going to change the world
Myth #3: Blockchain is free
Myth #4: There is only one Blockchain
There are many different technologies that go by the name Blockchain. They come in public and private versions, open and closed source, general purpose and tailored to specific solutions. Common denominator is that they are shore up by crypto, are distributed and have some form of consensus mechanism. Bitcoin’s Blockchain, Ethereum, Hyperledger, Corda, and IBM and Microsoft’s Blockchain-as-a-service can all be classified as Distributed Ledger Technologies.
Myth #5: The Blockchain can be used for anything and everything.
Though the code is powerful, it’s not magical. Bitcoin and Blockchain developers can be evangelical, and it’s easy to understand why. For many, the Blockchain is an authority tied to mathematics, not the government or lawyers. In the minds of some developers the Blockchain and smart contracts will one day replace money, lawyers, and other arbitration bodies. Yet the code is limited to the number of cryptocurrency transactions in the chain itself, and cryptocurrency is still far from mainstream.
Myth #6: The Blockchain can be the backbone of a global economy.
No national, or corporate entity owns or controls the Blockchain. For this reason, evangelists hope private Blockchains can provides foundational support for dozens of encrypted and trusted cryptocurrencies. Superficially, the Bitcoin Blockchain appears massive. Yet a Gartner report recently claimed the size of the Blockchain is similar in scale to the NASDAQ network. If cryptocurrency takes off, and records are generated larger, this may change. For now, though, the Blockchain network is roughly analogous to contemporary financial networks.
Myth #7: The Blockchain ledger is locked and irrevocable.
Analogous large-scale transaction databases like bank records are, by their nature, private and tied to specific financial institutions. The power of Blockchain, of course, is that the code is public, transactions are verifiable, and the network is cryptographically secure. Fraudulent transactions— double spends, in industry parlance—are rejected by the network, preventing fraud. Because mining the chain provides financial incentive in the form of Bitcoin, it is largely believed that rewriting historic transactions is not in the financial interest of participants. For now, However, as computational resources improve with time, so too does the potential for deception. The impact of future processing power on the integrity of the contemporary Blockchain remains unclear.
Myth # 8: Blockchain records can never be hacked or altered.
One of the main selling points about Blockchains is their inherent permanence and transparency. When people hear that, they often think that means that Blockchains are invulnerable to outside attacks. No system or database will ever be completely secure, but the larger and more distributed the network, the more secure it is believed to be. What Blockchains can provide to applications that are developed on top of them is a way of catching unauthorized changes to records.
Myth # 9: Blockchain can only be used in the financial sector
Blockchain started to create waves in the financial sector because of its first application, the bitcoin cryptocurrency, which directly impacted this field. Although Blockchain has numerous areas of application, finance is undeniably one of them. The important challenges that this technology brings to the financial world pushed international banks such as Goldman Sachs or Barclays to heavily invest in it. Outside the financial sector, Blockchain can and will be used in real estate, healthcare or even at a personal scale to create a digital identity. Individuals could potentially store a proof-of-existence of medical data on the Blockchain and provide access to pharmaceutical companies in exchange for money.
Myth # 10: Blockchain is Bitcoin
Since Bitcoin is more famous than the underlying technology, Blockchain, many people get confused between the two.
Blockchain is a technology that allows peer-to-peer transactions to be recorded on a distributed ledger across the network. These transactions are stored in blocks and each block is linked to the previous one, therefore creating a chain. Thus, each block contains a complete and time-stamped record of all the transactions that occurred in the network. On the Blockchain, everything is transparent and permanent. No one can change or remove a transaction from the ledger.
Bitcoin is a cryptocurrency that makes electronic payment possible directly between two people without going through a third party like a bank. Bitcoins are created and stored in a virtual wallet. Since there are no intermediaries between the two parties, no one can control the cryptocurrency. Hence, the number of bitcoins that will ever be released is limited and defined by a mathematical algorithm.
Myth # 11: Blockchain is designed for Business interactions only
Experts in Blockchain are convinced that this technology will change the world and the global economy just like dot-coms did in the early 90’s. Hence, it is not only open to big corporations; it is accessible to everyone everywhere. If all it takes is an Internet connection to use the Blockchain, one can easily imagine how many people worldwide will be able to interact with each other.
Myth # 12: Smart contracts have the same legal value as regular contracts
For now, smart contracts are just pieces of code that execute actions automatically when certain conditions are met. Therefore, they are not considered as regular contracts from a legal perspective. However, they can be used as a proof of whether or not a certain task has been accomplished. Despite their uncertain legal value, smart contracts are very powerful tools especially when combined with the internet-of-things (IoT).