Blockchain’s Advantages and Disadvantages
The majority of blockchains are built as decentralised databases that act as distributed ledgers. These ledgers keep track of and store data in blocks that are arranged in chronological order and linked by cryptographic proofs. The development of blockchain technology has resulted in numerous benefits across a wide range of businesses, including enhanced security in trustless situations. However, the fact that it is decentralised has significant drawbacks. Blockchains, for example, have restricted efficiency when compared to typical centralised databases and require more storage space.
Advantages
The system and the data are particularly resistant to technological failures and malicious attacks because blockchain data is commonly kept on thousands of devices on a distributed network of nodes. Because each network node can replicate and store a copy of the database, there is no single point of failure: a single node’s falling down does not affect the network’s availability or security.
Many traditional databases, on the other hand, rely on just one or a few servers and are thus more prone to technological failures and cyber-attacks.
Confirmed blocks are exceedingly unlikely to be reversed, which means that once data has been registered in the blockchain, removing or changing it is extremely difficult. Because every change is monitored and permanently recorded on a distributed and public ledger, blockchain is an excellent solution for keeping financial records or any other data that requires an audit trail.
For example, a company may use blockchain technology to prevent its employees from engaging in fraudulent activities. In this case, the blockchain might provide a safe and reliable record of all financial transactions that occur within the organisation. As a result, it would be far more difficult for an employee to conceal questionable transactions.
Transactions in most traditional payment systems rely on a middleman (such as a bank, credit card firm, or payment provider) in addition to the two parties involved. When employing this technology, this is no longer necessary because the transactions are verified by a distributed network of nodes through a process known as mining. As a result, the blockchain is frequently described as a “trustless” system.
As a result, by eliminating intermediaries and third parties, a blockchain system eliminates the risk of trusting a single organisation while simultaneously lowering total costs and transaction fees.
Disadvantages
Over time, the Proof of Work consensus algorithm that safeguards the Bitcoin blockchain has been shown to be extremely efficient. However, there are a few potential assaults against blockchain networks, with 51 percent attacks being one of the most widely discussed. Such an attack might occur if a single party gains control of more than half of the network’s hashing power, allowing them to disrupt the network by purposely omitting or changing transaction ordering.
Despite the fact that it is theoretically possible, there has never been a successful 51 percent attack on the Bitcoin blockchain. Because miners are better rewarded for acting honestly, it is unlikely that they will devote substantial sums of money and energy to attacking Bitcoin as the network grows larger. Apart from that, because blocks are connected through cryptographic proofs, a successful 51 percent assault would only be able to modify the most recent transactions for a brief amount of time (changing older blocks would require intangible levels of computing power). Furthermore, the Bitcoin blockchain is extremely resilient, and it would immediately adjust in the event of an assault.
Another disadvantage of blockchain systems is that it is extremely difficult to change data once it has been put on the blockchain. While one of the benefits of blockchain is its stability, it is not always beneficial. Changing blockchain data or code is frequently difficult and necessitates a hard fork, in which one chain is abandoned and a new one is started.
To offer consumers ownership over their cryptocurrency units, blockchain employs public-key (or asymmetric) cryptography (or any other blockchain data). A private key is associated with each blockchain address. The private key, while the address can be shared, should be kept private. Users must use their private key to access their funds, thereby making them their own bank. If a user loses their private key, all their money is basically lost, and they have no recourse.
Blockchains, particularly those that use Proof of Work, are inefficient. Because mining is very competitive, with only one winner every ten minutes, all other miners’ efforts are wasted. Because miners are constantly trying to improve their computational power in order to increase their chances of finding a valid block hash, the Bitcoin network’s resources have grown significantly in recent years, and it now consumes more energy than many countries, including Denmark, Ireland, and Nigeria.
Over time, blockchain ledgers can become exceedingly huge. Currently, the Bitcoin blockchain takes roughly 200 GB of storage. The present rate of increase in blockchain size appears to be outpacing the rate of increase in hard drive capacity, putting the network at risk of losing nodes if the ledger becomes too massive for individuals to download and store.
Conclusions
Despite its drawbacks, blockchain technology offers some distinct benefits, and it is unquestionably here to stay. Although broad adoption is still a long way off, many businesses are grappling with the benefits and drawbacks of blockchain technologies. Businesses and governments will most likely experiment with new applications in the coming years to identify where blockchain technology can bring the greatest value.
Please refer to our ‘Crypto Essentials‘ could for more information relating to Blockchain
