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Advantages & Disadvantages of Blockchain Technology
A blockchain is a digital ledger for keeping track of economic transactions that can be programmed to maintain not only financial transactions but also anything virtual that has value. In fact, a decentralized ledger is not controlled by any financial institution or government and can be accessed by everyone who has a good internet connection. On top of that, today blockchains are not only used for virtual currencies but there are also other several ways of integrating this technology into messaging-apps, critical-infrastructure-security, ride-sharing, cloud-storage, etc. So, below are some of the advantages and disadvantages for using blockchain-based systems today.
Advantages Of Blockchain Technology:
- It eliminates fraud: Because blockchain is an open-source ledger, each transaction will be made public thus eliminating any chances of fraud. In fact, a blockchain-system is constantly monitored by miners who keep an eye on all kinds of transactions around the clock and there are actually thousands of miners validating every single transaction all day and night. All in all, virtual-currencies that use blockchain-technology get a lot of supervision which makes them almost impenetrable to fraud.
- Instant Transactions: Digital currencies that are based on blockchain-technology are 10-times faster to transfer than usual bank transfers. For example, with banks if a transaction is made to someone with a different bank-account then it takes about 2-days to get completed but with blockchain-technology transactions usually get completed in just a few minutes.
- There is no government interference: with blockchain-technology, the government or any other financial-institution has absolutely no control on virtual currencies. In fact, government interference has often led to devaluation of various currencies which is not for the economy.
- Fewer-errors: with fully automated blockchain DLT systems, there are fewer errors and it even eliminates the repetitive confirmation steps which most online users hate.
- Easy to maintain: Blockchain electronic ledgers are much cheaper to maintain than traditional accounting systems. In fact, even the number of employees managing blockchain systems can be greatly reduced thus saving a company a lot of money.
- Improved Financial Efficiency: with blockchain-technology, individuals and companies can make transactions directly to the end-user without involving any 3rd-parties. This actually enhances on financial efficiency and allows people to be less dependent on financial-institutions.
- It empowers users: Blockchain-technology actually allows users to control their information and transactions compared to traditional methods of making transactions that are controlled by financial-institutions and governments.
- Offers high-quality data: blockchain data is very consistent, complete, timely, accurate and widely available. This actually makes blockchain systems very reliable and convenient to use compared to traditional systems.
- Improved processing integrity: with blockchain-technology, users are very sure that transactions will be executed exactly as the protocol commands while eliminating the need for any trusted third party entities.
- Improved transparency: Any changes made to public blockchains are publicly viewable by all parties on the system and this promotes transparency and even all transactions cannot be altered or deleted.
- Low transaction costs: Blockchain systems also eliminate the need for third party intermediaries and other overhead costs exchanging assets thus greatly reducing on transaction fees.
- Create a sharing economy: Companies like Uber and AirBnB prove that a sharing economy is a success. So, by enabling peer-to-peer payments blockchain-systems can open doors to direct interaction between parties creating a truly decentralized sharing economy.
- It facilitates for Crowdfunding: Ethereum which is a decentralized autonomous organization that raised over $200 million in just over 2-months using a blockchain system. In fact, its participants purchased “DAO tokens” allowing them to vote on smart contract venture capital investments depending on the number of DAO they were holding. On the other hand, Crowdfunding initiatives like Kickstarter and Gofundme are also a great example of an emerging peer-to-peer economy.
- Easy file-storage: Decentralized file-storage on the internet offers several benefits including distributing data throughout the network in-order to protect files from getting hacked or lost. Additionally, internet made up of completely decentralized websites has the potential to speed up file-transfers and streaming times.
- Protection of intellectual property: Although digital information can be infinitely reproduced and shared widely over the internet, copyright holders have lost control over their intellectual property and suffering financially. However, the use of blockchain-technology through smart contracts can protect copyrights and automate the sale of creative works online while eliminating the risk of file copying and redistribution. For example, Mycelia uses a blockchain-system to create a peer-to-peer music distribution system that enables musicians to sell songs directly to audiences, license samples to producers and divvy up royalties to songwriters and musicians.
- Improved identity management: The ability to verify your identity is very essential for financial transactions that happen online. So, blockchain-technology through the use of distributed ledgers can offer enhanced methods for proving who you are due to a possibility to digitizing your personal-documents.
- Easy data management: With the use blockchain-technology, users will have the ability to manage and sell data their online activity generates in the nearby future. Additionally, digital-currencies will be used to gain access to distributed-data in small fractional amounts.
- Improved record-keeping: blockchains can make all kinds of record-keeping more efficient and easily accessible through publicly-available ledgers. For example, a number of countries are undertaking blockchain-based land registry projects because property titles tend to be susceptible to fraud, are costly and labor intensive to administer.
Disadvantages Of Blockchain Technology:
- Slower performance: It’s actually in the nature of blockchains to be slower than centralized databases. This mainly because when a transaction is being processed, a blockchain has to do all the same things just like a regular database does but it even carries 3-additional burdens which include; Signature-verification, Consensus-mechanisms and Redundancy.
- Security concerns: Today, several banks including; the Federal Reserve, Bank of Canada and Bank of England have actually launched investigations into digital currencies. These banks want further research to be done on systems that utilize distributed ledger technology without compromising central banks ability to control currency and secure the system against systemic attack.
- Banks are not interested in an open-source model for identity: Both banks and their regulators want to maintain close control. This implies that developing a single digital identity passport authorizer is a critical next step for them.
- Regulations are also a critical-issue: regulations are also critical in creating an open digital environment for commerce and financial transactions. For example, current physical certificates must be digitized to gain full benefits of an electronic system, people need to know who is responsible for maintaining and managing a blockchain, Who admits new participants to a blockchain?, Who validates transactions? and who determines who sees which transactions?.
- Virtual-currencies are very volatile: Virtual currencies that are based on blockchain-technology are extremely volatile. For example, Bitcoin prices fluctuate every day because both the decentralized blockchain technology and the virtual currencies are extremely new to the market and companies, investors, governments and other groups adopting or not adopting to them greatly affects them.
- It’s hard to understand by non-tech people: Storing virtual currencies that are blockchain-based is a very big headache for people who are not-so tech savvy. In fact, people who cannot handle technology might face problems with creating a Bitcoin or Ethereum wallet and during the transfer coins from a digital-wallet to a cold storage wallet.