5 myths and facts surrounding the blockchain and its opportunities
A myth almost always develops when people fail to understand something or misinterpret it. From this perspective, the blockchain offers plenty of material for mythology because the technology is genuinely not easy to understand. Time to clear things up a bit.
Recently we collated some real-world blockchain stories in a kind of fun facts collection. To really figure out the technology’s true potential, it also makes sense to understand the kernel of truth behind the following five blockchain myths:[Read also: Blockchain – A Curtain Raiser]
Myth 1: the blockchain is a database and a giant decentralised computer
Incorrect: in terms of the outcome, the blockchain is a (long) list of transactions. At the time of writing (6 November 2017), the blockchain for the cryptocurrency Bitcoin was around 143.6 GB in size. In comparison to a database, the blockchain is characterised by the transparency of any actions performed. By contrast, a database has impressive availability and performance, which are not particularly strengths for the blockchain.
Nor is the blockchain a giant computer distributed across the globe. It is a group of computers which, in principle, all do the same thing: they check the same transactions in the blockchain and store the sequence of events in a list. The crucial feature here is not the distributed processing power, but the decentralised organisation. It is precisely this decentralisation which is one of the blockchain’s greatest strengths because, if every computer does the same thing, there will always be hundreds or thousands of identical copies of the blockchain list, and this system inherently prevents it from being hacked or manipulated.
Myth 2: the blockchain is energy hungry
“If half of the global population who do not currently have their own account began using blockchain technology, this would result in more power being consumed than is currently being produced in total”, according to the calculations made by Computerwoche. And the BTC-Echo stirred things up a bit more, stating: “If Bitcoin was a country, it would occupy 76th place among the most energy-intensive countries in the world – sitting between Lebanon (77) and Cuba (75).”
This myth is not quite right: the technology itself is not energy hungry. For one thing, the energy consumed depends on whether a distributed public blockchain or a private network is being utilised. A private blockchain can be operated in a far more energy-efficient manner than a distributed public system. Furthermore, the particular consensus method adopted also plays a role. The real energy guzzler is the so-called proof-of-work principle, which requires extensive processing power and which is employed in the cryptocurrency Bitcoin. Indeed, some providers, such as Etherium, want to switch to the more energy-efficient proof-of-stake approach in future.
Myth 3: the blockchain is secure and trustworthy
This myth isn’t easy to either prove or disprove: as far as we know currently, transactions which are stored in the blockchain are secure because no-one can retrospectively modify the entries, so nothing can be forged or deleted. Consequently, transactions which are conducted via the blockchain and actions which are triggered through business rules (so-called Smart Contracts) are considered to be secure.
However, this assurance obviously does not (yet) apply to all the applications which use blockchain technology. Here the corporate IT paradigm applies and, accordingly, 100% IT security cannot be guaranteed. Back in 2016, the weekly newspaper “Die Zeit” reported a modern bank robbery in the blockchain in which 50 million US dollars were stolen from the “Decentralized Autonomous Organization” (DAO). To cut a long story short, the thieves used a vulnerability in the program code for the application implementing the blockchain transactions.
Myth 4: blockchain will eliminate entire sectors and professions
What is true is that, strictly speaking, I no longer need an intermediary for contracts in the blockchain; for instance, notaries to authenticate these kinds of contracts. Other forms of certification, such as by registrars, could also be replaced by the technology. However, this is still some way off because statutory regulations require a notary or official in a great many cases. And it could be some time before that situation changes. What’s more, the professional groups cited have responsibilities which go beyond just authenticating contracts. A more likely scenario is that these professions will adapt, without completely falling victim to the blockchain. And, in all probability, new intermediary roles will also be created, for instance people to advise companies on the use of this complex technology.
It’s a similar picture in the financial sector, which is always the first to be mentioned when it comes to talk of swan songs. “For Deutsche Bank, blockchain is one of the first really disruptive ideas to emerge from the fintech sector. The major Spanish bank Santander anticipates potential savings of up to 20 billion dollars per year and has allegedly already compiled 20 to 25 applications in its innovation lab which could use this new technology”, wrote Manager magazine in March 2017. Far from a fear of demise. In fact, banks are some of the most active protagonists and are doing a lot to advance their own digitisation using blockchain technologies. So, no need to bid farewell to the banks just yet.
Double myth 5: “The blockchain will revolutionise the world” versus “The technology is just transient hype”
The fact is that the blockchain is gaining momentum, if such a thing is possible for a chain. Almost one in two (47%) of the companies questioned for our analysis of potential who were aware of the technology are already using it in their own business, 21 percent are even working on prototypes. Nonetheless, only seven percent of the specialist and managerial staff consulted consider the technology to be ready for the market at this moment in time.
Many experts emphasise the blockchain’s potential, including an article in the recently published edition of Managementkompass from Sopra Steria Consulting. But to really drive things forward a binding legal framework and standards are necessary, amongst other things. More know-how about the technology is required and there is still a need for a business model and maybe also a killer application which could give the whole phenomenon a real boost. Then, I’m convinced, the blockchain really will reveal its revolutionary potential. At any rate, it’s certainly no flash in the pan.