What is Blockchain? Simplified
Before delving into the advantages of blockchains, it is important to understand what is blockchain and how it works.
Introduction to Blockchain
A ledger, which is a database where all transaction records are stored, is divided into blocks. The advantage of this system is that each block contains not only the transaction data, but also all metadata about previous transactions, such as who sent what data, when it was sent, and to what destination, and more. Because there is no centralization of data, this ledger is said to be fully trust-free because there is no single person or entity that controls it.
Besides its obvious advantages, the distributed ledger comes with several disadvantages as well. The biggest disadvantage is that it can become vulnerable to external influences. Some say that it is vulnerable to outside manipulation because blocks that contain invalid or missing transactions are broadcast to the whole network, making them part of the public record and accessible to anyone who wants to look for them.
If someone were to make a malicious change in one of the blocks, the entire network would be affected, and as mentioned above, this is the biggest disadvantage. Other experts say that the ledger may become susceptible to internal corruption, making some data part of the public record while it should not be. Despite these potential setbacks, the distributed ledger still has several advantages over other types of databases.
Advantage of Blockchain Technology
One of the best advantages of the Blockchain is the fact that it is a decentralized form of ledger. Unlike a conventional database, the ledger is maintained by nodes, each of which is completely autonomous. This gives the decentralization of the ledger a much more secure feel than a traditional database because no single entity holds the reins.
A decentralized ledger makes transactions more secure because the only people involved in the transaction are the actual users of the system, and not just administrators or overseers. The blocks of transactions are held in a distributed fashion, with each node storing a copy of the information. Because of this, even when a single administrator changes something in the ledger, there is not a ripple effect across the other clients. Also, changes to the ledger are logged into the blockchains, ensuring that any changes made will be logged and traceable. Changes to the ledger need to be approved by the nodes before they are transferred from the genesis block, making the Blockchain a censorship-free system.
Another major advantage of the Blockchain is that the transactions it creates are cryptographically sound. The entire system runs on mathematical protocols that ensure the integrity of the ledger. Transactions are protected by cryptographic guarantees that cannot be manipulated. This is the equivalent of an electronic signature, except that instead of a piece of plastic being recorded digitally, the transaction is digitally encased in a digital message. There is no possibility of altering the message in the sense that if you were to encrypt a message, changing the meaning of that message would no longer be possible. By using a cryptographic system, the Blockchain ensures that the process of authentication is impenetrable.
The Blockchain provides a solution to many problems. The main advantage is that it reduces the cost of conducting business by improving the security of the ledger, which reduces the risks of sending transaction data to an unauthorized party. Furthermore, the use of smart contract technology makes possible complete audit trail and complete fungibility, meaning that each transaction is traceable and account-specific. Lastly, users can send encrypted transaction data to the network for safekeeping. This reduces the risk of tampering with the ledger and provides a level of fungibility similar to that of cash.
Disadvantages of Blockchain Technology
Despite its many advantages, the Blockchain has some disadvantages as well. One major disadvantage of the Blockchain is that it is a distributed system and is susceptible to security holes, meaning that a hacker could attack the ledger and remove some of the transaction history. In addition, it is vulnerable to outside interference. Distributed systems like the Blockchain require quite a few computers to confirm the validity of all transactions. This increases the cost of the system, making it impractical for small businesses or startup organizations. Additionally, this system does not have the ability to process international money transfers due to its reliance on cryptography.
Unlike most cryptographic, the Blockchain is not associated with any one entity. It exists as a community of developers and users working together on a volunteer basis. This lack of an entity makes the Blockchain open to attacks from spammers and external sources who may attempt to misuse the funds stored in the wallets controlled by users. In order to solve these issues, the developers have developed software called “smart contracts” or “blockchainacles.” These are software programs that validate transactions made on the Blockchain by recording all the relevant transactions, using complex mathematics to ensure that no single party has control over more than half of the total supply of the Cryptocurrency.