The past few years have seen the rapid advancement and further implementation of blockchain technology. But the confusion and misunderstandings surrounding this concept still need to be cleared before the public fully embraces it. Following the first article of the series, we continue to debunk myths and clarify misconceptions surrounding blockchain.
Myth: Blockchain technology is not ready for everyday use
Due to its close association with digital currencies and the recent hype surrounding the highly volatile cryptocurrency market, there is a belief that blockchain is just a new fad among speculators and has no use in the real world.
Blockchain technology is being implemented and used daily worldwide. Multiple businesses and industries have adopted it to streamline their operations. Each day, more people interact with platforms and structures that employ blockchain technology.
Blockchain provides solutions for many industries, in applications previously thought to be impossible. A study from the Stanford University shows that this technology has been growing exponentially and has been transforming the infrastructure of various organizations since 2013.
The rise in popularity of cryptocurrency services shows the potential for everyday use of blockchain technology. Digital currencies are the original use case for blockchain and although they are not the same, a certain similarity can be observed between them. The world’s most used cryptos, Bitcoin and Ethereum, touched all-time highs in transaction volume in 2020.
Services such as crypto-only online marketplaces and crypto credit cards have taken significant steps in enabling the everyday use of digital currencies. People around the world can now purchase virtually anything they want, at any time, using their digital assets.
Myth: Blockchains require large amounts of energy to run
Blockchain technology, initially implemented for cryptocurrencies, uses a consensus mechanism called Proof of Work. Its use requires expensive and energy-intensive crypto mining equipment.
The Bitcoin network currently consumes the same amount of energy as a small country. This has given birth to the myth that all blockchains require excessive and costly amounts of electricity to run.
It is true that large-scale blockchains like the one used for Bitcoin require huge amounts of energy. This is mainly because they are public, open-source and permissionless blockchains used to mine crypto. But companies looking to adopt blockchain technology do not have to rely on mining.
Unlike permissionless networks, only people with appropriate credentials can access permissioned and private blockchains. These blockchains can operate on the basis of principles set out by a governing body, using a mechanism to validate information called Proof of Authority. This procedure consumes very little energy, often less than the non-blockchain-based system.
Myth: Blockchain is unregulated
The association with cryptocurrencies has led to the belief that blockchain technology is hard to regulate and is risky from a legal standpoint. The majority of cryptocurrencies use public and decentralized blockchain systems, which, until recently, had no clear regulatory guidelines.
Cryptocurrency and blockchain technologies are now heavily regulated. Authorities such as FINMA and FATF are leading the way on international blockchain regulation. They have developed government guidelines worldwide, focusing on tax regulations, banking services, transaction monitoring and anti-money laundering policies.
Additionally, blockchains don’t need to be public. Organizations seeking to incorporate this technology into their systems can use a private network set up to comply with laws and regulations, thus minimizing legal risks.
Myth: Blockchain is immutable
Immutability is advertised as one of the main assets of blockchain. The feature of distributed ledger means that all transactions, once added to the blockchain, are indisputable and can never be changed.
Large networks, such as Bitcoin and Ethereum blockchains, are considered immutable due to their enormous size. But the extent of immutability depends on the size and decentralization of a network.
Having a large user base is essential when establishing an immutable blockchain network. Simply creating a blockchain out of nothing will not automatically make it immutable. Such a feature must be developed through proper planning and infrastructure.
Myth: Blockchain only applies to finance
The financial sector is one of the main industries that can benefit from blockchain technology implementation. FinTech operations are at the forefront of blockchain adoption, with many discussions about its impact on the future of finance.
The recent surge of decentralized finance (DeFi) and the announced interest in blockchain technologies from financial giants such as PayPal and JP Morgan are the hottest topics at the moment. But this enthusiasm for new solutions has also led to the misconception that blockchain can only be used in the finance industry.
There are many applications for blockchain technology outside of this sector. New use cases are being proposed and implemented daily. Some notable examples include:
- Supply chain management: Organizations use this technology to prevent counterfeiting and create a transparent source of information in their supply chains. It allows all parties to identify the chain of custody, ownership transfer and trace their products’ origin in a reliable and efficient way.
- Voting: Blockchain technology can revolutionize the way the world votes. Sierra Leone conducted the first-ever blockchain-based national elections in 2018. Estonia is building a digital republic where national elections can be held and government certificates can be issued using blockchain technology. Blockchain are able to provide further transparency and security to elections and even allow for votes to be cast using smartphones.
- Maintaining health records: Healthcare providers in countries like the US, Canada and Russia have started using private blockchains to store medical records, monitor disease outbreaks and track medication shipments. Additionally, distributed ledger technology allows healthcare workers to securely and efficiently access their patients’ verified medical history.
Unfortunately, blockchain technology is still surrounded by myths. Debunking these misconceptions and discovering the facts is a continuing duty that we pledge to fulfil, paving the way for blockchain to revolutionize the way we interact with the digital world.