A blockchain is also called Distributed Ledger Technology appointed. Blockchain is a database that collects information stored in a system. Databases are presented in tabular form so users can quickly retrieve a block or filter specific data. The blockchain is decentralized, can be transparent to multiple people for cryptographic hashing, and is immutable. These properties offer some potential for organizations and businesses, especially when it comes to managing transactions between multiple entities. However, the technology also has some drawbacks. We explain where the possibilities lie and where the limitations of blockchain technology lie.
Blockchain technology – the current state of things
A cryptographically secured blockchain was first described in 1991 by Stuart Haber and W. Scott Stornetta. But there was still a long way to go before blockchain technology as we know it today. It wasn’t until 2008 that an unknown person – possibly several unknown people – published a white paper by the name of Satoshi Nakamoto, in which the model of a blockchain was defined. A year later, the first blockchain was implemented as a public ledger for transactions made with Bitcoin. In 2014, blockchain technology was spun off from currency, and from then on its potential for other cross-organizational financial areas could be explored. Blockchain 2.0 was born, and the Ethereum blockchain has since enriched blocks with programs known as smart contracts.
Blockchain 3.0 is now poised to become the future of blockchain technology. It refers to new technologies that are currently being developed and tested. The third generation of the blockchain should be even more efficient and user-friendly.
Since blockchain systems are the basis of cryptocurrencies, blockchain technology has become known to a wider audience, especially in connection with virtual currencies. Blockchain in relation to cryptocurrencies enables fast and easy transactions with low fees. For this reason, blockchain and cryptocurrencies are now used in a wide variety of areas – from booking a hotel room to Dogecoin Casino. In online casinos, for example, some advantages of using a blockchain are clearly evident. Transactions via the blockchain are anonymous and personal data is better protected than with more traditional means of payment such as payment by credit card.
Blockchain vs non-blockchain database
An important advantage of blockchain technology is the immutability of data in the blockchain and the associated prevention of data manipulation compared to the CRUD system used by conventional databases. CRUD stands for create, read, update, delete. And the system is prone to tampering and hacking due to these eponymous properties.
Moreover, the fact that the blockchain works in a decentralized way is verifiable and trustworthy. Each member of the network has the opportunity to examine the data stored in the blockchain. Traditional databases are centralized and lack transparency. The administration publishes only a selected group of data.
Additionally, the blockchain is censorship-free. Because it is not controlled by single individuals or parties. For this reason, neither authorities nor governments can intervene in the operation of the network. In traditional databases, operations are usually regulated by central authorities. For example, users can be blocked.
Disadvantages of blockchain technology
With all the benefits, there are good reasons why conventional databases are unlikely to be replaced by blockchain in the near future for some purposes. Because the blockchain also has its disadvantages and certain advantages appear counterproductive from another point of view.
Blockchain is generally much slower than regular databases because more operations are performed here. With an increased number of transactions and increasing file size, there is usually a limitation due to the computing power and bandwidth of certain network participants. For example, the Bitcoin network is limited to a block size of one megabyte. The transactions that can be performed are limited.
Consensus mechanisms can also be problematic. For example, proof of work has a low transaction throughput and requires a huge amount of energy to complete, which places a heavy load on the environment. Additionally, blockchain is more expensive than traditional databases, and immutability can be a drawback when debugging and creating applications.
In addition, there is still a need for clarification on certain legal aspects relating to the blockchain. Above all, the anonymity of blockchain users and the immutability of data stored in the blockchain contradict the fundamental principles of data protection law.
There are also some security aspects to consider. Public key cryptography renders content unusable if a private key is lost or stolen. In some cases, writing data openly to a blockchain is of little use for reliability reasons.
Important to consider: With different blockchain implementations, the benefits and risks can always vary.
Possible uses of blockchain
Due to their special structure, blockchain systems offer opportunities and risks. Blockchain technology is already successfully used in various industries – for example in finance and healthcare.
In finance, the blockchain system is used for transactions. These are verified in the blockchain system and distributed to the nodes. This results in high data consistency and transparency. Blockchain’s secure data transfer is also used in healthcare.
Blockchain can also play a role in identity management. People can be identified quickly and securely using blockchain technology. Insurance companies, in turn, are using blockchain and smart contracts for automated claims processing.
Examples that the blockchain offers potential beyond the sectors mentionedare (movie) libraries and cloud storage – there are approaches to using blockchain, but these are not yet mature.
It’s easy to forget that blockchain is still a relatively young field. Blockchain technology is developing rapidly and promises a wide range of possible uses, although the full potential is not yet foreseeable. In all of this, however, the limitations and risks of the system should not be ignored.