Blockchain is the technology powering the bitcoin system. Pundits have both lauded it as the Next Big Thing, and a passing fad that will fade into obscurity.

So far, most discussions revolve around its use for digital currencies. In theory, blockchain could work for electronic voting or records management. But many businesses are hanging back to see how blockchain develops before they make a commitment. Is that the right decision?

Let’s look at how blockchain works before we go any further.

How does blockchain work?

A blockchain is simply a shared distributed ledger where every participant sees every transaction. Its uses have expanded beyond bitcoin. So, it’s easier to think of blockchain as a series of synchronised databases within a network. The system regularly updates its records so everyone in the network can see data at all times. Blockchain networks can be private, with membership criteria, or public facing.

Every ten minutes, digital transactions drop into a block, protected with crypto technology. This ‘block’ transmits to the network. Once validated by members of the network, the block gets a time stamp and goes into a chain. Because they’re chronological, anyone in the network can see the blocks’ transaction history. Every copy of the ledger in the network is identical.

The key detail of the ledger is that you cannot go back and change a single item without having to rewrite the entire ledger, a copy of which is held by every participating member. This proves useful when dealing with regulatory organisations, as the amount of work required to falsify information becomes essentially impossible. Having so many identical copies ensures high availability and redundancy. The final essential feature is that by having some many copies it cannot be changed, you get irrevocable proof for contracts that previously needed notary services.

Blockchain’s use of decentralised databases lets people run transactions without the need of a middleman, like banks. It’s much harder to hack. Hackers need to manipulate a certain block and all preceding blocks. They also need to change all the ledgers in the whole network at the same time.

Fans of the technology think it will greatly reduce transaction fees and will make banking faster. People can conduct transactions without going through traditional third parties, saving time and money.

But is blockchain the saviour of the people? Or is it a technological fad that will soon run its course? Let’s examine the pros and cons of this new technology.

Blockchain – The Pros

Many tout additional security as blockchain’s biggest advantage. The concept means you’d need to hack all computers in a network at once. Unlike most networks, they’re distributed, not centralised. We should note it is possible to hack a blockchain. But you need to overcome 51% of the network to corrupt the ledger. You’d need the computing power of a nation-state to succeed.

Better Personal Security

A French startup, Snips, is offering an AI voice assistant based on blockchain. Due at the end of 2019, Snips AIR will process data on a network of devices without storing anything in the cloud. Data never needs to move beyond the smart home. Using blockchain decentralises the network of devices so data processing happens locally.

The public nature of a ledger means you can’t cover up evidence of wrongdoing. You can’t alter the blockchain after the fact. If you do, there is concrete proof of tampering. You can see why people are considering it for electronic voting.

Identity Verification

Some people even think blockchain could solve problems like proving identity online. It means people can register identity on the network for verification. Once verified, the individual owns their identity, not a nation-state or government. Moving through Passport Control at an airport suddenly becomes less of an issue. It also resolves the issue of protecting and connecting to a centralised database containing a single source of truth.

An app like APPII offers jobseekers the ability to create a verified CV when applying for jobs. Every assertion made by the jobseeker on his CV can be verified by the relevant institution or employer, which is then stored securely and permanently. This provides potential recruiters the reassurance that all information is accurate. The verified CV can even contain a verified identity using biometrics.

Once verified using blockchain, the information never needs to be verified again, making the hiring process faster for both the candidate and potential employers.

Blockchain – The Cons

Hacks are still possible. And hackers can cripple nodes, stopping them interacting with others on the network. If the crippled nodes can’t view the ledger, the hacker can change it if they see fit. This is called an eclipse attack. But thanks to the difficulty in hacking the network, it’s less likely than the security problems we see in our current systems.

Transactions are irreversible, so any incorrect data added to the ledger is harder to fix. The network relies on people inputting correct data. But that’s a con that applies to any form of data collection. Perhaps developers can create additional accuracy checks before data writes to the network.

MarketWatch points out the nature of blockchain should make it a trustworthy technology. But it’s still new enough that companies find it difficult to trust. It’s also often misunderstood. Many technologies are before they become commonplace.

Also, few places currently accept cryptocurrencies for payment. With little to no regulation of cryptocurrencies, the market is volatile. That’s not to say it won’t be adopted. It’ll just take a while the catch on.

And blockchain sounds like a great idea for identity purposes. But it’s still unclear how a government would accept an identity onto the network. Especially since current forms of biometrics aren’t practical for newborn babies.

Speed and Sustainability

Blockchain transactions take time to process. The distributed nature of the data and the encryption involved takes its toll. For ordinary people, those transactions are slower than payment forms like credit cards. The benefit of blockchain isn’t immediately obvious to people in the street.

And as networks log more data, and more computers write data to each network, they’re likely to slow down. Processing speeds will eventually improve. But until they do, it makes blockchain a hard sell for companies who prize speedy transactions.

A less obvious disadvantage of blockchain is its computational cost. It takes a lot of computing power to run a network. All that power needs energy. That makes blockchain a technology with a negative impact on the environment.

What’s the future for blockchain?

At this stage, it’s too early to say. It offers some advantages, like security and protected data. But it also poses risks, like offering anonymity, and could end up sluggish if networks grow too large.

Without enough early adopters, it’s difficult to see widespread uses of blockchain. Until companies understand and trust the system, it’s likely to remain divisive.

That said, these cons are incredible opportunities for innovators and startups. With so many possible uses of blockchain, overcoming the current limitations is a huge area for potential growth.

What do you think the future holds for blockchain?

The header image is reproduced curtesy of pixabay (Link) and is CC0 Creative Commons.