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The Myth and Reality of Blockchain

Blockchain is an innovative technology which provides data integrity and reliability. It is said that blockchain may replace traditional database systems in various fields. However, we all know that any kind of technology has pros and cons, so the reality is that there is no one-size fits all approach for leveraging blockchain. Thus, the both, blockchain and the traditional database system must complement each other. Here we would like to pay some attention to misconception and excessive expectations of blockchain.

1.Blockchain is a global decentralized supercomputer.

Even if you have heard the word “blockchain”, you may not have a firm grasp of the true meaning of it. Those who haven’t investigated it may assume that blockchain is a global decentralized supercomputer. Blockchain was first created during the course of Bitcoin development and is a core technology to support Bitcoin, cryptocurrency to trade on the internet.

How does blockchain work-simply Explained:

・They verify the same transactions in accordance with the same rules and perform identical operations.

・They record a certain number of transaction information in one block.

・They link this block to the latest block on the chain which contains entire information to that date.

・They store the entire history ( All computers have the same information all the time.)

As explained above, “blocks” that contain transaction records are linked to each other like a chain in proper, it is called blockchain.  Blockchain data is not managed by a specific computer or sever, distributed network of millions of computers worldwide are managing them.  This network does not perform any parallel processing, cooperative work and offer mutual support. Blockchain helps to prevent the risks of data tampering by making millions of copy of the same data and sharing them.

2.  Blockchain is anonymous and transparent, which protects our privacy.

When cryptocurrency transaction takes place on blockchain, the address appears as encrypt codes and the address does not link with the personal information. In this sense, blockchain is anonymous. The traceability is excellent as all transaction information is recorded on blockchain and its open network nature enables complete transparency.

Nevertheless, if the transaction took place between acquaintances, the cryptocurrency amount they hold and transaction histories can be found out as the address and the owner of the address are linking up. Suppose you used cryptocurrency at a shop, the sale amount by cryptocurrency would be leaked completely as you obtain the address of the shop. This is only a personal level, but if this happens between companies, their trade histories can be on full display, which means their contacts and sale information can be disclosed. In this sense, it is hard to say that blockchain is used to protect privacy by applying for anonymity.

3. Blockchain cannot be disrupt as it is not controlled by one central authority.

No individual or organization does not control or manipulate the leading cryptocurrency Bitocoin and it is not depending on the specific server on the system, so it cannot be shut down.

Today, it has become close to impossible for a single individual person to mine Bitcoin on their own, a specific machine is required to do so.   Moreover, in order to win mining competition, miners form a larger mining pools and carry out the task.

Estimated distribution of computing capability among large mining pools

blockchain.info

The pie chart above indicates the market share of the top groups (approx. 20) of large mining pools.  It clearly shows that top 4 groups account for more than 50% of total computing capability. If a single group dominates the more than half of computing capability, fraudulent activities could be justified and mining monopoly could be engaged.

4. Blockchain is extremely effective and highly scalable, so legal currencies eventually will disappear.

Legal tender is issued by each country, however, cryptocurrency literally do not exist in any tangible form.  It is issued as a form of data and its transaction is managed on internet.

Cryptocurrency is considered to have various benefits such as “able to send money directly to an individual” “cheap transaction fee” and “no complicated processes and limit”. The American investment magazine “BARRON’S” issued in May this year reported that cryptocurrencies will eventually certainly replace fiat currencies.

However, unlike cash payment, cryptocurrency transaction has a time lag after sending the currency, because the system is designed in such a way that reliability is obtained by checking the validity of transaction and gaining the approval. As the number of cryptocurrency transactions increases, the length of time to gain the approval takes longer, which means a time lag after sending currency takes longer.

The transaction on the leading cryptocurrency Bitcoin blockchain generally reflects, verifies and approves every 10 minutes, however, when the number of transaction increases, approval takes longer than usual and the whole process could take more than 10 minutes. In reality, the records regularly rollback to improve the security of payment, therefore, generally waiting time is over 50 minutes after the new transaction is recorded. It is not practical if it takes that long to make a payment.

Blockchain has another problem. The large number of transactions with the increase of user number generates scalability issue. Scalability is the capability of a system to handle a growing amount of work and its potential to be enlarged to accommodate that growth. The problem is that the number of transactions exceeds the limit in data size of each block on the blockchain. Just imagine that heavy rain(transaction) causes rivers(blockchain) to overflow. In order to solve this problem, it is possible simply to increase the block size and the speed for creating blocks, but this may cause big issues including the problem with security levels. Therefore, solutions need to be developed carefully.

Volatility is another problem with cryptocurrency. As a matter of fact, the price movements in the cryptocurrency market for one month surpassed stock market volatility for 4 years. Generally, people believe that high volatility is high risk.

Unless these problems are solved, it may be difficult for Bitcoin to be widely used as a currency for everyday use.

It is attractive that cryptocurrency transfer is faster than international bank transfer, however, users must be aware that there is a certain time lag in cryptocurrency transfer.

For instance, Visa process thousands of transactions within one second and the number of process can be easily increased according to the needs. In essence, the conventional banking technology is excellent in scalability. Even if legal currency is disappeared, the cause is not only cryptocurrency based on blockchain technology.

Summary

The amount of information about blockchain such as “blockchain technology changes across an array of industries.” is increasing, but is it right to believe media information?

Blockchain technology is not limited to just cryptocurrencies, it is deployed into variety of sectors nowadays.  It is important that not to think blockchain will solve everything and not believing media hype. While understanding the pros and cons of blockchain, new technology should be implemented in proactive manner.

Our cryptocurrency Proteusion is implemented blockchain technology and near future, it is expected to put it to practical use of transferring.

References:

https://www.forbes.com/sites/rachelwolfson/2018/05/02/tim-draper-on-the-future-of-cryptocurrency-his-new-book-and-why-bitcoin-will-hit-250000-by-2022/#5315ac322d71

https://www.techrepublic.com/article/the-5-biggest-blockchain-myths-debunked/

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