Blockchain for Business: Advantages and Disadvantages
What every businessman should know about blockchain
Advantages
(i) Disintermediation Many businesses processes involve complex interactions among multiple individual or institutional intermediaries that are intended to serve as a check on one another.
In a blockchain network, careful planning can allow cryptography and consensus mechanisms to take the place of human judgments about trust, just as they do in the Bitcoin network. In some cases, Nakamoto’s full objective — the complete elimination of the trusted third party altogether — may not be possible or desirable.
But blockchain developers need not go that far to obtain benefits from the decentralizing of trust. Some permissioned blockchains may include nodes with different levels of privileges and specifically crafted for limited purposes.
For example, on the Ethereum platform, all nodes perform all the computations in every processed transaction; a permissioned blockchain, by contrast, could identify a smaller subset of highly capable nodes with more storage and processing power to perform this function.
Similarly, instead of all nodes participating in the establishment of a network-wide consensus, a permissioned blockchain could identify a limited set of highly trusted
nodes charged with doing so, while still implementing some of the ideas that make public blockchains so robust.
(ii) Transparency and Immutability The basic operation of a blockchain system is the creation and addition of vali- dated blocks to a chain of prior blocks. These blocks provide a complete record of all transactions and operations processed by the system. Cryptography ensures that blockchain records, once recorded, cannot be forged or altered.
(iii) Resiliency Blockchains distribute the responsibility for storing and processing information across multiple nodes in a networked system. In doing so, they reduce the number of possible points of failure, or points of attack from malicious third parties.
(iv) Automatic Rule Enforcement The nature of blockchain systems disallows certain kinds of errors and malfeasance that, in other systems, might require specialized code or human intervention. In the Bitcoin system, for example, there is no need for precautions against counterfeiting or overdrawing an account; these things are simply incompatible with the operation of the system. Similarly, smart-contract code on a plat- form like Ethereum executes as written even if the author of the code or the originator of the relevant transaction no longer wishes or intends it to do so.
(v) User Autonomy Blockchain systems can allow users great autonomy in the control over their own transactions. In the Bitcoin network, for example, as long as the network continues to operate, there is no way to prevent a user from transferring Bitcoin (BTC)s or to force an unwanted transfer without the user’s private keys. Similarly, beyond Bitcoin, in any blockchain using digital signatures to validate authorized transactions, the initiation of transactions will be entirely under the control of the party with possession of the appropriate keys.
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(i) Performance and Resources The features that provide blockchain technology its advantages come with performance and resource costs. The most obvious cost in the Bitcoin system is the proof-of-work consensus mechanism, which requires enormous and growing dedicated computational resources, using large amounts of energy.
Other blockchains might adopt less computationally intensive consensus mechanisms, such as proof of stake, but even they can impose large costs in storage, computing power, and network bandwidth. The most basic characteristic of a blockchain system — the maintenance of multiple copies of the chain at every node — makes the system resilient, but imposes significant storage costs. Even digital signatures, which provide the assurances of identity and authority we need for every transaction in a blockchain system, can be computationally costly to calculate. For these reasons, and as a general matter, blockchain-based systems perform much more slowly, and use far more energy and computing resources, than systems based on centralized ledgers. Perhaps more important, blockchain systems that perform adequately under moderate loads — the Bitcoin system is an
example — are notoriously difficult to scale up to handle much higher volumes of transactions.
(ii) Complexity, Errors, and Vulnerabilities Blockchain systems are highly complex and difficult to develop. Moreover, the de- sign and programming of smart-contract systems utilizing blockchain systems is a separate source of complexity. Large programming projects, of course, are almost certain to produce significant bugs and vulnerabilities that can lead to execution flaws or exploitation by malicious actors. The successful public blockchain sys- tems, such as Bitcoin and Ethereum, have benefitted from long periods of design, review, and testing, and now from an extended period of live use, and therefore are freer from such issues in comparison to less tested smart-contract code executed on such systems as well as private blockchain systems themselves.
(iii) Privacy The operation of blockchain systems creates inherent privacy risks. The blockchain itself contains a full and detailed record of every transaction processed using the system, and the consensus mechanism of the system ensures the replication of that full record across multiple nodes of the system. These risks do not necessarily prevent the use of blockchain technology for sensitive information, but they do need to be accounted for, and they add complication to the design of the system.
Published at Sat, 08 Feb 2020 14:35:52 +0000
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