Blockchain technology is only 10 years old. In that one short decade, millions of dollars have been spent on the research of its merits and possible real-life use cases, hype has surrounded it, has been referred to as best thing since sliced bread, has threatened to disrupt the financial system, and traditional big tech companies such as Facebook, Amazon, IBM, Microsoft, etc. have shown interest in the new distributed technology.
While this is enough to get professionals such as developers or entrepreneurs aroused, the most important and sometimes overlooked question that needs to be asked is: “why use blockchain?”
Have the legacy systems failed? Is the blockchain – just a distributed database – better than a traditional database? Is the blockchain applicable to everyone or business?
Some will even argue that the migration from the traditional system to the blockchain is costly, labor-intensive, and may cause unnecessary downtime for business.
Yet, despite all this, the proponents of blockchain technology are convinced that the invention of the mysterious Satoshi Nakamoto is the future.
Why use blockchain technology
In this article, without favoring one side of the argument over the other, we outline why using blockchain technology may be good for individuals, businesses, or organizations.
Going back into history, we realize that banks have been created to lower uncertainty between two transacting parties. Banks and other financial institutions are bridges that allow transacting people to trust each other so that they can exchange value.
Using blockchain technology allows two parties to exchange value with a higher level of trust and zero intermediation by third parties. Blockchain technology helps to form new digital relationships.
Security and data privacy
We are living in a world where almost everything is moving from paper to the digital format. This is the era in which we can ‘save more trees’ due to advances in technology.
As we migrate to an online world; more personal data is exposed and under threat from bad actors who can sell it on the darknet or use it for identity theft, fraud, blackmail, etc.
The protection of personal data is as important as ever.
However, this is difficult to achieve as the data is stored on centralized servers that are prone to hacks and attacks. The data on these databases can also be tempered with, thereby reducing transparency and the authenticity of the stored data.
Blockchain provides a way to effectively tackle these challenges.
Blockchain technology relies on a large number of computers connected together to keep records of the data stored on them. There is no single computer that can be targeted by hackers.
This makes the blockchain a secure network – a lot of computing power is required to hack the network. This is technically possible but it is too expensive and the rewards of the hack are generally not worth the expense.
Blockchain technology provides data resilience to organizations and companies because the same set of data is stored on thousands if not millions of computers dotted around the world. The organizations do not need to worry about data corruption or downtimes as there are several copies of the data.
If one of the computers on the blockchain network decides to call it quits, the remaining computers will continue to function without any disturbance.
A blockchain network is maintained by decentralized nodes spread across the globe and this eliminates the costs for hosting, security, and maintenance. Companies and individuals who use blockchains do not rely on third-party service providers. This lowers their cost and could mean that end users have to pay less for services that could otherwise cost more.
Accountability and traceability
Many companies in industries ranging from mining, agriculture, food processing, etc. are turning to blockchain for their supply chain management. This means that consumers can track the history of the products they want to purchase.
As an example, De Beers, one of the largest companies in the mining industry conceived Tracr, a blockchain project that traces diamonds from the mines to the jewelry stores. This can potentially reduce the amount of “blood diamonds” in circulation.
Blockchains protocols, particularly Ethereum, Tron, EOS, etc. are used by developers to build decentralized applications (Dapps) to circumvent the problems found in traditional apps.
Dapps transactions store their data and relevant information on the blockchain and remove the need for a central location that can fail and inconvenience the users of the apps.
Can you hack a blockchain?
Blockchains have been touted as the next generation databases and questions about their security are on the spotlight as a result of exchanges that have fallen victim to hacking attacks.
Japan’s cryptocurrency exchanges have lost almost $1 billion in hacks.
We will start by saying that it is theoretically possible to hack a blockchain but the reward may not be worth the effort.
Secondly, the hacks of some of the exchanges is not a reflection of the security strength of the blockchain but the exploitation of vulnerabilities found in the exchanges.
A good example is the infamous DAO attack in which almost $50 million was siphoned by the attackers who exploited a vulnerability in one of the smart contracts and had nothing to do with the blockchain as a whole.
Use cases of private blockchains
The majority of blockchain protocols utilized by digital assets are an example of public blockchains. There are also private blockchains which are run and maintained by private companies. While there are debates on the relevance and importance of private blockchains, they have a number of credible uses cases.
A private blockchain can be used in an organization in which the members are geographically distributed and there is a lack of trust among the members.
This type of blockchain is also useful in an organization with a history of corruption that goes undetected.
Governments can make use of private blockchains to better track their finances and be more accountable to the people.
Is blockchain always the solution?
Many people see blockchain technology as a solution in search of a problem. The blockchain does not always provide the best solution to a problem and companies have to sit down and ask themselves if they truly need to use the blockchain.
There are cases where the blockchain is ideal and there are cases where it is not.
For many, blockchain technology provides them with an opportunity to introduce its own currency and incentivize their customers.
We are still in the experimental phase of the technology in which we are yet to know the true limits of its possibilities. For now, the technology has been used to manage and secure digital relationships.
What we truly know so far is that the blockchain promotes transparency and efficiency.