It’s widely believed that blockchain technology has the potential to usher in a new way of doing business, transfering value and ownership, and securing data. The World Economic Forum goes so far as to estimate that 10% of the global GDP will be housed on blockchain technology by 2025.1
With these kinds of high expectations comes intense public interest and speculation, leading to the generation of a number of myths and misconceptions around the application of blockchain technology. Online programmes such as the Oxford Blockchain Strategy Programme from Saïd Business School, University of Oxford will enable you to see through the fanfare and deduce the real value of blockchain in business applications.
Here are some of the most common blockchain myths and misconception to watch out for:
Blockchain myth 1: “The blockchain” exists
Often referred to in media as “the blockchain”, it’s easy for people to believe there is only one big blockchain that everything is attached to – almost like the internet. There are in fact multiple blockchains, each designed and developed by different people or groups for specific purposes.
The most widely-known blockchain databases like Bitcoin and Ethereum are some of the largest, and are publically available for anyone to participate in. Ripple is an example of a semi-private blockchain network, where participants have to progress through a measure of gating or privacy. There is also the possibility of countless instances of completely private blockchains, known about and operated by private parties.
It’s possible even for individuals to devise and create their own blockchains. But the process requires some preparation and resource expenditure, not least of which will be spent trying to raise awareness of your blockchain database and network – if you wish to challenge the likes of Bitcoin and other altcoins.
Blockchain myth 2: Blockchain is infinitely scalable
One of the biggest problems with blockchain usage as a transaction platform is the time it takes to complete blockchain transactions. High-volume cryptocurrencies are the perfect example of this shortcoming – take Ethereum and Bitcoin as examples.
While PayPal manages 193 transactions a second, and Visa manages 1667 a second, Ethereum and Bitcoin can only manage 20 and seven transactions a second respectively.2 There are two main problems causing this immense bottleneck:
- The time taken to place a blockchain transaction.
- The time taken to reach a consensus.
As the number of blockchain transactions on any given blockchain increase in line with rising popularity, the amount of time it takes for a transaction to be placed on a block increases as the miner holding that block is asked to perform more and more actions. In cases like Bitcoin transactions, these speeds can be increased by paying higher transaction fees to the miners in order to gain priority. But the average time it takes for a Bitcoin transaction to be confirmed while paying the lowest fees is still as high as roughly 13 minutes.
When reaching a consensus, all nodes on a blockchain need to confirm the transaction isn’t fraudulent, and that it completed successfully. To do this, each node surrounding the transaction node in question finds out about the blockchain transaction, runs its own calculations to confirm the transaction, and spreads the news to other nodes for further confirmation. As you can imagine, as a blockchain network grows, this trustless, universal confirmation process will take increasingly more time to perform.
Blockchain myth 3: Blockchain usage eliminates fraud
Because of the trustless, community confirmation-based nature of blockchain transactions, the chance of someone being able to make unauthorised changes to the information stored on one is extremely low. Due to this, the larger and more public a blockchain is, the harder it is to hack or synthetically implant false information on it. Essentially, the more information a blockchain database holds, the stronger that blockchain’s security is.3
However, this strong protection against altering information doesn’t apply to an original source putting something on a blockchain that shouldn’t be there – like an unauthorised seller placing a land transfer claim onto a block. The problem here is the anonymity, as anonymous users can’t prove they own anonymous property.4
Before blockchain usage can become ready to be adopted into mainstream business, fraud prevention, access management and confidentiality issues need to be addressed and dealt with externally to the blockchain itself. In essence: before blockchain usage can become the norm, blockchain security needs to be improved.
Blockchain myth 4: Blockchain usage is free
For this blockchain misconception, take the example of storing data.
Currently, storing data on a cloud server is the standard. Services like Google Drive and Google Cloud, Dropbox, Amazon S3, Apple iCloud and Microsoft OneDrive provide users with the ability to store near-limitless amounts of data on remote servers – for a price. These services either offer users the option of buying storage space per gigabyte, or paying a monthly subscription fee for all their storage needs. Once a user no longer needs the storage service, the files are deleted and the subscription is ended.
Data stored on a blockchain, however, is required by the nature of the blockchain to remain in existence as long as that blockchain is functional. This means that a subscription model isn’t viable, as forever is quite a long time, relatively speaking.
The Interplanetary Database Foundation (IPDB) exists with the aim of creating a decentralised database for the planet, and as such has done some extensive research into the cost of storing data on a blockchain.5
According to the IPDB’s sustainable storage model, users are required to make payment upfront, and need to cover all the costs included with indefinite storage. By their extensive calculations, the cost of storing data on a blockchain starts at US$100 per gigabyte, with a sharp fall off once their model reaches profitability in 2023. In comparison, businesses can get one terabyte of storage on Microsoft OneDrive with Microsoft Office for US$8.30 per user per month,6 Apple iCloud offers 2 terabytes at US$10 for an individual wishing to share with family members,7 and Google Drive offers businesses unlimited storage for US$10 per user per month.8
Blockchain myth 5: Blockchain will revolutionise banking
Traditional banking is feeling the heat, under increasing pressure from challenger banks and fintech innovations. So much so that 88% of incumbents are increasingly concerned they are losing revenue to innovators.9 To keep up with the pace innovators and challengers are setting, 77% of traditional banks expect to adopt blockchain as part of an in-production system or process by 2020.
While banks aim to employ blockchain technology to reduce costs and streamline processes to fight obsolescence, blockchain in its current iteration may not be the answeraccording to some. R3, a distributed database technology company that leads a consortium of more than 70 financial institutions, in the objective of researching and developing a distributed ledger for the financial system, admitted defeat after extensive trials. “We found that we didn’t want a blockchain, we wanted to be blockchain inspired,” saïd R3 Associate Director Clemens Wan.10
Blockchain myth 6: Blockchain has no business applications
Blockchain is often associated solely with the transfer of value, like a Bitcoin or Ethereum transaction. However, the secure, verifiable, and permanent record blockchain operates around holds applications far outside that narrow scope.
Take the transference of patient medical records as an example. The anonymous and secure nature of blockchain networks means that hospitals, medical practitioners, patients, medical suppliers, insurance companies can all send and receive accurate, verifiable information without fear of tampering or loss of vital information.
The potential of blockchain applications in healthcare is so large that IBM found 56% of healthcare executives planned to implement commercial blockchain solutions by 2020.11
Blockchain myth 7: Blockchain is a “disruptive technology”
It’s easy to believe that blockchain technology has the potential to revolutionise the spheres of business and government. But Harvard Business School professors Marco Iansiti and Karim R. Lakhani believe for true blockchain-led transformation to take place, many barriers will have to fall – meaning this reality is still many years away.12
The reason for their assertion is rooted in the belief that blockchain is not actually a disruptive technology, as many people think it is. Iansiti and Lakhani believe rather that blockchain is a foundational technology with the potential to create new foundations for economic and social systems.
While they agree the impact of blockchain will be monumental, they also believe it may take decades for blockchain technology to become widely adopted and to begin reforming our traditional economic and social structures.
Dispel the myths about blockchain usage
Blockchain technology has the potential to greatly change the way you do business and benefit your organisation, but without the correct understanding of how blockchain transactions and networks function you won’t be able to truly harness the power of blockchain technology.
The Oxford Blockchain Strategy Programme from Saïd Business School, University of Oxford will empower you with a foundational understanding of what blockchain is and how it works, as well as insights into how it will affect the future of business and your organisation.