Albeit Bitcoin was introduced almost a decade ago by the pseudonym, Satoshi Nakamoto, it hasn’t gotten so many people attention until a couple of years ago. Of course, the significant rise in Bitcoin is also due to the fact of the blockchain technology that was behind it and many other cryptocurrencies.
Despite a great traction and increase in the popularity of the blockchain technology, there are still people who think that the blockchain technology is not so a cool idea and its disadvantages weigh more than its advantages. Today, in this post, will take a good look at the blockchain technology and its key advantages and disadvantages.
What is Blockchain Technology?
“The blockchain is an indestructible digital ledger for keeping track of economic transactions which can be programmed to maintain not only financial transactions but virtually everything that has value.” Don & Alex Tapscott, authors Blockchain Revolution 2016.
Now this means that this decentralized ledger is not controlled by any financial institution or government for that matter. In fact, it can be accessed by everyone who has a good internet connection. Other than virtual currencies, there are many companies such as messaging apps, critical infrastructure security, ride sharing, cloud storage, etc. are harnessing the power of blockchain technology.
Advantages of the Blockchain Technology
Despite the fact that the blockchain technology is a new idea, it has proven its worth and significance in a very short period time. Here’s a list of some key advantages of the blockchain technology.
1. Zero Percentage of Fraud
Since blockchain is an open-source ledger, each and every transaction will be made public and hence there will be no chance of fraud taking place. The virtue of the blockchain system will be constantly monitored by miners who keep an eye on all kinds of transactions around the clock.
As a matter of fact, there are thousands of miners who validate every single transaction all day all night. Therefore, the virtual currencies based on blockchain will get a hell of a lot of supervision and this makes them almost impenetrable to fraud.
2. No Government Interference
The government or any financial institution has absolutely zero control on virtual currencies that are based on the blockchain technology whatsoever. Hence there will be no meddling with by the governments. The government interference has often led to the devaluation of various currencies and a good example for that is the latest Zimbabwean Dollar.
Regardless of the nation and currency, one of the top problems, when governments meddle too much with the currencies, is that they end up either with inflation or hyperinflation by degrading and/or printing too much currency in a short period of time. As the blockchain is a decentralized online ledger, it’s next to impossible for governments to interfere and take any action on cryptocurrencies.
3. Instant Transactions
The virtual currencies/digital currencies that are based on blockchain offer transaction times that are 10 X faster than the usual bank ones. For instance, if a transaction has made to some person who has a different bank account then it will take minimum two days for the transaction to complete. However, blockchain transactions will be usually completed in just a few minutes.
4. Improved Financial Efficiency
The blockchain technology lets individuals and companies make transactions directly to the end user without involving any 3rd-parties. This greatly enhances the financial efficiency in every nation and lets people be less dependent on financial institutions and/or banks. Not only will this save a lot of money for people in terms of fees but also other related expenses with utilizing banks.
Disadvantages of Blockchain Technology
Just like every coin has two sides, blockchain technology also has a few disadvantages. Here’s the list of some of the key disadvantages of the blockchain technology.
1. Extremely Volatile
The virtual currencies that are based on blockchain technology are highly subjected to extreme volatility. Of course, one good example for that is the fluctuating prices of Bitcoin that vary from day to day. One of the reasons behind that extreme volatility is that both the decentralized blockchain technology and the virtual currencies are extremely new to the market. Which means that the companies, investors, governments, and other groups adopting or not adopting them will greatly affect the volatility.
The Bitcoin price dropped $200 on the day when China decided to ban on companies from raising ICOs in 2017. This is a huge drop and this kind of volatility is bothering people who are thinking of investing in Bitcoin or any other cryptocurrency for that matter.
Because of the anonymity that exists in decentralized blockchain and virtual currencies which rely on them, they have become a second home for all illicit transactions. One good instance for that is “Silk Road,” a digital black market. People utilized this platform to things like illicit transactions using blockchain-based virtual currencies. Nonetheless, the FBI shut this place down after learning its existence. Even it was shut down, many people still think that this decentralized technology is too attractive to lawbreakers.
3. Problem for Not Tech Savvy
Storing virtual currencies that are blockchain-based are a big headache for people who are not-so tech savvy. Usually, secured storage is easy for users who are familiar with technology. As a matter of fact, it can be accomplished simply via buying “Cold storage” wallets like Trezor. Nevertheless, people who cannot handle technology might face a problem with creating a Bitcoin or Ethereum wallet and then transferring coins from a digital wallet to a cold storage wallet.
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Therefore, many people who own cryptocurrencies are storing their coins on the exchanges. This could be a problem for users as eavesdroppers often target cryptocurrency exchanges and one example for that is Mt. Gox. As a result, the exchange had lost $460 million.
Some believe that it will help in creating cryptocurrencies which will become a potential rival to precious metals while others believe that it is soon going to burst like a bubble and nothing more. Nonetheless, blockchain technology is one of the incredibly creative inventions that technology has ever seen. So how we use it is up to us.
While the debate is still going on its potentiality and challenges, some companies such as Overstock.com and Tesla have already started accepting virtual currencies that are based on the blockchain. However, it is still not apparent what the retail leaders like Amazon and eBay would do with the cryptocurrency acceptance. But if they start accepting then it could indeed transform the global scenario.