Advantages and disadvantages of blockchain

Most blockchains are designed as a decentralized database that acts as a distributed digital ledger. These blockchain ledgers record and store data in the form of blocks, which are organized in chronological order and linked by cryptographic proofs. The birth of blockchain technology has brought many advantages to various industries, able to provide higher security in a trustless environment. However, its decentralized nature also brings some disadvantages. For example, compared to traditional centralized databases, blockchain has limited efficiency and requires increased storage capacity.

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Advantage of Blockchain

1. Distributed

Since blockchain data is typically stored in thousands of devices on a distributed network of nodes, the system and data are highly resistant to technical failures and malicious attacks. Each network node can replicate and store a copy of the database, so there is no single point of failure, i.e. a single node going offline does not affect the availability or security of the network.

In contrast, many traditional databases rely on one or more servers and are more vulnerable to technical glitches and cyberattacks.

2. Stability

Confirmed blocks are less likely to be revoked, which means that data, once registered in the blockchain, is difficult to delete or change. This makes blockchain an excellent technology for storing financial records or any other data that requires an audit trail, as every change is tracked and permanently recorded on distributed and public ledgers.

For example, businesses can prevent employee fraud through blockchain technology. In this case, the blockchain can provide a secure and stable record of all financial transactions that take place within the company. This will make it harder for employees to hide suspicious transactions.

3. Trustless system

In most traditional payment systems, transactions rely not only on the two parties involved in the transaction but also on intermediaries such as banks, credit card companies or payment providers. With blockchain technology, there is no need for an intermediary, because a distributed network of nodes validates transactions through a process called mining. For this reason, blockchains are often referred to as “trustless” systems.

Therefore, the blockchain system eliminates the risk of trusting a single organization and also reduces overall costs and transaction fees by cutting out intermediaries and third parties.

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Disadvantages of Blockchain

1. 51% attack

The proof-of-work consensus algorithm that secures the Bitcoin blockchain has proven to be very effective over the years. However, blockchain networks may be subject to certain potential attacks, with the 51% attack being one of the most discussed. Such an attack could occur if a single entity manages to control more than 50% of the hashing power, ultimately allowing a malicious attacker to disrupt the network by deliberately excluding or modifying the order of transactions.

While theoretically possible, there has never been a successful 51% attack on the Bitcoin blockchain. As the size of the network increases, so does security, and miners are less likely to devote large sums of money and resources to attacking Bitcoin, as they will be rewarded higher for acting honestly. In addition to this, a successful 51% attack can only modify recent transactions for a short period of time because blocks are linked via cryptographic proofs (the computational power required to change an earlier block is unimaginably large). Additionally, the Bitcoin blockchain is highly resilient and can quickly adapt to attacks.

2. Data modification

Another disadvantage of blockchain systems is that once data is added to the blockchain, it is difficult to modify. While stability is one of the advantages of blockchain, stability is not always good. Changes to blockchain data or code are often very demanding and typically require a hard fork, where one chain is deprecated in favor of another.

3. Private key

Blockchains give users ownership of their cryptographic units (or any other blockchain data) through public key (or asymmetric key) cryptography. Each blockchain address has a corresponding private key. While addresses can be shared, private keys should be kept secret. Users need a private key to access their funds, which means they act as their own bank. If the user loses their private key, the money is effectively lost and there is nothing they can do about it.

4. Inefficient

Blockchains, especially those using proof-of-work, are very inefficient. Since mining is competitive and there is only one winner every ten minutes, all other miners’ efforts are in vain. As miners continue to try to increase their computing power, they have a better chance of finding a valid block hash. The resources used by the Bitcoin network have increased significantly over the past few years, and it currently consumes more energy than many countries, such as Denmark, Ireland And Nigeria consume even more.

5. Storage

Blockchain ledgers can get very large over time. The Bitcoin blockchain currently requires around 200 GB of storage space. The current growth in blockchain size appears to be outpacing the growth of hard drives, and if the ledger is too large for individuals to download and store, the network risks losing nodes.

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Conclusion

Despite its shortcomings, blockchain technology also has some unique advantages, and it is bound to continue to exist. We still have a long way to go in mainstream adoption, but many industries have begun to take the advantages and disadvantages of blockchain systems seriously. In the coming years, businesses and governments are likely to experiment with new applications, exploring where blockchain technology can add the most value.

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