Here’s an excellent plan for improving the financial affairs of all Mankind. All we need to do is add the word ‘blockchain’ to the name of every company/project/product. The shares will instantly rise by a minimum of 30%, which would certainly make everyone richer… Would it?
Of course, it wouldn’t work (precisely in the long-term). Blockchain is not just a word that makes you richer but a technology. Every technology has its range of use and its real capabilities, namely what it can do and what—not. Now then, an enormous amount of such hyping-on-blockchain companies have resulted in the fact that many people began attributing blockchain such properties and capabilities that it virtually cannot have. So, now I want to describe five of my favourite myths about blockchain.
- Blockchain guarantees that data is authentic;
- With blockchain every system becomes immutable;
- Blockchain can check any kind of data;
- Blockchain encrypts data;
- Blockchain replaces servers.
Blockchain guarantees that data is authentic
I have a true-life, short story in the context of this myth. Certain people applied to us to develop an accounting system built on the blockchain where you could enter the data about the latest stock index. Having got the question: “Why do you need blockchain here?”, they replied: “So that everyone would know the data is trusted”. A properly built protocol may only assure unchangeability of information that’s already on the blockchain. In other words, if a violator manages to record fake data in the database—it will be treated as authentically as the trusted one. Your data doesn’t become more trusted just because “It’s all on the blockchain!”:)
With blockchain every system becomes immutable
This myth has its roots in the fact that most people assign characteristics of Bitcoin to all blockchain-based systems. Bitcoin blockchain is immutable because many independent people validate it. But that’s not the case of every system that’s built on it. To take an example, four banks have decided to build a mutual blockchain-based system for their clients. It’s obvious that it wouldn’t be the Bitcoin blockchain—opened for everyone (public). It would be a private blockchain. So, all the four banks agree on the common rules of the system. Each bank holds their servers (nodes) that store full copy of the blockchain and perform transaction validation. Now, just think of it. Four entities managing one blockchain can technically conspire and rewrite the history as they wish to. Blockchain may only ensure the authenticity of the data that is accepted by the majority of validators. As you can see, client confidence is still essential here.
Blockchain can check any kind of data
This one is particularly interesting. Blockchains are only capable of verifying data which is directly related to the blockchain. One example is Bitcoin. All bitcoin miners can verify the entire chain of transactions along with the precision of the current balances. However, there’s no kind of blockchain that can certify that the price of some particular share was X dollars at a particular exchange on a particular date. As such, blockchain cannot verify that the soil temperature of the tulip fields in the Netherlands never fell below 0 degrees C in winter. As you can see, this myth is quite widespread, while the underlying idea can be proven wrong in the easiest possible way.
Blockchain encrypts data
Myth № 4. Blockchain isn’t a technology for ensuring the confidentiality of data; quite the opposite actually. There’s nothing that prevents including encrypted data in blockchains (or even in the future, using homomorphic encryption). So, by default encryption is not involved in the blockchain.
Blockchain replaces servers
Finally, we come to the fifth myth. Although many firms would be very keen to cut down the costs of maintaining servers and admin staff that manages them. However, blockchain won’t help you with this. With blockchain you can automate some or most of your business processes, but the servers aren’t going anywhere. Blockchain is a new way of managing the database. This ‘way’ allows you to increase such factors as fault tolerance, integrity, and non-repudiation of the database, significantly improve its uptime and get rid of the single point of failure of the system. Yet, you still need servers for maintaining such database:)