10 Common Misconceptions About Blockchain — Exscudo Blog

The blockchain technology is a hype. This increased public interest comes with many myths and misconceptions. Depending on their attitude, people may see blockchain as a panacea for all social and economic issues or a threat to the existing order. Let’s consider the 10 most common misconceptions about blockchain to understand what it is capable and incapable of.

Misconception 1: Blockchain = Bitcoin

Why non-specialists tend to use the words “Bitcoin” and “blockchain” interchangeably? First, these words sound alike to an untrained ear. Second, the blockchain technology got into the spotlight due to Bitcoin and its unprecedented price rise in 2017. Some of the early investors became millionaires and their amazing success stories caught the public imagination. Bitcoin and blockchain came to fame together and merged into one “get-rich-fast” thing.

Misconception 2: Blockchain = Finance

Actually, the tech has many potential use-cases outside the financial industry. A distributed ledger can store any kind of records. Potentially, many sectors can benefit from blockchain solutions: healthcare, supply chain, voting, land registry, real estate, energy supply, environment protection, disaster management, and more. There are even blockchain-based dating apps for those tired of liars and frauds.

Misconception 3: There’s One Global Blockchain

For instance, the Bitcoin blockchain seeks to ensure fast, cheap, and secure payments. The primary focus of the Monero network is financial anonymity, and so on. For every possible use case, there is a specific type of distributed ledger. Ideally, different networks should be able to talk to each other, but the problem of interoperability has yet to be resolved.

Misconception 4: Blockchain = Bank Killer

Much has changed since then. Though cryptocurrencies are still rather far from mass adoption, many banks are massively investing into the development of their own blockchain solutions. Obviously, the goal is not to disrupt themselves. On the contrary, banks and other financial service providers seek to move money in a faster, more secure, and friction-free manner. Last year, we watched a clear tendency for such cooperation and the trend is likely to persist in the future. Anyway, the list of big banks interested in applying blockchain is impressive.

Misconception 5: Blockchain is Public

You may see non-public networks as an effort to centralize the decentralized, but they are perfect for their purpose. For instance, private (or permissioned) blockchains are suitable for companies and organizations seeking to control who can become a participant and what exactly he or she will be allowed to do. Some members have more rights than others, according to their status in the system. For example, you may have a right to verify information or only view it.

Misconception 6: Blockchain is For Criminals

In its early days, Bitcoin got famous due to the Silk Road marketplace started by Ross Ulbricht back in 2011. Silk Road was operating in the darknet and allowed users to buy and sell drugs and some other illegal stuff for bitcoins. The marketplace operators were sure that BTC transactions were impossible to trace, but it was a mistake. Long story short, Ross Ulbricht was tracked and arrested by FBI agents and now serves his double life sentence in prison. This story received extensive media coverage in 2013, and it was the first time when many non-tech people heard of cryptocurrencies. As we know, first impressions are hard to change.

The second reason why Bitcoin and blockchain have a bad rep is the abundance of scam ICOs (Initial Coin Offerings) that emerged between 2017 and 2018. The founders of new blockchain platforms were persuading people to buy their tokens and get rich, just like the early Bitcoin investors did. The idea was so simple and inspiring that there was no lack of investors. Unfortunately, over 80% of these ICOs were scams that left many investors ruined and disappointed. Though it has nothing to do with blockchain as a technology, this story left an unpleasant aftertaste in many people’s minds.

Let’s repeat it once again — blockchain doesn’t equal Bitcoin and Bitcoin is not completely anonymous. There are “private” coins for it, but that’s another story.

Misconception 7: Blockchain = New Generation File Storage

Therefore, a distributed ledger cannot be seen just as a new-gen alternative to traditional databases holding physical information. Each solution has its advantages and disadvantages, depending on what you use it for.

Misconception 8: Smart Contracts = Traditional Contracts in Digital Format

The main difference between smart contracts and traditional ones is that smart contracts are not legally binding. Therefore, they mean nothing outside the blockchain they run on. It would be more correct to see them as digital tools, and not as an alternative to traditional agreements, written by lawyers. Because, if something goes wrong (though it’s highly unlikely), you won’t be able to sue the other party for non-payment. Not yet.

Misconception 9: Blockchain is 100% Immutable

We’ll let’s make it 99,9 %, because nothing is perfect. Speaking of Bitcoin, if over 50% of all the network’s mining power concentrates in the hands of one person (or a group), these users will be able to control the blockchain. This situation is called “51% attack”. This attack is very unlikely, but not completely impossible. Now you understand why so many BTC users are worried that the majority of the Bitcoin mining resources belong to several big mining pools.

Misconception 10: Blockchain Will Eliminate All the Intermediaries

When we say that blockchain will cut out intermediaries, we mean within this particular network. As we know, in a blockchain ecosystem trust is ensured by math. Thus, we don’t need any trusted third parties as long as we operate within our ecosystem.

But if we need to cooperate and communicate with the outer world or other networks, we need intermediaries for that. For instance, a blockchain platform dealing with digital ownership will rely on external intermediaries for providing this ownership data.

Yes, blockchain can make internal and external interaction much more efficient and speedy. But it’s too early to say that all the intermediaries will have to retire or be retrained for other jobs.

Common Blockchain Misconceptions: Conclusion

Originally published at Exscudo Blog. Check it out for more articles on crypto, blockchain, finance, trading, and technology.

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