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A layman's take on what makes blockchain technology so unique?

What makes blockchain technology so unique? Features and dangers.

Blockchain technology is still in its early stages but continuous improvements to its protocol are coming out frequently. The technology has been touted to disrupt the very fabric of the world’s industries, and make transactions more democratic, efficient, transparent and secure. It has the capability to simultaneously integrate multiple functions that are accessible from thousands of computers across the world at any given point in time. In part 1 of this article, we will look into the features of the technology that have made it stand apart.
Quick read : 10 Things You Should Know About Blockchain
Read why bitcoin is perceived as valued digital asset? 

Security, Immutability, and Transparency

One of the biggest problems with the digital economy is that of online security. The blockchain technology has addressed this issue by working on a consensual basis from all the network members for each transaction. All the transactions are permanently stored and cannot be altered or deleted by anyone. This makes it difficult for hackers to hack into the system, as all the transactions are not stored at one single point. The entire process is truly decentralized. Due to this characteristic, the blockchain technology finds its use in many other applications, such as for tracking ownership and the provenance of documents, smart contract and for other financial services. Ethereum blockchain is the current best implementation for smart contracts.
Immutability means once something is written and confirmed on blockchain it cannot be changed or reversed. The ledger cannot be changed without the consensus of all the participants. However theoretically, it still possible to penetrate blockchain network. To control the transactions in a blockchain, a hacker needs to be in control of 51% of the total hashing power. This is called 51% attack. Such attacks are very expensive as it is difficult (not impossible) to control 51 % of whole decentralized blockchain network. The blockchain technology is therefore almost immune to alterations making the technology secure and efficient.

Coming to transparency, every detail of all the transactions is stored in a general ledger. Anyone can tell the value of bitcoins stored in a publically used bitcoin ledger, only the identity of the owner being concealed from the rest of the network. There have been concerns raised by customers about the privacy violations that such a system entails, but users have come up with various techniques to conceal their identity. Users can create multiple accounts, and distribute their bitcoins across their accounts, thereby keeping their privacy protected. Having said that, there are already different variants of private blockchain that are either in active development and some are already rolled out. Monero is one such example of privacy coin and Nasdaq LINQ is first ever private securities issuance with blockchain technology can be an example of the private blockchain.

Endpoint vulnerabilities

One of the major problems with blockchain technology is that the DLT happens outside the network. Endpoints are the computers or the services that people and businesses use to use the blockchain technology. The transactions do not have a governing authority that looks over them, which increases the risk of endpoint fraud or other force-related transactions to be accepted by the network. The fact that once a transaction occurs, it cannot be undone is a problem in such a situation.

Untested at large scales

According to a Financial Stability Oversight Council (FSOC) report from the year 2016, the limited experience of the market in DLT industry means that limited experience in responding to the problems associated with it. The price of blockchain failures has been large enough for the market to respond and solve the problems associated with it, which is both good and bad. The FCOS report also talks about the possibility of fraud which is possible if a large number of blockchain accounts go under control of single entity (read hacker) at once. Although such an attack has not been thought of till now, with the growing value of the network and increased value of each transaction, such an event is possible in the future.

Lack of regulations

Governments around the world have been cautious of blockchain technology, which is due to the fact that there are no rules or regulations that are possible to be laid down on the industry. To fully do away with the risk of fraud and malpractice and to minimize the endpoint vulnerabilities, governments at some point need to lay down regulations and laws so that the blockchain technology gains more acceptance as a means of transactions.

Financial freedom

The financial freedom that the blockchain technology lends to all its users has never been seen before. The technology has the potential to alleviate global poverty problems, but at the same time provide serious threats to a government’s ability to enforce its policy goals. The issue of terrorism financing and illegal activities has also been cited by various reports. One part of the reason is that governments around the world have been slow to accept the blockchain technology is due to such potential hindrances. The blockchain technology may end up rendering economic sanctions and policy control ineffective.

Lack of consumer protection

Blockchain technology has not provided enough protection to individual consumers who might get cheated in the system. For transactions that go sour after the transfer has taken place, the only way for a customer to get his funds back is to convince the other party to agree to the reversal. Moreover, such transactions will take too much time as there is no legal mechanism to force the other party. Unless there is a fiduciary relationship among parties involved in the transaction, there is no way to undo the transaction. To undo the transaction means to perform an exact reverse transaction of the same value on the blockchain. In such a scenario, it becomes difficult for the blockchain technology to be trusted by governments and individuals. In order to take the technology to the next level on the global scale, some measures need to be taken that preserves a very core promise of trustless transactions on blockchain along with regulation so that general public interests are also protected.

What do you think? How can the blockchain technology be made better? Do let us know in the comments.

PC: Pablo,pixabay

By Rishabh Bhatnagar:
Rishabh is a law student with a passion for Blockchain / Cryptocurrency, Internet of Things (IoT), Cloud Computing, Artificial Intelligence, and Startups. He is an avid reader with a taste for writing. He likes learning about new things and is a writer at TechSutram.Opinions expressed by techsutram contributors are their own.

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