September 25, 2023

Ten misconceptions about the blockchain

Blockchain technology was greatly overestimated back in 2017. Everyone and everyone began to believe that blockchain will revolutionize everything, change the planet and bring millions to investors in incomprehensible ICOs.

This excitement and turmoil around cryptocurrencies made people believe in the crazy possibilities of blockchain technology.

Today, many people have a misconception about the potential of this technology, they consider it not what it is.

As I wrote earlier, blockchain is just a database structure with certain functions.

It allows many parties to record information and share it in real time, participants do not need to trust each other, they are motivated by tokens / currency for good behavior.

These are very specific properties for the database, they are of real use only in certain circumstances.

For example, they are ideal for suchcryptocurrencies like Bitcoin, as the Bitcoin blockchain offers people a cheap way to send funds anywhere in the world, bypassing banks and any other intermediaries.

However, blockchains are not quite suitable for any type of data storage and they are absolutely not suitable for solving a nonexistent problem.

In this article, I will debunk 10 myths about blockchain and its applications (for example, Bitcoin), in which both haters of blockchains and their admirers believe (in free order):

1. Bitcoin is not the largest fraud in history and not rat poison. Bitcoin is not dead

In 2017, some of the most influential people in the financial sector opposed Bitcoin, including Warren Buffett, Charlie Munger and JP Morgan CEO Jamie Dimon.

Like all new technologies, Bitcoin and the blockchain on which it is based have their drawbacks.

The consensus mechanism of proof of work consumes an incredible amount of electricity, and many people use the system for speculative and illegal purposes.

But to consider that blockchain will fail due to theseshortcomings is the same as saying in 1995 that the Internet will not be successful because it is too bulky, inefficient and disorganized.

Bitcoin has lived for ten years, despite the fact that he was prophesied death hundreds of times.

Maybe at first glance he does not inspire confidence, but Naval Ravikant interestingly spoke on this topic on Twitter:

“Bitcoin is a tool to free humanity from oligarchs and tyrants, which is hiding in the guise of a scheme for quick money”

To focus on the shortcomings of technology and call Bitcoin a fraud can only those who absolutely do not understand the capabilities of blockchain technology.

2. Bitcoin is not a way to increase the value of a company's shares

Kodak, Long Island Iced Tea and On-line Plc - vibrantexamples of companies that added the word “blockchain” to their name and instantly raised the price of their shares, although they did not think of any blockchain.

3. Blockchain is not a financial pyramid

Unless, of course, you are participating in the PonziCoin project, which is really a financial pyramid.

And you can’t say anything about Bitconnect.

4. Cryptocurrency is needed not only to scammers

Of course, there are many well-documented cases of hacking cryptocurrencies and associated scams, and this is one of the main problems of cryptocurrencies.

As I wrote earlier, hacker and fraudulent activities are ensured by the anonymity of blockchain technology.

But this is only an adverse side, not its foundation. The ISIS-banned terrorist organization in Russia uses social networks to recruit new members, however, this does not mean that Facebook and Twitter are to blame.

Pablo Escobar had so many US dollars that he threw them into the fire to warm his daughter. All drug trafficking is based on cash. But does that make cash bad?

5. Blockchain will not help your non-blockchain startup make money

If you read that some unknown company conducted an ICO and collected millions on only one idea, this does not mean that you need to do the same.

The meaning of the ICO is token distributionamong potential users, so they get motivation to use the blockchain. These tokens must have some use. If the startup is in no way connected with the blockchain, then tokens are not needed. Do not even think about making money from it.

6. Blockchain will not revolutionize your business.

There is no need to store data on the blockchain, unless, of course, your business does not need its personal benefits.

7. Blockchain will not revolutionize all industries in the world.

There was even such a saying: "It's like Uber for (the name of any industry)." This saying reached the blockchain sphere, companies are literally trying to create Uber on the blockchain.

But this is a small problem - not every industry needs a blockchain.

Let's say you do not like Uber, and you decide not to use Lyft, but to solve the problem using the blockchain.

A decentralized peer-to-peer sharing network sounds very tempting.

But in this case, you turn a blind eye to all the reasons why blockchain is the most inappropriate way to organize joint trips.

The nature of the public blockchain is such that no central authority controls it. Then who will make the decisions in this distributed company?

How to resolve disputes? Once data is downloaded and verified, it is distributed throughout the network. Paid for a trip you didn’t participate in? The driver did something wrong, what would you like to report? I'm sorry, but no one will listen to you.

And how to develop? How will a distributed company without a governing body compete with startups that have the largest sponsors in history in an already established market?

Even if a decentralized Uber could overcome all difficulties and create a working service, how much better would it be than ordinary Uber?

Today, Uber and other centralized travel apps work very well. And this alternative is only slightly better.

The possible benefits of introducing blockchain into many existing industries are not enough for users to change their behavior.

8. Blockchain is not a way to donate to Cthulhu

The less said about it, the better.

9. Blockchain is not a platform for memes

Dogecoin is the most famous meme currency, jokingly formed as a result of the Bitcoin fork in 2013. In 2017, its capitalization reached $ 2 billion.

10. Blockchain may be useful

Unless, of course, its token has at least some benefit.

What next?

I have listed all the misapplications of the blockchain, but there are ideal conditions for using it.

Blockchain is needed under the following conditions:

  1. A common database with only the ability to add new information.
  2. Many participants who can write data to it.
  3. Lack of trust.
  4. The need to eliminate intermediaries.
  5. Consensus and verification.

Oddly enough, but money is ideal for these conditions. Applications like Bitcoin are fully suited to these criteria. This is a fantastic application of blockchain technology.

Unfortunately, at least for 2018, not so many effective applications of the blockchain with wide demand have been created.

This does not mean that they will not appear, they simply have not yet been found.

This is the main essence of this article: blockchain is not a useless technology, it is not a savior of your business, economy, and all of humanity.

You need to understand the true potential of this technology and focus on what it really has to offer.