Blockchain has become a buzzword for quite some time in the crypto world. It is a distributed digital ledger that records transactions maintained by a network of computers in a way that makes it difficult to hack or alter. Easy, right?
Well, that is not all, as there are quite a few myths and misconceptions that exist around blockchain which need to be addressed soon!
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Can blockchain be tampered with? Is it efficient enough? Is blockchain the same as bitcoin? Let’s find out.
Since the introduction of Bitcoin in 2008, the terms blockchain and cryptocurrency have been used interchangeably. However, despite their strong ties, they don’t mean the same thing.
Bitcoin is a cryptocurrency that can be exchanged directly between two people without the involvement of any third party such as a bank. Whereas as mentioned above, Blockchain enables peer-to-peer transactions to be recorded on a distributed ledger throughout the network.
Even though Blockchains significantly increase the difficulty for a bad actor such as a hacker to access or change information, they are not 100% unhackable. Transactions made to a public/permissionless blockchain cannot be changed. However, private/permissioned blockchains do not inherently have that property because they lack a consensus algorithm, and an administrator can make changes by the nature of being permissioned.
Thus, public blockchains are vulnerable at the points where data is stored off-chain.
This is one of the most popular blockchain myths that can puzzle any newcomer. In reality, public blockchains are not the only type of blockchain. There are other types of blockchains, such as hybrid and private blockchains, which are also appropriate for use in various cases.
The invention of Bitcoin has caused a phenomenon across all private enterprises and financial institutions known as permission blockchain. It is also called a private or federated blockchain. Several ledger technologies one discovers in the current world involve various blockchains. They are public, but some permission blockchains are private.
The blockchain only records the public address of a user’s wallet while abstaining from disclosing the wallet owner’s name. Besides that, the employment of cryptocurrencies to make payments for illegal purposes can be traced. Furthermore, if a person can link the wallet’s public address with a person’s real-life identity, the former can trace the whole list of blockchain transactions related to that address.
Cryptocurrencies do not provide complete anonymity. Every transaction has an audit trail and can be traced back to its source. Despite the fact that some central banks are skeptical of the value of cryptocurrencies as a product, numerous websites accept them as genuine payments. As a result, they are neither anonymous nor illegal.
This mostly depends on the structure of the blockchain. Permission blockchains are usually more energy-efficient and cost-effective when compared to their alternatives. This is because blockchains contain a consensus mechanism known as proof of work (PoW), traditionally associated with permissionless networks mining cryptocurrency. However, permission networks and even some permissionless networks use consensus mechanisms other than PoW.
The fact that the Bitcoin network, which had transaction prices as high as $US55 per Bitcoin in late 2017, can only perform an average of 4 transactions per second (TPS), which barely registers in contrast to Visa’s daily TPS of 1,800 with a peak capacity of over 65,000TPS, reinforces this misconception.
As blockchain becomes more widely used in society, education is essential for the community to be able to see through the hype.
Only when value is connected to activities that have actual community benefits can the real promise of technology be realized. With respect to possible cyber security concerns, vigilance is also required, as is an understanding of the technology’s existing limits.
Thus, as we unveil certain myths and misconceptions about blockchain, we get a more accurate description of blockchain technology! Moreover, since its inception, blockchain has gained wide success. Therefore, we hope this article gave you a clear understanding of what blockchain technology is and is not.
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