Advantages of Blockchain | disadvantages of Blockchain technology
This page covers advantages and disadvantages of Blockchain technology. It mentions Blockchain technology advantages or benefits and Blockchain technology disadvantages or drawbacks. It covers blockchain definition and working of blockchain technology.
What is Blockchain technology?
• A blockchain is a peer to peer distributed ledger which is cryptographically secure, append only, immutable and updated only via consensus or agreement among peers.
• Blockchain is a digital decentralised ledger which keeps record of all transactions that have taken place across peer to peer network. Its records are stored securely across number of interconnected systems. As there is no single point of vulnerability, blockchain technology is resilient.
• Each block in uniquely connected to its previous blocks via digital signature which makes it impossible to change in any record without affecting the previous records. This renders the information tamper proof.
• Blockchain technology allows its participants to transfer assets across the internet without the need of centralised third party.
• Example: Bitcoin
Types of blockchain:
Blockchain network can be divided into public and private networks based on who is authorized to participate.
Public: There is no restrictions on number of people joining the network and it operates in decentralized open environment. It is similar to internet.
Private: It operates within confinement defined by controlling entity. It is similar to intranet.
How Blockchain works?
The figure-1 depicts working of blockchain technology. and figure-2 depicts money transfer process through blockchain network. As shown Blockchain works by validating transactions through a distributed network in order to create a permanent, verified and unalterable ledger of information.
Benefits or advantages of Blockchain technology
Following are the benefits or advantages of Blockchain technology:
➨Shared Ledger: It is an append only distributed system shared across the business network. Hence it is resilient as there is no single point of failure.
➨Consensus: A transaction is only committed when all parties agree to network verified transaction.
➨Provenance: The entire history of an asset is available over a blockchain. This decreases chance of fraud.
➨Immutability: Records are indelible and can not be tampered with once committed to the shared ledger. Hence this makes all the information trustworthy.
➨Finality: Once a transaction is completed over a blockchain, it can never be reverted back.
➨Smart contracts: Code is built within a blockchain which computers/nodes execute based on triggering event.
➨Security: Information is secured using cryptography.
Drawbacks or disadvantages of Blockchain technology
Following are the drawbacks or disadvantages of Blockchain technology:
➨A transaction is dependent on multiple intermediaries and their presence. This increases cost and complexity of transaction.
➨Regulation is biggest challenge for non-fiat currency as rate of technical innovation is faster than regulations.
➨Scalability is another limitation due to size of public blockchain.
➨Capacity is another concern as in order to have a dense network, big number of tracks are needed. The problem here is that each of these tracks must be rooted in the blockchain.
➨Also refer advantages and disadvantages of Bitcoin >> for more information.