September 24, 2018
By: Jared Dorminey
Cryptocurrency mania has fueled interest in blockchain technology. Organizations from a wide range of verticals are investigating how to unlock blockchain’s potential, from finance and healthcare to aerospace and automotive. As organizations begin to explore the benefits of implementing blockchain, they must gain a clear understanding of blockchain’s capabilities and limitations, and be able to dispel the many myths about blockchain that are prevalent today.
Below are some of the most common myths about blockchain.
Myth #1: Blockchain is an excellent solution for data security.
When conducting a security audit, data analysts consider three aspects: confidentiality, integrity, and availability. While blockchain does an excellent job preserving data integrity by storing nearly immutable records, its decentralized nature creates challenges in the areas of confidentiality and availability.
A public, decentralized blockchain allows anyone to access the data it stores, making it a challenge to keep sensitive data confidential. It is possible to store confidential data on a private, permissioned blockchain, but centralized private chains do not provide the same level of immutability as public blockchains and can undermine data integrity.
The decentralized nature of blockchain helps ensure data availability as well, but impedes the speed at which data can be accessed. For instance, public blockchains may be fast enough to transact cryptocurrency, but are way too slow to support most user applications and could prevent users from being able to access data when they need it. Additionally, most blockchains are limited in the size and type of data that can be stored in each block. Many solutions point to data that is stored off-chain to overcome the storage limitations of blockchain, but this creates another potential point of failure in ensuring data availability.
Myth #2: Blockchain will eliminate the need for auditors and intermediaries.
Many evangelists believe that blockchain will eventually eliminate the need for auditors and intermediaries like banks, lawyers, and real estate agents through the use of smart contracts and distributed ledgers. While some auditors and intermediaries may become irrelevant in specific markets, the reality is that blockchain will not eliminate them all; instead, blockchain will change what they do.
Smart contracts help a business create self-executing agreements that can reduce the need for intermediaries. For example, a home buyer’s escrow payment could be automatically returned if a home does not pass inspection. However, smart contracts are not the same as legal contracts; they are simply business rules encoded in software, and may not be legally enforceable without a separate contractual agreement. Continuing the example above, if an inspector does not find an issue with a home and it incorrectly passes inspection, a smart contract may not offer the home buyer protection.
While blockchain lowers the cost to record and verify digital transactions, it does not give businesses the ability to automatically record information created off-chain. For example, it may be possible to track goods shipped on a truck using blockchain, but the goods have to be loaded onto the truck first, and someone has to add that information to the blockchain. Accurately recording this off-chain event is critical; if someone creates bad data on a blockchain, it has no integrity or value.
As digital verification becomes cheaper due to blockchain, the demand for verifying events or data generated off-chain will increase; this will likely be a focal point for auditors and regulators moving forward.
Myth #3: Blockchain is a mania, and its commercial value is limited
The cryptocurrency bubble has generated significant interest in blockchain, along with an immense amount of speculation and hype. Many investors misunderstand the capabilities and limits of blockchain, and measure an initiative’s success by its ability to raise capital instead of its ability to create solutions that provide real benefit. However, today’s challenges with blockchain do not mean that it is a mania. Much like the internet, it will take time to fully comprehend the best way to leverage blockchain technology for businesses. Consider that twenty years after the dot-com bubble we are still learning new ways to utilize the internet (see the IoT movement as an example).
Blockchain can have a significant impact on numerous business verticals, from finance and healthcare to manufacturing and supply chain logistics. The current challenges facing blockchain should not be viewed as limiting factors, but as entrepreneurial opportunities for those who can overcome those challenges, enabling businesses to truly benefit from applying blockchain to their ecosystem. The burst of the dot-com bubble still gave birth to incredibly successful companies like Amazon, Google, and Facebook. Similarly, the seeds of amazing blockchain technology are in existence today, and those who invest in operationalizing the technology and applying it within their industries will be among the successes of tomorrow.
About the Author:
Jared Dorminey is a serial entrepreneur who founded several technology firms focused on network infrastructure, software development, and cyber security. He built solutions and modernized technology infrastructure for many companies, ranging from small businesses to large enterprises.
His clients have included Cox Automotive and Piedmont Hospital, as well as some of the largest medical and legal practices in the southeastern US. Jared is a natural public speaker and enjoys performing standup comedy and improv. He has a bachelor’s degree in information technology from Middle Georgia State University, multiple industry certifications and a CIS degree from Central Georgia Tech.