As a relatively new phenomenon a blockchain technology is full of myths and misconception. How many blockchains exist? Are blockchains actually immutable? Is Bitcoin synonym for Blockchain? Hyip.com separates the wheat from the chaff and dispel the common myths about blockchain.
Almost everyone has heard on blockchain technology. To understand how it works is to draw an analogy with a collection of records or a sort of ledger that contains data about all transactions (financial or otherwise). This ledger is stored on a variety of computers and is updated and reconciled regularly. In other words, it is a distributed ledger. This is the essence of blockchain. Blockchain technology becomes famous with the advent of Bitcoin in 2008. The potential applications of blockchain is unlimited — it is already used in many fields from financial industry to the global fight against hunger.
There is the Only One Blockchain
I bet most people sure that there is the only one blockchain. In fact, there are a tot of blockchains each of which serves a different purpose. Blockchains can be public and open, or owned by enterprises and individuals. The point is that there are a lot of blockchains. The myth can be explained by interpretation blockchain in media which often describe the technology as a kind of computer program that everyone is using to do the same thing.
Blockchain and Bitcoin Are the Same Thing
The previous myth leads us to another misconception that blockchain and bitcoin are the same thing. Bitcoin is just a one of the many blockchain based crypto currencies. There are many other cryptos based on blockchain such as Ethereum, Waves, and Ripple. Bitcoin is the first currency based on blockchain but it is not the same thing as blockchain. This myth is widespread, as many are convinced that there is only Bitcoin blockchain, and the two terms are interchangeable.
Blockchain is Applicable only in Financial Industry
Indeed, for the first time blockchain was used for Bitcoin cryptocurrency, but the potential of technology goes far beyond finance. Currently, blockchains are used for services based on smart contracts, cloud storage, digital identity solutions, voting systems, and even aircraft security. A blockchain does not care what data is stored in the ledger, because this is just the way to organize them, a list of records. The myth that a blockchain can be used only in financial sector is due to the fact that Bitcoin is the most popular of all blockchains.
Blockchain is Panacea for Hacking
When a drug manufacturer claims that a certain medication cures all the diseases, you immediately understand that it does not cure anything. Blockchain is often considered a panacea for hacking, identity theft, scams, etc. Due to the very structure of the blockchain, any hacker will have to deal with records stored on multiple computers, or use a huge computing power to create a new branch of the blockchain. There have been cases when hackers used vulnerabilities in a blockchain or a blockchain based system. The Hong Kong based exchange Bitfinex lost US$ 65 million in a hacking attack, there is the well documented Decentralized Autonomous Organization (DAO) hack, which led to losses of US$ 60 million. The misconception about fraud invulnerability of blockchain is based on its proponents’s preaching about security of the technology.
Blockchain is Cheap
It’s all relative. Blockchains require many computers to run. Moreover, some Blockchains such as Bitcoin need the costs of mining is exorbitant. That is why bitcoin is mainly mined in countries with cheap electricity, cheap manpower and a cool climate. The key to getting beyond the cryptocurrency application is making the proof-of-work less expensive. If it were cheap enough, anybody could do it, and transactions of vanishingly small value could take place.
The popularity of this myth is probably based on the fact that crypto transactions are cheaper than fiat money transfers.
Myth of Blockchain’s Immutability
As the DAO hack shows, blockchains are open to exploits. To reverse the transactions after hacking Ethereum conducted a fork resulting in the currency split into two — Ethereum (ETH) and Ethereum Classic (ETC).
There are certain vulnerabilities in Bitcoin blockchain. An attacker who has a mining capacity larger than that of the rest of the Bitcoin network can overwhelm and take control of the blockchain. To do this, hacker’s processing power must exceed the power of the rest of the network. This type of attack is called ‘Attack 51%.’
Given the complexity of the accumulation of resources and high costs associated with it, it is unlikely that one person or a group of people can achieve this result. However, this is not beyond the ability of the government.
Given the difficulty in gathering these resources and the expenses involved, it is unlikely that this could be carried out by an individual or a group. However, it is possible that a government could do this. In the case of mutable blockchains, if all participants agree the transactions will be reversed. This option is especially useful in private blockchains where reaching consensus is relatively easy.
Blockchains are for Criminals
A few years ago, Bitcoin and blockchain attracted significant media coverage as a currency of the Silk Road, the first darknet market, best known as a platform for selling illegal drugs. Nevertheless, bitcoin and other cryptocurrencies are actively used for legitimate operations. However, Bitcoin and other cryptocurrencies are also used for perfectly legitimate reasons. Moreover, Bitcoin is not the best currency for illegal activity as the blockchain has a public record of each transaction.
This myth is largely due to the media hype around the Silk Road case and other high-profile cases.