Why You Don’t Need a Blockchain Solution for Your Next Project in 2021 ?
Blockchain is one of the hottest topics of 2021. According to CB Insights’ Market Sizing Tool, the world will spend nearly $16 B on blockchain by 2023. The figure is inspiring. But is blockchain always the right solution? In this article, we will talk about the downfalls of blockchain as an investment option for 2021 but will also give you the bigger picture to decide whether to consider this ecosystem for your future. We will display that although blockchain has limitations at the moment, it is still disrupting the whole economic and social system. It just needs to prove itself which it hasn’t done yet.
3 Reasons Why Blockchain is Not the Best Solution in 2021
Let me start with a simple question. Would you rather trust a human or a technology? Suppose your bitcoin exchange gets hacked, what will happen? You will lose all of your money. The same will happen if your bitcoin wallet gets hacked or you forget your login credentials. These questions are in the minds of people. So, trust is an issue for blockchain today. According to PwC survey, 45% of respondents believe trust is an issue that could delay adoption.
Think of the bugs in current blockchain applications. You can encounter scams everywhere, and blockchain is no different. So when you are making your investment, take this risk into account. For example, your customer may fall victim to fake websites. Even if your site looks identical to the one your customer thinks they are visiting, they may still be redirected to a fake page. The attacker may have created a fake URL. And no one is safe from such attacks, including the customers of your business.
Another way is to fall victim to the scam are fake apps. These apps are rather popular and a lot of people fell victim to fake cryptocurrency apps, reports Bitcoin News.
- Environmental Damage
Think of the amount of energy consumed in mining. According to the Cambridge Center for Alternative Finance (CCAF), around 110 Terawatt hours annually is spent on bitcoin mining. This is about 0.55% of global electricity production which is equal to power consumption by countries like Malaysia or Sweden. This may cause resistance from the general public as well as the environmentalists.
One of the issues of blockchain that may have implications for transaction management is scalability. The speed of the transactions depends on the network congestion. What does this mean? It means the more people or nodes join the network, the chance of slowing down is more!
- Dependence on nodes
Speaking of nodes, let us shed light on what they are and how blockchain depends on the participation of nodes.
A blockchain exists out of blocks of data. These blocks of data are stored on nodes. If we put it in simple language, these nodes are identical to servers or network members. These can be computers, laptops, or any other device. In the blockchain, all nodes are connected to each other.
Blockchain is a network that depends on the involvement, participation, and quality of nodes. If proper incentives are not given to nodes (network members) to participate, this may undermine the quality of transactions.
In a centralized and regulated transaction system, all transactions are verified according to rules which makes it much more predictable.
In a traditional management system, the transactions may be reversed if the need comes. This is not true for the blockchain. To reverse the transaction, you need the consensus of participants in the blockchain.
The unfortunate example of DAO is very illustrative.
DAO (Decentralized Autonomous Organization) was founded as a crowdfunding event in 2016. It recorded the best results ever in a crowdfunding campaign raising $150 million with Ether. The DAO was created on Ethereum’s blockchain and inspired to empower the development of various similar initiatives. In June, a group of hackers exploited DAO’s codebase and transferred a third of DAO’s funds to a subsidiary account.
Since consensus of network participants is needed to reverse the transaction, it was decided that an Ethereum soft fork should be implemented to ‘’lock’’ the stolen money. However, not all members agreed and the hard fork resulted in two competing — and now separate — Ethereum blockchains.
Is Blockchain the Future Everything?
Having said all of the above, let us look at some of the prospects that blockchain offers.
- Product authenticity guarantee
Today the counterfeit goods market is a major problem. Billions of dollars are spent on counterfeit luxury goods, including well-known brands like handbags, high-end clothes, and so on. Despite its limitations, the decentralized blockchain systems allow product tracking to its origins and through every step of the supply chain. For example, a recently developed dApp enables a user to scan a QR code on the product. By reading the code, users can trace and validate the product’s authenticity.
- The authenticity of University Diplomas
Today verification of documents like university diplomas is an issue. Once again, with blockchain, you can address that problem by securing students’ diplomas on the Ethereum blockchain. Without going into technical details, we just would like to point that anyone can check whether the diploma is, in fact, issued by a specific university by checking whether the “Index File” attached to the diploma is indeed the genuine one.
Let’s have a look at how authentication works in the blockchain.
Not only financial transactions but all other data transactions work with blockchain. The same concerns voting. The argument is that even if hackers have access to the terminal, they will not be able to affect other nodes. Voters can vote on the blockchain where one ID represents one vote. But is this an absolute truth?
Whether or not blockchain will be used in voting, is still debatable. Some argue that it will increase cybersecurity vulnerabilities that already exist. Generally, experts say they will add more issues than fix them. For example, Neha Narula at Digital Currency Initiative (DCI) raises doubts about the applicability of blockchain voting.
- Proof of authorship
Poor copyright or proof of authorship are hot topics, too. Poor methods of proving one’s authorships have existed for decades and there is no proven alternative. Experts believe blockchain makes the process more cost-effective, faster and more accurate, and secure.
How does it work? For example, if I need to prove that a document is published by me, I will simply sign the document with my private PGP key. But what if a thief also signs with a private PGP key? Blockchain technology can help solve this problem. Blockchain assumes that those entries that were made earlier, must have been created earlier in time. If you can prove that your signature was created before a thief’s, then you have proved that you are the original author.
- Land registry
Speaking about land rights, there is a level of confidence that blockchain technology will authenticate owners and other users of land by providing a fixed ledger of land use rights transactions. Having said that, we should also give credit to the limitation of blockchain in land administration. Partly, this is due to human-related factors. For example, how accurate is data entered into the system? How well the system facilitates the pre-existing legal relations? These questions are still open and it will require a political will on the side of governments to regulate these issues.
- Interbank transfers
In interbank transactions, the banks create the transaction. At this point, one single transaction requires multiple steps by different banks as well as a certifying authority like a central bank.
When adopting blockchain technology in interbank transfers, several challenges arise. One, the margins earned by banks would decrease. That’s the reason that blockchain often faces resistance from the banks. Second, the mere fact of shifting from the current interbank payment system to the blockchain system would require high switching costs. The distributed ledger technology (DLT) needs to offer clear advantages like speed, efficiency, and low cost so that it justifies the switching costs.
In any way, the world moves in that direction. JPMorgan has built a blockchain-powered international payment system — the Interbank Information Network (IIN). As of the year 2018, 75 international banks joined the system to test it.
- Token to Token
If one person transfers an asset to another person and that is registered in the blockchain ecosystem, this is called a token. As of April 2019, over a total of 175.000 Ethereum token contracts were found on the Ethereum main network. These tokens are backed by smart contracts. An example is “initial coin offering” (ICO). Telegram only raised $1.7 billion through its ICO.
So, what’s now? We tried to present to you all the risks that you may face if you decide to invest in blockchain technology today. However, we gave you an overview of where the world is moving. As you have seen, different industries are being disrupted, including the banking system, rights registry, authentication, voting, etc.
Is the world moving in the direction of blockchain? Most probably it does. Do you need to invest in this technology in 2021? It’s up to you. We have just presented all the risks, like low trust, low awareness, security, and environmental concerns.
It will take decades for blockchain to prove itself and overcome limitations. As of today, the risks are there and you may face high risks.
And if you are thinking about real investment opportunities, here is a way to go. Contact Addevice, a well-established app development company, to discuss your options for app development. Even if you have a raw idea, we will shape it into a workable practice. Contact us now.