Blockchain stands to revolutionize many industries, but many people are still unsure of how the distributed ledger technology underpinning Bitcoin works.
The distributed ledger technology Blockchain has proven to be the larger value of cryptocurrencies, with the potential to revolutionize almost every industry. However, many myths around what the technology actually is and how it works are preventing businesses from understanding its potential impacts and applications.
"Blockchains are being used to revolutionize all sorts of industries, from entertainment and retail, to the food industry, healthcare, and even the non-profit sector," said Natalia Karayaneva, CEO of Propy. "Developers have been working on blockchain for many years. It's not new, yet it is still in its infancy. There are many advancements in blockchain technology still to come."
Here are five persistent myths about blockchain, and why they are false.
SEE: Quick glossary: Blockchain (Tech Pro Research)
1. Blockchain, bitcoin, and distributed ledgers are the same thing
Bitcoin is a cryptocurrency that uses blockchain technology. Blockchain is a type of distributed ledger technology, but not all distributed ledgers are effectively blockchains, said Michela Menting, digital security research director at ABI Research.
"While the definition of distributed ledger technology is still debatable, the current dominant position is that they essentially require a legal identity with permissioned nodes to validate transactions," Menting said. "As such, there are a number of enterprises labeling themselves blockchain, but in reality, they are just distributed ledgers."
This is the case for the R3 consortium, which is one of the more high-profile efforts in the financial services sector—it's not a blockchain, but a distributed ledger, Menting added.
2. Blockchain is a hotbed of illegal activity
Many people believe that blockchains are full of illegal activities, Karayaneva said.
"Of course, criminals can use the blockchain for illegal activity, but they can also use highways or the postal system to facilitate their crime," Karayaneva said. "Blockchains are used for legitimate, legal and necessary tasks, just like anything else. And not just for the trading of cryptocurrency, either—that's another myth."
Bitcoin is now recognized in many countries including the US as a commodity, and in others like Germany and Japan as money and financial instruments, Karayaneva added.
3. Blockchain will solve every business problem
One of the myths is that "blockchain technology is the new shiny object that solves all business problems as a 'one size fits all' solution," said Gartner fellow and vice president David Furlonger, and that "Blockchain technology is the best technology solution there is for a particular business problem and there is an obvious and positive net return."
Businesses also seem to believe that implementation will not require substantial organizational and operational changes, Furlonger said, and that vendor and provider technology solutions are fully mature and ready to be adopted at scale and manage risk, when in fact, we have a ways to go before this is the case.
SEE: IT leader's guide to the blockchain (Tech Pro Research)
4. Blockchain technology is immutable and unhackable
Blockchains are susceptible to colluding attacks, wherein one or more party exceeding 51% of mining power could cheat the network into accepting unlawful transactions or other nefarious action, Menting said.
"The challenge is that such an attack would require a large number of colluding parties, and in the case of Bitcoin, this would be almost impossible to achieve," Menting said. "However, for some of the newer endeavors, with a smaller number of participants, such an effort may be successful. Certainly, private and permissioned blockchains, and new applications on public blockchains, are vulnerable to this type of manipulation."
For example, in June 2016, criminals successfully hacked a DAO on the Ethereum blockchain, forcing stakeholders and core developers to overturn parts of the blockchain and backtrack to a previous state, Menting said.
Blockchains also do not fully ensure privacy and security, she added. "The DAO hack shows that the blockchain is vulnerable," Menting said. "Whether through bugs in code, or by finding a loophole in smart contracts, there will always be interest by malicious parties to exploit it, and this interest will grow alongside blockchain's popularity."
5. All blockchains are open
Some blockchains are private and based on permissioned formats, Menting said, standing in contrast to their public, open relatives (particularly cryptocurrencies, like Bitcoin). Private blockchains feature access controls and authorization requirements, she added. Between those parties, the data will be open and shared.
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