Since blockchain first appeared in 2008, the number of people interested by the subject grew exponentially. Big companies invested millions in this technology and what was first seen as a « geek hobby » is becoming the next significant innovation of the 21st century. However, the more people hear about blockchain, the more they want to understand what it is, how it works and how it can be used. An approximate understanding of this technology created in the past few years many myths and misconceptions. People tend to think they understand blockchain but in fact, many have their own perception of what it could be. The word « blockchain” has become so popular that everyone uses, misuses and abuses it. Smart Contracts, Bitcoin or Ethereum are terms related to the blockchain environment that are often mentioned on the Internet or in the media, but how are they linked to blockchain?
To help you better understand this technology, here are 10 myths and misconceptions about blockchain.
- Blockchain is for geeks only
This statement was true a few years ago, when blockchain was a technology that only experts in computing could use and understand. However, the applications of blockchain technology increase rapidly and more and more people talk about it. Experts try to popularise the subject and explain in a more accessible way a very complex issue. It is very likely that blockchain will evolve like the Internet. At first, it was for geeks because of the unfriendly interfaces but eventually people started to understand how they can use it. Now, not everyone understands how the Internet works but almost everyone knows how to surf it. Let’s be clear, blockchain is still far from being as accessible as any other Internet-related technologies but we are slowly getting there. Startups are actually developing user-friendly interfaces that will make using the blockchain as easy as logging into your email account.
- Blockchain is a database where you can store information
Blockchain is neither a database nor a cloud. It doesn’t allow you to store any type of physical information like a Word document or a pdf file. Blockchain can only provide a “proof-of-existence”. Indeed, studies explain that the distributed ledger can only contain a code that certifies the existence of a certain document but not the document itself. The file however can be stored in “data lakes”, the access to which is controlled by the owner of the information.
- Blockchain can only be used in the financial sector
Blockchain started to create waves in the financial sector because of its first application, the bitcoin cryptocurrency, which directly impacted this field. Although blockchain has numerous areas of application, finance is undeniably one of them. The important challenges that this technology brings to the financial world pushed international banks such as Goldman Sachs or Barclays to heavily invest in it. Outside the financial sector, blockchain can and will be used in real estate, healthcare or even at a personal scale to create a digital identity. Individuals could potentially store a proof-of-existence of medical data on the blockchain and provide access to pharmaceutical companies in exchange for money.
- Blockchain = Bitcoin
Since Bitcoin is more famous than the underlying technology, blockchain, many people get confused between the two.
Blockchain is a technology that allows peer-to-peer transactions to be recorded on a distributed ledger across the network. These transactions are stored in blocks and each block is linked to the previous one, therefore creating a chain. Thus, each block contains a complete and time-stamped record of all the transactions that occurred in the network. On the blockchain, everything is transparent and permanent. No one can change or remove a transaction from the ledger.
Bitcoin is a cryptocurrency that makes electronic payment possible directly between two people without going through a third party like a bank. Bitcoins are created and stored in a virtual wallet. Since there are no intermediaries between the two parties, no one can control the cryptocurrency. Hence, the number of bitcoins that will ever be released is limited and defined by a mathematical algorithm.
- Blockchain is designed for B2B interactions
Experts in blockchain are convinced that this technology will change the world and the global economy just like dot-coms did in the early 90’s. Hence, it is not only open to big corporations; it is accessible to everyone everywhere. If all it takes is an Internet connection to use the blockchain, one can easily imagine how many people worldwide will be able to interact with each other. A Romanian worker in Italy will be able to send remittances back home without going through expensive intermediaries. A women with a small business in Nigeria will be able to sell her products all around the globe, and no third parties nor commission fees will be required. Nowadays, people from developing countries struggle to open a bank account because they don’t have the identification documents required.
- Ethereum is a blockchain
Ethereum is a platform built to create and distribute decentralised applications using the blockchain technology. According to Vitalik Buterin, founder of Ethereum, “instead of having many blockchain protocols, each supporting a few applications, or even one blockchain protocol supporting a large list of applications, we can have a blockchain protocol with a built-in programming language, allowing any application to be written on top, and its rules enforced by the blockchain”. Hence, Ethereum is not a blockchain itself but it allows developers to create programs that run on the basic characteristics of blockchain technology.
- Everyone can see private information on the blockchain
Privacy is a big issue that often appears when one tries to explain what blockchain is. People often think that the fact that the distributed ledger is public, means that all their information and transaction details are too. This is absolutely false. What is stored on the ledger is nothing more than the amount of the transaction and a hash. The hash is a code obtained by running the actual transaction details through a one-way cryptographic function. It is therefore impossible to have access to more information about the transaction when one only has the hash.
- Blockchain is just a buzzword
Blockchain is indeed a very famous word lately but in is not just a buzzword and numbers speak for themselves: “As of Q1 2016, total venture capital investment in bitcoin and blockchain startups now exceeds $1.1bn.” – CoinDesk. Blockchain is growing fast because it brings the hope for more trust, transparency and privacy in worldwide interactions. Blockchain could potentially save lives by allowing pharmaceutical companies to track all their medicines, insure security during clinical trials and improve interoperability in the medical community. As mentioned before, blockchain technologies could also reduce poverty by allowing everyone to enter the economy.
- Smart contracts have the same legal value as regular contracts
For now, smart contracts are just pieces of code that execute actions automatically when certain conditions are met. Therefore, they are not considered as regular contracts from a legal perspective. However, they can be used as a proof of whether or not a certain task has been accomplished. Despite their uncertain legal value, smart contracts are very powerful tools especially when combined with the internet-of-things.
- Blockchain can only be public
There are three types of blockchains.
- Public: a public blockchain is a blockchain where everyone can see all the transactions, anyone can expect their transaction to appear on the ledger and finally anyone can participate to the consensus process.
- Consortium: consortium blockchains don’t allow everyone to participate to the consensus process. Indeed only a limited number of nodes are given the permission to do so. For instance, in a group of 20 pharmaceutical companies we could imagine that for a block to be valid, 15 of them have to agree. The access to the blockchain however can be public or restricted to the participants.
- Private: private blockchains are usually used inside a company. Only specific members are allowed to access it and carry out transactions.
To conclude, as Leon Luow, Nobel Peace Prize nominee said, “Every informed person needs to know about Bitcoin because it might be one of the world’s most important developments.” Although is it important to understand what blockchain is, it is equally important to understand what it is not. People are usually scared and reluctant to this technology when they first hear about it because it is new and also because they don’t understand it well at first. But after going through some keys aspects, rare are those who still deny its potential impact.