Why Should Businesses Adapt Blockchain – The Pros and Cons
In recent years we have seen the hype of many latest technologies, such as artificial intelligence, neural networks, Web3 Technology and the Metaverse. Among all these trending buzzwords, blockchain is one of the hottest topics in the industry. As it runs on distributed ledger technology, blockchain is a revolutionary aspect of the finance industry. According to Statista, the global FinTech market for blockchain technology will cross $19.36 billion by the end of 2023, with the FinTech sector being one of the largest consumers of this revolutionary technology. This blog will present a complete guide to the pros and cons of blockchain for business. Let’s start with the basics first by defining blockchain.
What is Blockchain – The Basics
Let’s go simple first, the term “blockchain” gives the idea of a chain of connected blocks. In a blockchain network, every block which stores data is linked via computing nodes. In technical terms, blockchain technology represents a distributed ledger system which records financial transactions via a network of distributed nodes and it is used as a baseline for significant cryptocurrencies such as Bitcoin, Ethereum and all other digital currencies. Now let’s move on to the main part, which is blockchain technology’s top advantages and disadvantages.
Top Pros and Cons of Blockchain Technology
Blockchain, at its core, provides a decentralised way of processing payments and industry transactions. The central concept of this technology revolves around the distribution of power from a central governing body to decentralised sole individuals.
Advantages of Implementing Blockchain
Any technology, regardless of performance, comes with many positive and negative aspects. Here are both of them explained with proper reasoning and future considerations.
The leading cause of online fraud is the involvement of third parties. These people and organisations connect payment providers with real users. Outsourcing the financial operations to a third party can be risky as it gets all the information required to process the operations. These agencies can use sensitive data for their benefit and put the business or individual at great risk. Blockchain ends this problem and provides businesses with a secure and transparent solution in which each transaction is encrypted from the sender to the receiver. The distributed ledger network verifies processes with a single centre with automated and simultaneous transactional costs. Businesses that implement blockchain protocol can increase transparency and speed of their financial as well as data operations.
Improves Data Quality
Talking about data quality, businesses that implement blockchain technology are well suited for dealing with huge amounts of data every day. Blockchain provides a strict data processing algorithm that deals with low-quality data and filters out intrusions. The mistakes made by humans get mitigated, which traditional data processing can cause to an organisation. When developing blockchain solutions, developers implement data filtration algorithms to provide clean data stored in the ledger.
Protects Against Hackers
Cybersecurity is evolving with the addition of new technologies and methods. Blockchain is one of them, which is making the industry go future-proof. It is predicted that businesses implementing blockchain systems will prevent cyberattacks with cryptographic technologies and continue to protect themselves against fraud.
Another major plus in utilising a blockchain network is the transparency of operations. This means that any network member can verify recorded data from the blockchain. This makes blockchain a trustable public network, whilst, on the other hand, traditional database networks are centralised and do not support transparency as blockchain does. In the financial systems, users cannot verify information whenever they want, and the administration can select specifically the data available to the public. Still, blockchain takes the lead here in improving transparency.
Drawbacks of Blockchain
Implementing blockchain comes with the expense of complex data modification. As the data is recorded in a distributed ledger system, it does not allow easy scaling options. Here are some downsides of using blockchain technology.
Governments and regulatory agencies are still figuring out how to deal with blockchain’s different solutions, such as cryptocurrency, smart contracts, and decentralised applications. Because compliance standards may be unclear or susceptible to change, a lack of clear rules can create a tough environment for enterprises and individuals wishing to exploit blockchain solutions. The unpredictability of the regulatory landscape may dissuade potential adopters and impede the mainstream adoption of blockchain technology.
Another issue that has received attention is the power consumption of blockchain. The decentralised structure of blockchain networks like Bitcoin and Ethereum is based on a consensus method known as Proof-of-Work (PoW), which requires significant computing power. This processing demand translates into significant energy usage, raising concerns about blockchain technology’s environmental impact. Mining is an energy-intensive industry that contributes to carbon emissions and necessitates major infrastructure and resources. As blockchain technology evolves, attempts are being made to investigate alternate consensus techniques, such as Proof-of-Stake (PoS), that use less energy and reduce the environmental impact of blockchain networks.
Blockchain technology seems promising and provides a great number of benefits to users, but the implementation costs are much higher compared to a traditional database. Additionally, businesses require proper planning and execution to integrate their operations into the process. The maintenance of blockchain applications could cost almost 15-25% of the overall project cost and can vary depending on the complexity of the application. This makes it a difficult solution to implement and can lead to a high budget for the company.
Blockchain faces social opposition and distrust from a variety of sources. Misconceptions, misinformation, and fear about the technology have all contributed to scepticism and resistance to blockchain solutions. Concerns regarding privacy and security, as well as the link of blockchain with illegal activity, have sparked public concern. Furthermore, the disruptive potential of blockchain, particularly in sectors such as finance and governance, may face opposition from established institutions and vested interests attempting to preserve the status quo. Education, transparency, and highlighting the benefits and real-world applications of blockchain technology are required to overcome social resistance.
Finally, blockchain technology has a distinct set of advantages and disadvantages that must be carefully addressed when assessing its possible uses. On the plus side, blockchain provides unrivalled transparency, immutability, and decentralisation, which can improve trust and security in various businesses. Furthermore, blockchain’s decentralised structure eliminates the need for intermediaries, lowering costs and enhancing efficiency. However, there are some negatives to consider. Uncertain rules create a problematic environment, power consumption raises environmental concerns, scalability constraints limit transaction throughput, development costs can be high, and social resistance might inhibit adoption.