Bitcoin was first to really implement blockchain technology. The success it has shown has moved the discussion of blockchain in a wide range of directions, from food source traceability to voting to banking operations. The possibilities and upside are undeniably enticing, but they must be evaluated holistically against the possible pitfalls. Here are some pros and cons of the burgeoning technology.
1. Process integrity. Each transaction is recorded and time-stamped, creating an immutable transaction trail that is transparent, unalterable and permanent.
2. Traceability. The way the information in disseminated across the blockchain makes it simple to find and solve problems efficiently, should they arise. It also creates a de facto, irreversible audit trail.
3. Security. Each user has his/her own key to verify identity. The block encryption in the chain makes it much tougher for hackers to disrupt than traditional setups.
4. Faster processing. Compared with traditional bank transactions, particularly in global banking, blockchain technology represents a dramatic increase in processing speed. An overseas bank transfer that may take three days to settle could potentially be reduced to minutes or even seconds. The two-way messaging capabilities of the blockchain enables it to cut out the “middle men” of intermediary and custodian banks that slow transactions down.
5. Saves money. Consulting giant Accenture recently estimated that investment banks could save a combined $10 billion with the streamlined process the blockchain offers.
1. Performance. This is pretty new technology. And while venture capitalists pumped nearly $650 million into blockchain technology, it remains largely untested beyond the “proof of concept” phase. And even in those tests, it has not been scaled up significantly, or run for extended periods of time to test durability.
2. Power use. The power consumed last year on Bitcoin mining alone was more than the total per capita power usage of 159 individual countries. Keeping a “real time” ledger means that when one node in a blockchain is created, it communicates it to every single other node at the same time.
3. Lack of oversight. By definition, an open-source, decentralized ledger has no central oversight. This makes some people nervous, and rightfully so. The OneCoin ponzi scheme was just one recent attempt to take advantage of the system. There is also the hypothetical threat of the 51% attack, in which a group of miners controls more than half of the computing power of a blockchain, and could then reverse completed transactions to double-spend coins.
4. Cuts out middle men. As mentioned, the technology could potentially save billions of dollars in intermediary bank transactions. The counterargument to this point it that we are talking about a lot of jobs being made redundant.
5. Cost. According to Blockchain Luxembourg, the Bitcoin cost per transaction has been between $75 - $160, mostly due to energy consumption. This may or may not go down with advances in technology, as the need for power and storage of data will be two very real issues that won’t go away easily.
It is too early to know if this is the future of things. And even if the tech is as good as some claim it to be, it is still too early to speculate on the adoption time needed for widespread use. In any case, it is an area to keep a close eye on, as it continues to develop and grow in front of us.