Blockchain technology raises hopes across industrial boundaries. In particular, the retail trade, logistics and the financial sector have already gained experience. We have an easy to understand article on blockchain written in plain English. A blockchain makes it possible to transmit information in a tamper-proof manner using a decentralized database shared by many participants so that copies are excluded. The database is also known as a distributed ledger. It is stored on many computers in a peer-to-peer network, with each new node taking over a full copy of the blockchain upon its accession and now having the task of checking and documenting transactions. Companies such as IBM, SAP, and Oracle operate their blockchain-as-a-service platform. The decentralization of IT in general and blockchain, in particular, brings some advantages and disadvantages.
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What are the advantages blockchain?
- Based on the distributed ledger, each transaction is securely documented and transparent to all parties involved. Updates are only possible if everyone agrees. This means that data stored in a blockchain is accurate, transparent and consistent. They can be reached by all access holders. Changing a single transaction record would require changing all subsequent records and agreeing to the entire network.
- Security is a big advantage of blockchain. Transactions must be agreed upon by all parties before they are recorded. When the approval process is complete, the transaction is encrypted and linked to the previous transaction. Because the information is not on a single server, but on a network of computers, it is almost impossible for hackers to compromise transactional data. This makes the blockchain theoretically suitable for all scenarios in which different parties exchange critical information – not only for food producers but also for banks, logisticians, authorities or even healthcare companies.
- One argument for blockchain is traceability and thus the authenticity of products. An insight into historical transaction data can help verify the authenticity of products and assets and prevent fraud. Companies can therefore not only detect weaknesses in branched supply chains but also trace items back to their origin and their producers. This can go so far as to let consumers know which farmer has harvested their mango when.
- The blockchain allows more speed in traditional business transactions. Those who use paper or e-mail-based processes know the duration and vulnerability of complex transactions with many parties. Mistakes often lead to lengthy mediation or legal proceedings. “central digital accounting,” as enabled by digital ledger technology, creates less friction alimony and disorder. It becomes easier to trust yourself so that clearing and settlement can take place faster.
- In fact, a significant reduction in administrative costs as well as internal and external financial transactions and reporting is also to be expected. If you rely on blockchain, you don’t need so many third parties or other instances that give guarantees. Trust in the trading partner no longer matters, one can fully rely on the Data of the blockchain.
What are the disadvantages of the blockchain?
- With each block, the blockchain grows and thus the need of storage grows. If data were to be generated in the terabyte range, it would have to be stored on each node in the network, which is hardly realistic, especially since the Internet connection would be extremely heavily loaded. It is therefore important to play through exactly which transaction scenarios can be mapped and which are not.
- Blockchain technology is not easy to integrate into existing IT landscapes, especially when many legacy applications are running. That’s why it’s a real challenge for IT departments.
- Users could struggle with the new technology at first. Sophisticated change of management is advisable, which should entail costs.
- What happens if there is no agreement among peers and some reject a software update while others support it? In extreme cases, the blockchain splits and two independent new blockchains with the same history emerge.
- The blockchain is also not fully tamper-proof. If a participant manages to control more than half of the participant nodes (which never happens), they can theoretically change the transaction history.
- The performance of a blockchain does not come remotely close to that of a central database. The verification of transactions and their synchronization take time. Also, transactions on the network must be processed independently of each node.
- Transparency is desired with the blockchain, but the shot can also backfire because other insights into past and sometimes upcoming transactions can also be seen.
Blockchain is a newer technology. A lot of new are already decentralized – thanks to the Internet and the Cloud. The integration with existing systems, which has been identified as a disadvantage, is still a challenge, but it is not insurmountable and can be easily justified with the benefits expected from the blockchain for both IT and business.