Blockchain technology is on the rise as its hype hasn’t yet completely faded out. More and more businesses are diving into these decentralized technologies as they shift their data management and storage systems from clouds to distributed ledgers. Today blockchain technology plays a role in many sectors such as supply chain management, healthcare, data management, and even governmental documentation. However, since this new distributed technology is still in its early stages, many organizations and enterprises fall into misconceptions about the technology. This article will go through all the common blockchain mistakes to avoid!
Blockchain Technology Overview
First, let’s have a quick recap of what blockchain technology is and how it works. Blockchains are decentral databases that act as digital ledgers for transacting, sending, and receiving data. This distributed ledger is built on top of a peer-to-peer network where participants, known as nodes, verify and process transactions via a consensus mechanism.
Blockchain technology utilizes cryptography to encrypt and decrypt data via the public-key cryptography method. This makes data recorded on the blockchain immutable, secure, transparent, and permanent.
However, blockchains have their challenges. For example, the blockchain trilemma is one of the bottlenecks that the decentralized ledger has to face. This trilemma state that security, decentralization, and scalability cannot be achieved simultaneously without one being sacrificed. The network often sacrifices scalability in order to keep the blockchain’s integrity, which means that blockchains can’t compete with traditional payment systems.
Top Blockchain Mistakes to Avoid
Since the blockchain is still a flawed system, many organizations fail to assess the technology’s ability to scale to high demands, or they assume that it is final. Here are the top blockchain mistakes that organizations often make.
Misusing Blockchain Technology
The first blockchain mistake people often make is misusing the technology. For one, many scammers and untrustworthy individuals consider the blockchain as a new playground for scheming and scamming. Crypto and NFT scams are on the rise since many believe that blockchains are only a source of transacting monetary values. However, blockchain’s capabilities span beyond cryptocurrencies as they can act as a decentralized database for storing information.
Also, many organizations try to centralize the blockchain to have centralized management. However, this goes against blockchains’ ethos of decentralization and distribution of power.
Assuming Blockchains Are Complete
The second blockchain mistake organization make is the assumption that the blockchain is a complete technology and is ready for production use. Blockchains have many challenges that they need to overcome before being able to be adopted by users. For example, the scalability issue that blockchains face makes them lag behind many traditional and established centralized systems. Bitcoin’s throughput is still 7 transactions/second (TPS) while Ethereum’s is 30 TPS.
Organizations should stop assuming that blockchains are mature systems ready for use. Instead, they should consider it as an evolving system filled with opportunities and experimentation with proof of concept.
Confusing Protocols with Solutions
Another blockchain mistake would be considering blockchains as a business solution for sectors like supply chain management. However, blockchain projects are far from being a solution to these problems. The hype surrounding the blockchain makes the technology look like it was a God-sent solution that is essential to have as a network for applications.
However, blockchains have yet to be fully developed systems where they can be used as the front and center technology in a project. Organizations and enterprises should appoint blockchain technology only 10% of the project’s load.
Considering Blockchains Only as Storage
A blockchain mistake is that many consider blockchains as data storage systems. Although blockchains are decentral networks that manage data, they are not purely data storage such as cloud storage. Blockchains record a sequential record of significant events through transactions. The data managed by blockchains is often small compared to the data stored in large centralized servers. In fact, some blockchains have block capacity to limit the amount of data stored in one block.
Therefore, blockchain’s data management abilities lack behind and people shouldn’t consider them a superior alternative to traditional database management solutions since they do not follow the “Create, read, update, delete” model.
Expecting Network Interoperability
Interoperability is another common blockchain mistake. Many mistake blockchain to have interoperability features with other blockchain solutions. While some form of interoperability exists within blockchain bridges and layer-2 solutions, organizations shouldn’t assume that a blockchain platform will interoperate with another technology.
It will still take years before blockchains mature enough to integrate interoperability features with other technologies.
Misunderstanding Distributed Governance
Not being able to understand governance issues is another major blockchain mistake. Inherently, blockchains have governance problems considering they operate on a distributed network with no central authority to take charge. The lack of understanding and focus on resolving these issues is demotivating for many organizations.
These governance issues however can be solved when large organizations take initiative in the development of governance models and consensus mechanisms.
Assuming Smart Contracts Are Flawless
Smart contracts are self-executing programs that automate an action when certain conditions are met. A common blockchain mistake is to assume that smart contracts are fully developed and flawless mechanisms. In reality, smart contracts lack scalability, audatibility, and verifiability. In addition, smart contracts don’t have legal considerations yet. This means that the law has not approved them yet and people can’t take a smart contract agreement to court.
Blockchains to Evolve in the Future
Although the hype of blockchains might be dying out, we are still in the early stage of development of this decentralized technology. This means that more effort and investment would be placed into developing distributed ledger technology as more organizations are shifting towards decentralization. However, it’s crucial to avoid blockchain misconceptions and mistakes that might lead people to take a detour frame from this growing technology.