The debate on the blockchain technology divides the minds. The supporters consider the call as revolutionary, see the possibility for a world without banks, notaries or regulators – without mediators and with direct contact between users. The skeptics point out that there are many shortcomings and security risks and that blockchain still has not claimed a broad field of application more than 11 years after Satoshi Nakamoto’s legendary white paper bringing the technology up. Is the blockchain technology one of the most significant technological breakthroughs of the 21st century or is it only a solution without a problem in the end? We try to clarify the things in the following questions and answers. As it is ofter the case, truth will be well in between.
We begin with the basics:
The blockchain is a database that represents a continuous chain of blocks and is simultaneously stored on many servers. New information and records are connected in new blocks and these are then added to the chain as the newest link. Each block receives a consecutive, individual block number.
Blockchain technology is often called "revolutionary." What are the main technological advantages?
1)Decentralization and security
Unlike classicalstorage systems, blockchain is based on Distributed Ledger technology. Put simply, it means the blockchain data is not stored on a server, but on each individual server of the system and so ideally tens of thousands of different servers.
While data stored on one server can be manipulated,it seems almost impossible to manipulate all records simultaneously in the same way, and if only a few records are manipulated, then the manipulation will be disclosed and reversed during the validation process bei the majority servers with the unmanipulated data.
Even though there are now also closed blockchains, the blockchain is designed as a publicly accessible database in itself. Anyone who downloads the database from the Internet can see all theblocks data and thus all transactions ever made. You may ask now: Does it mean if I transfer 5,000 euros (in bitcoins or another cryptocurrency) to another account (usually called Wallet), anyone can see that? Well – yes and no. Yes, since everyone can see that 5,000 Euros have been transferred from one wallet to another on this particular day. No – because the wallet numbers are confidential, similar to the bank account numbers. Generally, only you know your wallet number, as well as those to whom you have entrusted them. This information is therefore only available to the participants of the transaction, as long as they do not want to publish it.
3) Savings through interaction without intermediaries
The blockchain ultimately offers the opportunity for direct interaction without intermediaries. Since the check is done on the hash algorithms, it will take over for validating the transactions.
Where does the blockchain system have its advantages?
As we can see, the blockchain is a distributed database for general use, where there is no central monitoring of the process. Records can be kept, analyzed and recalled as usual with databases. Furthermore, there is the decentralized validation process for transactions within the blockchain. The scope of the blockchain technology is therefore very large, as data management is a very important part in many spheres: banking and insurance, real estate, logistics, public databases (transport, civil office, registry office, electoral registrations and votes, etc.).
What are the disadvantages and security risks of the blockchain technology?
1) Lack of efficiency
The blockchain is suffering from teething problems as a young technology. It was never originally created for such a large number of transactions. Today’s blockchains would not have the ability to handle nearly as many transactions simultaneously as , for example, Mastercard or Visa do. By comparison, the latter handle about 45,000 transactions per second while the Bitcoin network only handles 7 transactions per second.
2) Massive power consumption
The massive power consumption is required by the requested computing power in the complex validation process. The Bitcoin Blockchain alone consumes more power than many countries in total. In the long run, this is both too expensive, as well as non-ecological. The blockchain industry is trying to solve this problem by switching from proof-of-work to proof-of-stake and other test systems, but this process has just begun.
3) Security risks – for example: the 51% attack
Although the blockchain offers massive protection against conventional manipulation attempts through its decentralization, it also has weak points. One example is the 51% attack, which is possible due to the nature of thedecentralized systems. The guarantee for the blockchain security is always that a majority of the servers will work with the correct data set and thus will detect manipulations of data records on one or a handful of servers. However, if an attacker manages to get 51% of the computational power in a blockchain (through the use of a high number of powerful servers), he has the majority and his manipulated data is taken as the correct basis of the blockchain. Such an attack may compromise the integrity of the blockchain and thus the security of the data therein.
The smaller the total computing power in a blockchain, the easier and more likely the attack. In 2018 several cryptocurrency blockchains fell victim to successful 51% attacks with corresponding losses for users.
Blockchain in Belarus - What is the current state?
Although Blockchain has only recently become a subject of public debate in Belarus, there are now a broad legal base and good conditions for its operation in this field. The well-known and cursial for the IT-Industry Decree 8 of the President of the Republic of Belarus has laid the basis for legislation and the use of Blockchain, Distributed Ledger, Smart Contracts and other linkedtechnologies. Some belarusian banks have already implemented the technology in-house. State agencies, such as the National Bank, are working on products and internal processes based on Distributed Ledger, which underscores the potential of the technology.
Authors: Stephan Hoffmann, Viktoriya Harlan