Pros and Cons of the Blockchain Revolution In Small Business
However, blockchain goes far beyond the $800 billion peak cryptocurrency industry and massive cloud-based platforms. Blockchain can also be integrated into small businesses and their data systems.
All of this information leads to a few burning questions for most small business owners:
- What is blockchain technology?
- How has it changed the business world?
- What pros and cons exist in incorporating blockchain technologies into your small business?
What is Blockchain Technology?
In its purest form, a blockchain is nothing more than what it says: a chain of blocks. In this respect, the block is a piece of digital information, and the chain is a public database.
Each block on the chain consists of three areas of digital information: transactional data, participation data, and unique identifiers.
Blocks store information regarding the actual transaction. This includes the time, date, and information relating to the reason for data storage. This may be a dollar amount, booking date, or any other relevant data.
Blocks also store information regarding participation in the transaction. For example, a blockchain ledger for a gardening tool business may have contact data for the following:
- Purchased items
- Date and time of purchase.
Blocks need to store information unique to that particular block in a chain. This unique code, referred to as a hash, is the identifier to distinguish a block.
There are three “pillars” that make this technology innovative in its own right. They are decentralization, transparency, and immutability. These benefits will be covered in the advantages section below.
How Has Blockchain Changed The Business Space?
One of the promises of the blockchain is that it can streamline business processes. This reduces friction between parties involved in information exchange.
Arguably the strongest characteristic of this revolution is the associated transparency. Ledgers for public addresses are open for viewing. In businesses focused around the financial sector, this adds accountability. Each business sector is pushed towards integration with the company community, customers, and growth.
Due to the nature of blockchain technology, there’s no need for a middleman in fields like payment processing and real estate. With the advent of BaaS (Blockchain as a Service) companies, incorporating blockchain technology into existing databases and structures is a stress-free process.
Blockchain brings about radical change to almost any industry large and small. This change is coming. In a Deloitte survey, 40 percent of respondents say their companies plan to invest in blockchain initiatives in 2020.
The startup culture centered around this tech is massive. Initial coin offerings, or ICOs, are popping up constantly. ICOs utilize both blockchain and cryptocurrency to crowdfund business ideas based on whitepapers and proofs of concept. Some of the most successful ICOs include NEO, Ethereum, and EOS.
The Pros of The Blockchain Revolution
Blockchain has the ability to change the data space for businesses permanently. With its distributed capabilities, weak points are eliminated in almost all cases.
Extensive stability and stringent rule-making ensure confirmed data is nearly impossible to reverse or revise. A lack of intermediaries in transactional processes removes the need for trust in data. There are many benefits to this technology in companies of all shapes and sizes, sectors, and locations. Below are three of the most common advantages.
Blockchain Is Distributed
In many cases, data stored on the blockchain is kept across thousands of devices. These devices take part in a distributed network of nodes. Because of this distribution, the data and systems are incredibly resistant. They are surprisingly impenetrable to both malicious attacks and technical failure.
Each of these network nodes can reproduce and store copies of the blockchain ledger database. As a result of this, there isn’t a single point of failure. What this means is that a single node becoming compromised doesn’t affect the security or availability of the whole network.
Contrast this to standard, conventional databases. Many regular, non-distributed databases rely on one or a few servers. They are far more vulnerable to cyber-attacks and technical failures.
43 percent of cyberattacks are aimed at small businesses, but only 14 percent are prepared to defend themselves. That statistic is terrifying for small business owners. Blockchain technology assists in lessening some of the concerns around cybersecurity threats against sensitive data.
Blockchain Is Extremely Stable
Blocks that are confirmed are highly unlikely to be reversed. This means that once a piece of data is registered to the ledger, it’s near impossible to change or remove it.
What this does is make blockchain an incredible technology for the storage of financial, banking, health, or other sensitive data. Any data source where audit trails may be required is ideal for blockchain technology. All changes are tracked and permanently recorded (with no bias) on a public, distributed ledger.
This stability is ideal for small businesses. A company can utilize the technology to prevent any attempts at fraudulent behavior for employees. Using the power of this revolution, a business can provide stable, secure records of financial transactions within the business.
In this example, suspicious transactions that could be easily masked with other database options are nearly impossible to hide in a blockchain ledger.
Blockchain Is A Trustless System
In many traditional systems of payment, transactions are dependent on three factors: both parties involved, along with an intermediary. Examples of these intermediaries include credit card companies, banks, or payment providers.
When utilizing this technology, an intermediary isn’t necessary. The distributed node network verifies these transactions through processes known as mining. As a result of this, blockchain is often referred to as a genuinely trustless system.
These systems negate the risks associated with necessary trust in a single entity. While doing this, it simultaneously reduces transaction fees and costs through circumventing third parties and other intermediaries.
Per Wharton, once a blockchain is established, the digital infrastructure creates possibilities for automation across organizations and industries. Because everything is on a common platform, everyone involved can enjoy the same level of transparency and visibility.
The Cons of The Blockchain Revolution
With all the outlined advantages above, you may be asking yourself, “Why hasn’t everyone adopted blockchain yet?”. Well, for every advantage, there is an equal and opposite disadvantage. Blockchain technology is no exception.
There are some nuances that may give businesses pause to act. Below are four of the most common disadvantages that may be a cause for concern.
Potential For “51 Percent Attacks”
Bitcoin has the most extensive and most mature ledger and is the godfather of blockchain as a whole. The consensus algorithm protecting the blockchain is referred to as Proof of Work. It is notorious for its efficiency and effectiveness.
However, even with the security measures in place, some attacks can be performed against blockchains. One of these commonly-discussed malicious attacks is called a 51 percent attack.
A 51 percent attack can occur if one entity gains control of over 50 percent of the hashing power of a node network. Over time, this will allow that entity to disrupt the system and blockchain. They can do this by modifying or excluding the transaction order on the ledger.
It should be noted that, despite the theoretical possibility of a 51% attack, this has never occurred with Bitcoin’s blockchain. Plus, as the network grows and security levels increase, it’s very unlikely that Bitcoin miners will try to attack Bitcoin.
The ledger of a small or medium sized business won’t be to the level of Bitcoin’s massive ledger. Thus, their blockchain database will be far more susceptible to the possibility of a 51 percent attack.
Private Keys and the Need For Secrecy
The blockchain revolution is hinged upon public-key cryptography, also known as asymmetric cryptography. This provides ownership over blockchain data when combined with a private key.
While the public address can be shared (think a Bitcoin wallet), private keys are meant to be kept secret They’re required to access and decrypt the data on the blockchain ledger. A private key turns jumbles of characters into usable data. The parallel to this in the cryptocurrency world is like a PIN number on a debit card.
If a user or employee loses or forgets their private key, the data is effectively lost to them. If their private key is somehow compromised, this compromises the security and integrity of the whole ledger.
Despite the numerous advantages of this technology, those using Proof of Work are usually inefficient. Blockchain mining is extremely competitive. Combine this with only one “winner” in a set time frame, the work performed by other miners is completely wasted.
As a result, miners strive to increase computational power. This gives them a stronger chance of mining a valid block hash and reaping any associated rewards. With increases in computational power comes the need for increases in the network’s resources.
Massive Storage Needs With Blockchain Ledgers
Over time, these ledgers have a tendency to grow. An example of this goes back to Bitcoin. Their blockchain ledger storage requirements as of January 5, 2020, are over 250 gigabytes of text data.
This may not seem too bad in a world where data storage costs are at an all-time low. However, growth in blockchain sizing typically outpaces growth in hard drive space standards when accumulating ledger lines.
When this occurs, the blockchain network is at risk of losing nodes. This is because each node is required to have a copy of the full ledger stored on their machines.
Is Blockchain Technology Right For Your Business?
Despite its potential disadvantages, blockchain technology has incredible applications in the business world. There is still a ways to go before the adoption becomes mainstream. Despite this, larger companies are heavily invested in blending blockchain into their systems.
Over the next few years, we’ll likely watch as businesses in sectors with auditable data experiment with blockchain applications. Whether it applies to your market is up to personal interpretation.
There are important questions that still remain, though. One of the most common for small businesses is whether blockchain is worth the time to implement.
Remember, this tech is still actively being developed, and is iterating rapidly. Businesses interested in blockchain have many potential advantages. However, it comes with the burden of education and persistent advancements.
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Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.