Blockchain and Bitcoin just turned 10 — both were introduced in August of 2008 and both are beginning to mature into mainstream technologies that have the potential to change the way business is done.
Because they are so new, however, there are plenty of misconceptions about each. These misunderstandings run the gamut from over-enthused to jaded. Some people may assume that given the hype, blockchain will solve all their business problems. Others may view blockchain and Bitcoin with extreme suspicion.
“There's risk in both approaches,” says software architect Jonathan Morley, author of That Book on Blockchain: A One-hour Intro. “Those who fling themselves into blockchain adoption without taking the time to understand it may waste talent, time and resources on a technology they don't need. Those who don't adopt it at all out of fear may risk being left behind by their competitors.” To help potential adopters better understand what blockchain and Bitcoin are (and what they aren't) Morley took some time to talk to Omni and dispel some common myths about both.
What are Blockchain and Bitcoin?
Don't know what blockchain and Bitcoin are? No worries: you're in good company.
First things first: blockchain and Bitcoin are often mentioned in the same breath, but they're not the same thing.
Here are some quick definitions:
- Bitcoin is a network and cryptocurrency — an infrastructure and type of money that exists online only. Bitcoin isn't the only type of cryptocurrency, although it is the best known. There are more than 1,000 kinds of cryptocurrencies.
- Blockchain is a decentralized, shared, immutable, chronological ledger. Put another way, it’s a database shared by a network. Transactions are represented in “blocks” that are sent to, and verified by, everyone in that network. Then the blocks are added to the chain of blocks as records. Because it's hard to tamper with, it's an ideal way to conduct important transactions, such as exchanges of Bitcoin and other currency.
Now you know enough to go on. Let's get to the myths:
Myth 1: Blockchain and Bitcoin are passing fads
Bitcoins often pronounced dead by the media. In fact, there have been so many headlines stating that Bitcoin has "died," the site 99Bitcoins keeps a running tally. (As of this writing, 308 Bitcoin obituaries have been penned since 2010.)
"It’s absolutely not going away," said Morley.
In fact, he adds, neither blockchain nor Bitcoin can go away, so long as someone wants to use them. As long as one adopter wants to keep the network alive, it'll stay alive.
The technologies are here to stay, but they are changing as they mature. Also, some of the people who spoke breathlessly about both a few years ago might be getting a little jaded as their inflated expectations for the technology aren't met. This year's Gartner Hype cycle for emerging technologies showed blockchain to be descending into the Trough of Disillusionment. That's normal for any new technology — Gartner predicts blockchain will be fully mainstreamed in 5 to 10 years.
Myth 2: Blockchain can (and should) be used for everything
While the idea of a hack-resistant database may beguile some business owners, blockchain is not a technology that can be thrown at any business problem or use case. In fact, there are some use cases that may not want to implement blockchain because it's a shared database and sometimes an organization can't (or shouldn't) share information.
Blockchain is at its best when it’s being used to share information with large networks of peers. This is why it's ideal for cryptocurrencies and finance — if a group of banks who are natural competitors all agree that a transaction has taken place, that lends credibility to the transaction.
However, if a small company wants to put an internal database on a private blockchain, that's unlikely to be a good use of the technology because a traditional database would work just as well for that use case.
"Blockchain is really good at what it does, but it’s only good at what it does," said Morley.
Myth 3: Bitcoin is used by criminals
If you don't know much about bitcoin and cryptocurrencies, you might think that an exclusively electronic form of money sounds shady. In fact, Morley says that many of the misconceptions around bitcoin frame it as a form of payment solely used by people who are involved in illegal activity online, like drug dealers and terrorists.
False, says Morley. Plenty of legitimate organizations have embraced blockchain and cryptocurrency. Many small banks have embraced bitcoin and other cryptocurrencies as a money-maker for their organizations while larger financial institutions have been implementing blockchain technology. Governments are getting into the action as well; Dubai has promised that it will be the first government running on blockchain by 2020.
Myth 4: Using Bitcoin means every transaction is anonymous
Those who aren't familiar with bitcoin sometimes believe that if they use the Bitcoin network, their transactions can't be traced. That's not true, says Morley.
In this case, paying in cash is more anonymous than paying in bitcoin.
How? Like a physical coin, bitcoins are stored in a wallet, only in bitcoin’s case, the wallet is a software program. Users access their wallet with a password, or key and it’s traceable.
Myth 5: Bitcoin is vulnerable to hacking
“This myth is only true in certain circumstances,” says Morley. “Cryptocurrencies have certainly been stolen.” Steve Wozniak, the co-founder of Apple, recently had seven Bitcoins stolen from him. However, Bitcoin’s network is no more at fault for this theft than physical money is when it's stolen from an unlocked car or an unattended purse.
"It’s not a problem with the Bitcoin network, it’s a problem with how these bitcoins were secured," said Morley.
Take Wozniak's example. Wozniak, who discussed his theft at a summit back in February, said he'd fallen for a scam. Someone bought the bitcoins from him with a stolen credit card, then canceled the card before paying.
As this post is being written, the price of a single Bitcoin is $6,629, so of course there are scammers and hackers trying to get at bitcoins. According to Morley, the best way to prevent that theft is simply to store your Bitcoins securely and choose the third-party software you use wisely.
Ready to learn more?
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