Blockchain technology, which appeared in 2009, became a real breakthrough in the financial sector. A group of unknown Japanese programmers (under the nickname Satoshi Nakamoto) developed a technology for anonymous and fast transfers of money anywhere in the world. Such convenience was not immediately appreciated, but users later decided that it is extremely convenient and profitable. As a result, the cost of one coin soared from a few cents to tens of thousands of dollars.
All parts of the Bitcoin protocol and the ideas were known until 2009, but it was the Bitcoin authors who managed to make everything work together. And this result has become not only convenient but also safe. For all the time, only one critical mistake was found: the attacker received 92 billion Bitcoins on one account. The correction required a rollback of the entire financial history for a day. However, just one critical mistake over such a period is a decent result.
Yes, Blockchain and Bitcoin have many advantages, but it was also the first step into the field of cryptocurrencies. Therefore, this method has some peculiarities and has already managed to get some myths. In this article, we will look at the main misconceptions and inaccuracies in the Bitcoin.
Blockchain Is a Giant Distributed Data
Some ordinary people think that the Blockchain, which resides on the devices and computers of millions of users, is a distributed ledger and performs individual calculations. Something like a giant brain, where each part of it does something important and unique. But it is not so. The point is that every computer performs similar calculations. All machines, without exception.
- They check the completed transaction according to the rules of the Blockchain;
- Write data to the register;
- They store information about transactions (the same), which cannot be faked, deleted, or changed.
That is, each computer works individually, performing work according to the requirements of the network. They don’t help each other by completing more difficult tasks. No, these are multiple duplications of the same information. It is clear that this is necessary to ensure safety, but efficiency, in this case, is not a priority.
Blockchain, Where All Information about Transactions is recorded, is Convenient
The idea of the absence of a centralized node is a good one because it avoids the main regulator that can dictate market rules. Each computer, as we have already said, stores all the information about the performed transactions. And there is a problem here. According to statistics, information about all completed transactions already occupies more than 150 gigabytes. However, this is not much in comparison with competitors (for example, only two years after the launch of Ethereum, this volume exceeded 200 gigabytes).
The problem is that storing this data can be very difficult due to the lack of space. Of course, such a block of information can be contained on the server, but this changes the principle of Blockchain (to the traditional client-server architecture). Besides, users must trust the servers where the information is stored. But in this case, one of the principles of Bitcoin (don’t trust anyone) becomes less convincing.
Bitcoin Will Replace Banking Transactions
It sounds obvious because it is convenient to pay with cryptocurrency – a transaction from one country to another can take not much time. But there is one key issue with Bitcoin here – bandwidth. Remember when we said that all computers do the same calculations? This means that the bandwidth of the entire network is equal to the bandwidth of one node on the network. Today this is only 7 transactions per second.
Moreover, the Blockchain updates the registry only once every 10 minutes. And after the appearance of the information, it is necessary to wait another 50 minutes, for approving transactions. Yes, it takes an hour to complete and confirm a transaction. This is convenient when it comes to financial transfers between countries, but standard in-store purchases using Blockchain are no longer convenient.
And this is now when only a small number of people use Bitcoin (in comparison with all the people of the planet). And if you imagine that the number of active users grows significantly, then the time will also grow. In this sense, Bitcoin cannot beat standard banking technologies (for example, Visa processes thousands of transactions per second). Moreover, this technology can increase efficiency through programmatic changes, and Bitcoin already has a clear structure that cannot be changed.
Miners Ensure Network Security
Bitcoin is creates through mining. This is a process when a computer performs certain mathematical calculations (according to a given algorithm) and forms a block with information. This process was initially quite simple and profitable, but today it needs serious power and a lot of energy to mine coins.
Interestingly, if there were a thousand times fewer miners and a thousand times less electricity was used, then Bitcoin would function no worse – the same block every 10 minutes, the same number of transactions, the same speed.
Moreover, in mining, there is a concept of “51% attack”. This is a situation where one of their participants can control most of the mining power. In this case, he gets the opportunity to anonymously enter an alternative financial history. For example, make a transaction, but show everyone his version, where money did not leave the wallet – and it will become reality. Thus, he gets the opportunity to spend his money several times. Traditional payment systems are not susceptible to such an attack.
Decentralization of the Blockchain Ensures its Inviolability
Another interesting thought is that the distribution of information across thousands of computers and network nodes makes Bitcoin “eternal”. After all, no services can close it. But it is not so. The fact is that today there are practically no “independent” miners. Mining coins on their own has long become an unprofitable activity, and users have abandoned it. Today, miners have united in cartels and receive distributed income.
There are several dozen such groups. At the same time, about 4 cartels control over 50% of all capacities. And the majority (81%) is located in China. This means that, if desired, the country and government can, if not completely shut down, then significantly affect the viability of Bitcoin. And such an opportunity, as you know, will devalue Bitcoin many times over.
Anonymity and Openness is Good
The blockchain is a confidential but open system. Each user can look at the transactions that were made from the wallet – when and how it happened, etc. However, there is no complete anonymity here. For example, if a scammer demands money for a wallet, then everyone understands that the wallet belongs to the bad guy. And since anyone can follow the transactions from this wallet, the fraudster will not be able to use the received Bitcoins so easily, because it is worth revealing his identity somewhere, he will be immediately imprisoned. Almost all exchanges require identification to be exchanged for fiat money.
However, there is also an opportunity to “wash” money. To do this, special intermediaries have used. They mix the scammer’s money with a lot of clean ones. Yes, the fraudster pays a serious commission and risks (moreover, the intermediary can turn it over to the authorities), but this scheme is still working.
But such pseudo-anonymity is potentially dangerous not only for ordinary users. Because every person who is aware of your personality (you can send some cryptocurrency to a friend or acquaintance, etc.) receives all the information about your financial capabilities. Yes, this is not so critical for personal vallet, but large companies that expose their financial transactions to general discretion (counterparties, purchases, sales, customers, volume of accounts, etc.) may face serious problems.
Yes, Bitcoin has competitors who have tried to solve certain problems. And while some of the ideas are very good, it is still based on blockchain. Yes, there are other non-monetary uses of blockchain technology, but the key disadvantages of blockchain persist there. However, cryptocurrencies are still an opportunity to make good money. Especially if you work with specialists who understand all the nuances and aspects of the market, and can also bring good profit.