Widespread misconceptions and false ideas about blockchain

15 June 2018

Blockchain adoption across various industries is taking pace and the hype around the technology is still on the front burner. However, a great number of average consumers and Internet users have wrong ideas of the phenomenon and misunderstand its key operating principles, intended purpose and areas, where it may be used.

Misconception No1: Blockchain is an assembly of many machines

The first and most common wrong idea about blockchain technology is thinking that all the nodes connected into one network share the duties, thus contributing into the overall operation of the system and increasing its aggregate performance and efficiency.

Meantime, it doesn’t work that way. The operating principle and the general structure of the blockchain architecture as a matter of fact differ from what most of us used to think of it. Each node in the blockchain network performs virtually the same type of computations and operations: they duplicate actions of each other: recording the same things and verifying the same transactions, following the same processes to store the history of every activity on the blockchain. It means that the nodes, or computers connected into the blockchain, do not share the duties and do not assist each other.

Misconception No2: Blockchain is all about cryptocurrency

So far as Bitcoin has become very popular and taken the shine out of its underlying technology, blockchain, many ordinary people used to think that cryptocurrency is the only application of blockchain. Some go as far as to place Bitcoin and blockchain on the same shelf, mixing the two concepts.

Meantime, blockchain is a technology enabling its members to interact and transact with each other without central authority or intermediary with their activity recorded on a distributed ledger. Cryptocurrency, in turn, is a digital asset developed on the platform of a blockchain for direct exchange between the parties without clearing or processing services of financial institutions.

Furthermore, blockchain may be used by far more industries apart from the cryptocurrency. Blockchain is currently either experimented or intensely implemented by a wide range of businesses interested in its specifics and peculiarities, including supply chain companies and big players in the financial markets.

Misconception No3: Anonymity of Blockchain

Many beginners have a common misbelief that the information saved on the blockchain is not publicly available and all transactions are kept anonymous. Meantime, almost all actions performed on the blockchain are visible and traceable, and, according to some experts in the industry, there is no such thing as shady activity on the blockchain with the ability for the criminals to hide what they do.

As for Bitcoin, it is a public ledger with the inbuilt functionality to trace the amount of coins spent and the addresses making or receiving transfers. Public authorities are cooperating with many major cryptocurrency exchanges to get access to the tools required to trace the address on the blockchain to its owner.

Misconception No4: Blockchains are not reliable because of crypto volatility

Most antagonists of cryptocurrencies stick to the opinion that in view of the volatility peculiar to many cryptocurrencies, blockchain technologies are also unreliable and short-lived. This is not true, because, as it is mentioned above, blockchain has an extensive list of applications other than cryptocurrencies and, as some specialists say, it may remain a ‘game changer’ in a long term. Blockchain should not be underestimated because of its initial use cases.

Misconception No5: Tokens are synonymous to coins

It is a common false assumption that tokens and coins are the same things. This wrong understanding may result from the term ‘Initial Coin Offering’ used by many startups and projects for token crowdsales. Coins, however, have a narrow range of applications, as they are used just as a store of value, while tokens have a more extensive range of application and may be used for storing property, utility, income and fungibility. Elaborating further on property, it may include real estate transactions and intellectual rights. Besides, tokens may be used for obtaining commodities and loyalty bonuses.

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