Four Things You Need to Know About Blockchain
By Ariel Zetlin-Jones, Associate Professor of Economics
Blockchain technology is touted as immutable, anonymous, and decentralized. Sounds perfect — but unfortunately, it's not that simple.
Here are four things you need to know about blockchain before you jump on board.
1. Blockchain data can be altered.
Current public blockchains have no security protocol to prevent someone from acquiring enough computer resources to modify past records. It's a lot of work and very expensive, but who's to say a party with deep pockets wouldn't give it a go, given sufficient incentive?
If you want to know whether to trust blockchain data, you want to understand the roles that technology and economic factors play in securing it.
2. Not only the data but the basic rules or protocols that govern the data can be modified by users.
In blockchain, any user may submit a transaction to be added to the blockchain. Similarly, any user may propose a change to the rules of how a blockchain operates (its protocol), and if enough other users in the crowd agree, the change happens. Nothing is set in stone.
Policymakers are concerned. When you buy a share in a company, for example, you enter into a contract. The SEC ensures that agreement can rarely be rewritten. But if the transaction record were stored in a blockchain, it is public and can be altered.
If you are entering into contracts on a blockchain — smart contracts — you should understand that the crowd, and not a regulatory body, enforces these contracts.
3. Anonymity is not a given.
It seems crazy to think a string of characters can be linked to an individual, but because every transaction is public, it's possible. Some research has shown that bitcoin addresses can be linked to social media.
If your business is considering adopting a blockchain solution, you should know what blockchain data can and cannot be made private while preserving the usefulness of the blockchain itself.
4. If it's not decentralized, is it blockchain?
The premise of blockchain is to enable trusted, verifiable recordkeeping without relying on a single party, like a bank, to maintain the records. Corporate applications — so-called private blockchain — move away from this. If a company builds a blockchain like Bitcoin's but restricts access to certain users, some party trusted by everyone in the network must OK who is allowed to have an account. So why not just trust them to keep the records?
You should know that blockchain-based solutions that move away from decentralization undermine the basic value proposition of blockchain.
Researchers in the Blockchain Initiative at Tepper are looking at all the facets of blockchain and how they intertwine — from the technology itself to how it is used, and everything in between — to determine its best uses in the future.