The level of hype surrounding blockchain technology has blurred the lines between its realistic applications and impractical use cases.
Understanding What Blockchain Technology Is and Deciding When Not to Use It
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Insight Overview

A blockchain is a database system consisting of a growing ledger whose records are joined together using cryptography. It uses a distributed and decentralized peer-to-peer system for transaction verification. Once a transaction undergoes verification and is added to the chain, it cannot be amended or deleted.

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Can Blockchain Technology Fix Everything?

Based on its fundamental design, blockchain technology offers massive transformative potential. However, some people have the misguided notion that it can revolutionize virtually everything it touches.

In order to use it appropriately, it is important to understand its practical limitations and then identify appropriate applications.

 

When Not to Use Blockchain Technology

1. For situations that do not require trust

One of the top merits of blockchain technology is its ability to introduce trust in a trustless relationship. Therefore, if you would like to solve a problem within an organization where trust already exists, the use of blockchain may be unnecessary.

2. When immutability is a problem

Blockchain records are immutable and append-only. This means that once you add a record, you cannot amend or delete it. In situations where the GDPR right to be forgotten comes into play, the use of blockchain would cause a conflict with personal privacy rights. Similarly, if you might need to update existing data from time to time, this feature could be an obstacle.

3. When centralized control is necessary

There are situations in which having a third party in control of a system is desirable and appropriate. Decentralization comes with complex governance as there are multiple decision-makers. It also creates redundancy which can be costly, energy-intensive and slow.

Thus, centralization is preferred in some cases.

4. For transactions that require customization

If the kind of transactions you carry out change from one client to another and require constant customization, creating a smart contract for each one is impractical.

  

When to Use Blockchain Technology

1. When it is important to know the identities of transacting parties

A blockchain is by nature transparent and requires every transacting entity to sign transactions. This makes it useful for situations where you need to know the identity of these entities. For example, this can be crucial to avoid counterfeiting.

2. For dynamic data

Keeping paper-based records for data that is in constant flux with frequent transactions might not be viable. In such cases, blockchain could offer an advantage in creating an auditable history of the data.

3. When distribution is a necessity

Distributed frameworks are costly but have their merits. When you need a reliable system without node failures, blockchain can render the security of having multiple entities confirm transactions and immunity from a few bad actors.

 

To better understand when and when not to use blockchain technology, you can refer to the diagram below.

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Check the Viability of a Blockchain Solution

Evidently, blockchain technology is not a magical solution for every problem and is only appropriate for situations that meet specific criteria. Though it has numerous obvious merits, these will only come to the fore with appropriate applications.

It would, therefore, be best to skip the hype and take time to question the necessity and technical viability of a blockchain solution prior to implementation.

 

A blockchain is a database system consisting of a growing ledger whose records are joined together using cryptography
In order to use blockchain appropriately, it is important to understand its practical limitations and then identify appropriate applications.