BLOCKCHAIN

A Project Submitted to

University of Mumbai for partial completion of the degree of

Bachelor in Commerce (Financial Market)

Under the Faculty of Commerce

By

Preet Pethad

Under the guidance of

Mr. Milind Saraf

Name of the College

K J Somaiya College of Arts and Commerce

Month and Year

MAY 2022
 BLOCKCHAIN
A Project Submitted to

University of Mumbai for partial completion of the degree of

Bachelor in Commerce (Financial Market)

Under the Faculty of Commerce

By

Preet Pethad

Under the guidance of

Mr. Milind Saraf

Name of the College

K J Somaiya College of Arts and Commerce

Month and Year

MAY 2022
 INDEX

Sr.no. Particulars Page no.

1 Abstract 7

2 What is Blockchain ? 8-9

3 History of Blockchain 10-11

4 Blockchain Technology: How does it work 12-21

5 Blockchain and path to innovation 22-24

6 Advantages of Blockchain 25-29

7 Disadvantages/Limitations of Blockchain 30-37

8 Interlink between Blockchain and 38-42

Cryptocurrencies
 KJ SOMAIYA COLLEGE OF ARTS ANDS COMMERCE

Mahul Rd, Vidyanagar, Vidya Vihar East, Ghatkopar East, Mumbai, Maharashtra 400077

This is to certify that Ms/Mr _____________ has worked and duly

completed her/his Project Work for the degree of Bachelor in Commerce (Financial Markets)underthe

Faculty of Commerce in the subject of ______________ and her/his

project is entitled, “__________________ ” under my

supervision.

I further certify that the entire work has been done by the learner under my guidance and that no part
of it has been submitted previously for any Degree or Diploma of any University.

It is her/ his own work and facts reported by her/his personal findings and investigations.

Name and Signature of Guiding Teacher

Date of submission:
 Declaration by learner

I the undersigned Miss / Mr. __________ here by, declare that the work embodied

in this project work titled

“_________________________ ”, forms my

own contribution to the research work carried out under the guidance of

____________ is a result of my own research work and has not been previously

submitted to any other University for any other Degree/ Diploma to this or any other University.

Wherever reference has been made to previous works of others, it has been clearly indicated as such
and

included in the bibliography.

I, here by further declare that all information of this document has been obtained and presented in

accordance with academic rules and ethical conduct.

Name and Signature of the learner

Certified by

Name and signature of the Guiding Teacher

 Acknowledgment
To list who all have helped me is difficult because they are so numerous and the depth is so
enormous.

I would like to acknowledge the following as being idealistic channels and fresh dimensions in the

completion of this project.

I take this opportunity to thank the University of Mumbai for giving me chance to do this project.

I would like to thank my Principal, ____ for providing the necessary facilities required
for completion of this project.

I take this opportunity to thank our Coordinator_______ , for her moral support and
guidance.

I would also like to express my sincere gratitude towards my project guide _____ whose

guidance and care made the project successful.

I would like to thank my College Library, for having provided various reference books and
magazines related to my project.

Lastly, I would like to thank each and every person who directly or indirectly helped me in the

completion of the project especially my Parents and Peers who supported me throughout my project.
 ABSTRACT

A blockchain is essentially a distributed database of records or public ledger of all

transactions or digital events that have been executed and shared among participating parties.
Each transaction in the public ledger is verified by consensus of a majority of the participants
in the system. And, once entered, information can never be erased. The blockchain contains a
certain and verifiable record of every single transaction ever made. Bitcoin, the decentralized
peer to peer digital currency, is the most popular example that uses blockchain technology.
The digital currency bitcoin is highly controversial but the underlying blockchain technology
has worked flawlessly and found wide range of applications in both financial and non –
financial world.

The main hypothesis is that the blockchain establishes a system of main hypothesis is that the
blockchain establishes a system of creating a distributed consensus in the digital online
world. This allows participating entities to know for certain that adigital event happened by
creating an irrefutable record in a public ledger. It opens the door fordeveloping a democratic
open and scalable digital economy from a centralized one. There aretremendous opportunities
in this disruptive technology and revolution in this space has just begun.

This white paper describes blockchain technology and some compelling specific applications
in both financial and nonfinancial sector. We then look at the challenges ahead and business
opportunities in this fundamental technology that is all set to revolutionize our digital world.
 WHAT IS BLOCKCHAIN (INTRODUCTION)

A blockchain is essentially a distributed database of records or public ledger of all

transactions or digital events that have been executed and shared among participating parties.
Each transaction in the public ledger is verified by consensus of a majority of the participants
in the system. And, once entered, information can never be erased. The blockchain contains a
certain and verifiable record of every single transaction ever made. To use a basic analogy, it
is easy to steal a cookie from a cookie jar, kept in a secluded place than stealing the cookie
from a cookie jar kept in a market place, being observed by thousands of people.

Bitcoin is the most popular example that is intrinsically tied to blockchain technology. It is
also the most controversial one since it helps to enable a multibillion-dollar global market of
anonymous transactions without any governmental control. Hence it has to deal with a
number of regulatory issues involving national governments and financial institutions.

However, Blockchain technology itself is non-controversial and has worked flawlessly over
the years and is being successfully applied to both financial and non-financial world
applications. Last year, Marc Andreessen, the doyen of Silicon Valley’s capitalists, listed the
blockchain distributed consensus modelas the most important invention since the Internet
itself. Johann Palychata from BNP Paribas wrote in the Quintessence magazine that bitcoin’s
blockchain, the software that allows the digital currency to function should be considered as
an invention like the steam or combustion engine that has the potential to transform the world
of finance and beyond.

Current digital economy is based on the reliance on a certain trusted authority. Our all online
transactions rely on trusting someone to tell us the truth - it can be an email service provider
telling us that our email has been delivered; it can be a certification authority telling us that a
certain digital certificate is trustworthy; or it can be a social network such as Facebook telling
us that our posts regarding our life events have been shared only with our friends or it can be
a bank telling us that our money has been delivered reliably to our dear ones in a remote
country. The fact is that we live our life precariously in the digital world by relying on a third
entity for the security and privacy of our digital assets. The fact remains that these third party
sources can be hacked, manipulated or compromised.

This is where the blockchain technology comes handy. It has the potential to revolutionize
the digital world by enabling a distributed consensuswhere each and every online transaction,
past and present, involving digital assets can be verified at any time in the future. It does this
without compromising the privacy of the digital assets and parties involved. The distributed
consensus and anonymityare two important characteristics of blockchain technology.
 HISTORY OF BLOCKCHAIN

Cryptographer David Chaum first proposed a blockchain-like protocol in his 1982

dissertation "Computer Systems Established, Maintained, and Trusted by Mutually
Suspicious Groups. Further work on a cryptographically secured chain of blocks was
described in 1991 by Stuart Haber and W. Scott Stornetta. They wanted to implement a
system wherein document timestamps could not be tampered with. In 1992, Haber, Stornetta,
and Dave Bayer incorporated Merkle trees to the design, which improved its efficiency by
allowing several document certificates to be collected into one block. Under their company
Surety, their document certificate hashes have been published in The New York Times every
week since 1995.

The first decentralized blockchain was conceptualized by a person (or group of people)
known as Satoshi Nakamoto in 2008. Nakamoto improved the design in an important way
using a Hashcash-like method to timestamp blocks without requiring them to be signed by a
trusted party and introducing a difficulty parameter to stabilize the rate at which blocks are
added to the chain. The design was implemented the following year by Nakamoto as a core
component of the cryptocurrency bitcoin, where it serves as the public ledger for all
transactions on the network.

In August 2014, the bitcoin blockchain file size, containing records of all transactions that
have occurred on the network, reached 20 GB (gigabytes). In January 2015, the size had
grown to almost 30 GB, and from January 2016 to January 2017, the bitcoin blockchain grew
from 50 GB to 100 GB in size. The ledger size had exceeded 200 GB by early 2020.

The words block and chain were used separately in Satoshi Nakamoto's original paper, but
were eventually popularized as a single word, blockchain, by 2016.

According to Accenture, an application of the diffusion of innovations theory suggests that

blockchains attained a 13.5% adoption rate within financial services in 2016, therefore
reaching the early adopters phase. Industry trade groups joined to create the Global
Blockchain Forum in 2016, an initiative of the Chamber of Digital Commerce.

In May 2018, Gartner found that only 1% of CIOs indicated any kind of blockchain adoption
within their organisations, and only 8% of CIOs were in the short-term "planning or [looking
at] active experimentation with blockchain". For the year 2019 Gartner reported 5% of CIOs
believed blockchain technology was a 'game-changer' for their business.
 BLOCKCHAIN TECHNOLOGY: HOW DOES IT WORK

STEP 1 : TRANSACTION

STEP 2 : VERIFICATION

STEP 3 : BLOCKS

STEP 4 : EXECUTION
 STEP 1: TRANSACTION

1. Client Initiates Transactions :

To initiate a transaction, the client creates a properly formatted proposal via the
Hyperledger Software Development Kit (SDK), and signs it from their identity, and
then transmits it to the network for approval.

2. Endorsing Peers Verify Signature and Execute the Transaction :

If an Endorsing Peer receives a transaction with a valid signature from a known peer,
they can execute it and sign a Proposal Response, which can be passed to the wider
network as a change to the state object.

3. Proposal Responses are Inspected :

Proposal Responses are transmitted across the network and inspected by each
node independently using the SDK. The nodes can then endorse the proposal as
well, or simply act as witnesses.

4. Client Assembles Endorsements into a Transaction :

Once a predetermined minimum endorsements is met, the client software can
assemble them into a Transaction, or State Transition, which is passed to the
Ordering nodes, which will add it to the blockchain.

5. The transaction is Verified and Committed to the Ledger :

Ordering nodes accomplish consensus through a complex process known as Proof

of Authority, which enables them to determine which order the transactions should
fall into based on a predetermined hierarchy between known nodes.

6. The Ledger is updated across all nodes :

Once the State Object has been updated, and the Verified Ledger is confirmed by the

Ordering Nodes, each client node can now read the new information with confidence.

STEP 2: VERIFICATION

AUTHORISATION :

Once the transaction is agreed between the users, it needs to be approved, or authorised,
before it is added to a block in the chain.

For a public blockchain, the decision to add a transaction to the chain is made by consensus.

This means that the majority of “nodes” (or computers in the network) must agree that the

transaction is valid. The people who own the computers in the network are incentivised to

verify transactions through rewards. This process is known as ‘proof of work’.

Proof of Work:

Proof of Work requires the people who own the comput ers in the network to solve
a complex mathematical problem to be able to add a block to the chain. Solving
the problem is known as mining, and ‘miners’ are usually rewarded for their work
in cryptocurrency.
But mining isn’t easy. The mathematical problem c an only be solved by trial and
error and the odds of solving the problem are about 1 in 5.9 trillion. It requires
substantial computing power which uses considerable amounts of energy. This
means the rewards for undertaking the mining must outweigh the cos t of the
computers and the electricity cost of running them, as one computer alone would
take years to find a solution to the mathematical problem.

STEP 3: BLOCKS

The head of the block is divided into six components:

1. The version number of the software

2. The hash of the previous block

3. The root hash of the Merkle tree

4. The time in seconds since 1970–01–01 T00: 00 UTC

5. The goal of the current difficulty

6. The nonce
1.The version number of the software :

The software version number does not matter in most cases. However, a miner
with a particular version number can signal which protocol decisions he
supports.

2.The hash of the previous block :

The hash of the previous block is, so to speak, the chain of blockchains. Because
the hash of the previous block is contained in the hash of the new block, the
blocks of the blockchain all build on each other. Without this component, there
would be no connection and chronology between each block.
3.The root hash of the Merkle tree :

All transactions contained in a block can be aggregated in a hash. This is the root
hash of the Merkle tree.

4.The time in seconds since 1970–01–01 T00: 00 UTC

A timestamp in the block itself. The time is given in seconds since 1.1.1970.

5.The goal of the current difficulty :

The goal indicates how small the new hash must be to claim validity. In other
words, every hash has a size in bits. The lower the goal in bits is, the harder it is
to find a matching hash. A hash with many zeros at the beginning is smaller than
a hash without zeros. Find out more about the difficulty of the proof of work.

6.The Nonce :

The nonce is the variable incremented by the proof of work. In this way, the
miner guesses a valid hash, a hash that is smaller than the target.

The six components form the block header. The block header plays a
fundamental role in Bitcoin because it connects all blocks together. You can
imagine it like the cockpit of a truck. Here are the important papers with which
the truck comes through the controls of the network.
 STEP 4: EXECUTION

The first well known application of blockchain technology was Bitcoin, a peer-
to-peer system custom-designed to make value transfer function without relying
on a central party. It worked really well and still works today as arguably the
most robust deployment of blockchain applications. But blockchain will never
have made to the forefront of the technological innovations were it not for a
number of key technologies that were added to the limited functionalities in
Bitcoin, and smart contracts was a critical foundation of that revolution. There
are many business advantages to using smart contracts, including trust,
transparency, security, autonomy and accuracy. This article will focus on
explaining what a smart contract is, how it works, and the various
approaches for deployment.
In a decentralized world, trust is not an essential ingredient to make things
work. Blockchain relieves participants from having to rely on a centralized
party to operate truthfully. No more entrusting your business’ livelihood to a
3rd party intermediary in hopes they will always do the right thing. With
blockchain, every participant is in control, yet no one has total control. There
are a number of technologies employed by blockchain designs to materialize
this self-governance. Smart contracts are so far the most mature and widely
adopted technology.

A smart contract refers to a piece of computer program that gets executed by a

quorum of blockchain nodes independently in order to record the latest program
state. This may seem complex, so let’s take some time to unpack it.

Basic Definition of Smart Contracts :

Smart contracts are executable programs. They are usually written in high-level
computer programming languages in order to represent arbitrary business logic
or pre-determined criteria to trigger transfer of values. For a smart contracts
engine to be effective in supporting a wide range of use cases, the language
needs to be Turning complete, a fancy computer science term meaning the
language can be programmed to solve any computation problem. For this
reason, even though it is possible to program in Bitcoin scripting language,
because it is very limited in functionalities, Bitcoin is not considered to have
smart contracts. Ethereum first introduced smart contract support, ushering in an
era of rapid innovations to solve some of the most challenging problems in
technology and society alike.

Smart contracts get executed by the blockchain nodes, as a result of processing

transactions that are submitted by the user. A blockchain transaction has a
designated target smart contract function, a payload that contains input values to
the function call, and always signed by the submitter. A transaction can be
submitted to any node in the blockchain network, which broadcasts it to the
entire network so all the nodes will see the transaction. At some point, the
transaction gets processed by each individual node using the executable
program in the target smart contract. If the transaction execution is successful,
the internal state of the blockchain will be updated. A smart contract may also
consider the input to be invalid and reject the transaction as failed, in which
case the state is not affected.

BLOCKCHAIN AND PATH TO INNOVATION

Blockchain technology has given rise to a new platform for business

relationships that combines ease of use, low cost and high security. It creates a
new basis of trust for business transactions that could contribute to a
considerable simplification and acceleration of the economy.

Trust is the foundation of every business relationship. Success is built on it, and
it’s part of how we care for our business networks. We also use intermediaries
in our relationships, and they create trust and must have our trust. Banks ensure
that we deal with the correct counterparties and that the transactions are for the
correct amounts. We employ lawyers to control that our products are not copied
or illegally distributed. On the whole, the use of intermediaries it is very
complex, costs a lot of time and money, and in this age of hackers, it also
carries security risks.
Is it superfluous?

What if there were a way to connect business partners directly, with near
complete trust and almost without effort? Some might say that this possibility
already exists with internet platforms. Amazon and eBay have created trading
venues where business connections have become more direct, faster and easier.
Uber and Airbnb have brought supply and demand even closer together. In all
these cases a service platform serves as an intermediary, and the intermediary
demands a fee. Trust still has its price.

Elaborate systems such as PayPal for payment transactions are used as a trusted
basis of exchange. It is all undoubtedly more direct and easier than before, but
as Uber has threatened traditional business models, Uber itself could be
undermined by an even simpler platform for business transactions: the
blockchain.

The block

Until now the word “blockchain” has mainly been linked to bitcoin, the virtual
currency and payment system, but the blockchain technology and its principles
have almost unlimited application possibilities in business transactions. The
basic idea is relatively simple and consists of two elements, which the name
suggests: the block and the chain. The block is a highly encrypted list of entries
related to transactions of a business. This may include tracking the delivery
status of a product, the persons involved in the production process of the
product or the payments made between parties. Whatever is important to the
business can be documented in the block.

The chain

A main point is that the documentation is not only managed in one location,
such as the central server of a bank, but it is distributed among the users of the
blockchain. There are countless copies, potentially millions distributed
throughout the network. The chaining of the blocks ensures that the content of
the block remains trustworthy at all times. For example, if a change is entered in
a block, such as a payment statement, then all the computers in the entire
network check the blockchain to see if the transaction was valid. By combining
encryption, decentralization, a multitude of stakeholders and community
control, this system is nearly impossible for hackers to penetrate. Trust does not
arise from the relationship between parties or through an intermediary but from
the technology and the process of comparison in the network. Don and Alex
Tapscott, who recently wrote a book on the subject, call the blockchain the
“Trust Protocol.”

Smart contract

In addition, block information can also be linked to a “smart contract”

(intelligent contract software) that automatically triggers transactions when a
specific event occurs. For example, after the sale of a product, pro rata
payments could automatically be made to all entitled to a payment under the
contract. Instead of a central authority, a decentralized network is the authority.
This increases security, lowers costs, increases speed, and creates confidence,
all without any middlemen.

Application examples

We are just starting to realize the potential applications of blockchain, but what
is already clear is that this technology takes business relationships to a whole
new level. Here are just a few selected examples that are already being used or
planned on being used.

Creative products such as music or literature often travel a complicated path

from the artist to the buyer. Countless middlemen from the label to salespersons
want their cut. In addition, there are the licenses and concessions, and the
complex rights management of online platforms. With blockchain, a direct
connection between artist and consumer is possible. It can take over the
management of the rights and also offers the advantage that all sales data can be
aggregated and provide information on the market. The British musician
Imogen Heap has already tried this out.

ADVANTAGES OF BLOCKCHAIN
1.TRUST :

Blockchain creates trust between different entities where trust is either non -
existent or unproven. As a result, these entities are willing to engage in business
dealings that involve transactions or data sharing that they may not have
otherwise done or would have required an intermediary to do so. The
enablement of trust is one blockchain's most cited benefits. Its value is evident
in early blockchain use cases that facilitated transactions among entities that
didn't have direct relationships yet still had to share data or payments. Bitcoin
and cryptocurrencies in general are quintessential examples of how blockchain
enables trust between participants who don't know each other.

2.DECENTRALIZED STRUCTURED :
Blockchain really proves its value when there's no central actor who enables
trust, explained Daniel Field, head of blockchain at UST, a global provider of
digital technology and services. So, in addition to enabling trust when
participants lack trust because they're unknown to each other, blockchain
enables sharing of data within an ecosystem of businesses where no single
entity is exclusively in charge. Supply chain is a case in point: Multiple
businesses -- from suppliers and transportation companies to producers,
distributors and retailers -- want or need information from others in that chain,
yet no one is in charge of facilitating all that information sharing. Blockchain,
with its decentralized nature, solves for that dilemma.

3.IMPROVED SECURITY AND PRIVACY :

The security of blockchain - enabled systems is another leading benefit of this

emerging technology. The enhanced security offered by blockchain stems from
how the technology actually works: Blockchain creates an unalterable record of
transactions with end-to-end encryption, which shuts out fraud and unauthorized
activity. Additionally, data on the blockchain is stored across a network of
computers, making it nearly impossible to hack (unlike conventional computer
systems that store data together in servers). Furthermore, blockchain can
address privacy concerns better than traditional computer systems by
anonymizing data and requiring permissions to limit access.

4. Reduced costs

Blockchain's nature also can cut costs for organizations. It creates efficiencies in
processing transactions. It also reduces manual tasks such as aggregating and
amending data, as well as easing reporting and auditing processes. Experts
pointed to the savings that financial institutions see when using blockchain,
explaining that blockchain's ability to streamline clearing and settlement
translate directly into process cost savings. More broadly, blockchain helps
businesses cut costs by eliminating middlemen -- vendors and third-party
providers -- that have traditionally provided the processing that blockchain can
do.

5.SPEED :

By eliminating intermediaries, as well as replacing remaining manual processes

in transactions, blockchain can handle transactions significantly faster than
conventional methods. In some cases, blockchain can handle a transaction in
seconds or less. However, times can vary; how quickly a blockchain - based
system can process transactions depends on multiple factors, such as how large
each block of data is and network traffic. Still, experts have concluded that
blockchain typically beats other processes and technologies in terms of speed.
In one of the most prominent applications of blockchain, Walmart used the
technology to trace the source of sliced mangoes in seconds -- a process that had
previously taken seven days.

6.VISIBILITY AND TRACEABILITY :

Walmart's use of blockchain isn't just about speed; it's also about the ability to
trace the origin of those mangoes and other products. This allows retailers like
Walmart to better manage inventory, respond to problems or questions and
confirm the histories of its merchandise. If a particular farm has to recall its
produce due to contamination, a retailer using blockchain can identify and
remove the produce that comes from that particular farm while leaving its
remaining produce for sale. According to experts, blockchain can help track the
origins of a variety of items, such as medicines to confirm they're legitimate
instead of counterfeit and organic items to confirm they're indeed organic.
7.IMMUTABILITY :

Immutability simply means that transactions, once recorded on the blockchain,

can't be changed or deleted. On the blockchain, all transactions are timestamped
and date-stamped, so there's a permanent record. As such, blockchain can be
used to track information over time, enabling a secure, reliable audit of
information. (That's in contrast to error-prone paper-based filing and legacy
computer systems that could be corrupted or retired.) Omar pointed to Sweden's
use of blockchain to digitize real estate transactions to keep track of property
titles even as they change hands as an example of this benefit's potential.

8.INDIVIDUAL CONTROL OF DATA :

Blockchain enables an unprecedented amount of individual control over one's

own digital data, experts said. "In a world where data is a very valuable
commodity, the technology inherently protects the data that belongs to you
while allowing you to control it," said Michela Menting, a research director at
ABI Research. Individuals and individual organizations can decide what pieces
of their digital data they want to share and with whom and for how long, with
limits enforced by blockchain - enabled smart contracts.

9. TOKENIZATION :

Tokenization is the process where the value of an asset (whether a physical or

digital one) is converted into a digital token that is then recorded on and then
shared via blockchain. Tokenization has caught on with digital art and other
virtual assets, but tokenization has broader applications that could smooth
business transactions, said Joe Davey, director of technology at global
consulting firm West Monroe. Utilities, for example, could use tokenization to
trade carbon emission allowances under carbon cap programs.
10. INNOVATION :

Leaders across multiple industries are exploring and implementing blockchain -

based systems to solve intractable problems and improve longstanding
cumbersome practices. Field cited the use of blockchain to verify the
information on job applicants' resumes as an example of such innovation.
Studies consistently have shown that a strong percentage of people falsify their
resumes, leaving hiring managers with the time-consuming task of manually
verifying the information. But pilot programs that allow participating
universities to put data about their graduates and their awarded degrees on the
blockchain that can then be accessed by authorized hiring managers helps solve
for both issues -- getting to the truth and getting to the truth quickly and
efficiently.

11. Better Transparency :

Transparency is one of the big issues in the current industry. To improve
transparency, organizations have tried to implement more rules and regulations.
But there is one thing that doesn’t make any system 100% transparency, i.e.,
centralization.

With blockchain, an organization can go for a complete decentralized network

where there is no need for a centralized authority, improving the system’s
transparency.
A blockchain consists of peers who are responsible for carrying out transactions
and validating them. Not every peer takes part in the consensus method, but
they are free to choose if they want to participate in the validation process. To
provide validation through decentralization, the consensus method is used. Once
validated, each node keeps a copy of the transaction record. This way, the
blockchain network handle transparency.
Transparency has bigger implications when it comes to organizations. As
mentioned earlier, governments can also utilize transparency in building
government processes or even conduct voting.

12. No third party interference :

No government or financial institution has control of the cryptocurrencies based
on blockchain technology. This means no government can meddle with the
value of the currency.

DISADVANTAGES OF BLOCKCHAIN

1. Blockchain is not a Distributed Computing System :

Blockchain is a network that relies on nodes to function properly. The quality of

the nodes determines the quality of the blockchain. For example, Bitcoin’s
blockchain is strong and incentivizes the nodes to participate in the network.
However, the same cannot be true for a blockchain network that does not
incentivize the nodes.

This means that it is not a distributed computing system where the network
doesn’t depend on the involvement and participation of the nodes. In
comparison, a distributed computing system works to ensure that they verify the
transactions according to the rules, ensure that they record the transactions, and
also make sure that they have the transactional history for each transaction.
Each of these actions is similar to that of blockchain, but there is a lack of
synergy, mutual assistance, and paralleling for each one of them.

Clearly, blockchain might be a distributed network, but it lacks the features that
make a distributed computing system so beneficial for the corporations.

2. Scalability Is An Issue :

Blockchains are not scalable as their counterpart centralized system. If you have
used the Bitcoin network, then you would know that the transactions are
completed depending on the network congestion. This problem is related to
scalability issues with blockchain networks. In simple words, the more people
or nodes join the network, the chances of slowing down is more!

However, there has been an increasing change in how blockchain technology

works. With the right evolution of the technology, scalability options are being
integrated with the Bitcoin network as well. The solution is to do transactions
off-blockchain and only use blockchain to store and access information.

Other than that, there are also new ways of solving scalability, including
permissioned networks or using a different architectural blockchain solution
such as Corda.

However, all these solutions are still not at par with the centralized systems. If
you compare Bitcoin and VISA transaction speed, you will find a huge
difference between them. Right now, Bitcoin can only do 4.6 transactions per
second. In comparison, VISA can do a whooping 1700 transactions per second.
This means that in a day, it can do 150 million transactions per second.

Lastly, we can say that blockchain might not be still well-equipped for real-
world applications. It still needs significant improvement before it can be
adopted in day-to-day life.
3. Some Blockchain Solutions Consume Too Much Energy :

Blockchain technology got introduced with Bitcoin. It uses the Proof-of-Work

consensus algorithm that relied on the miners to do the hard work. The miners
are incentivized to solve complex mathematical problems. The high energy
consumption is what makes these complex mathematical problems not so ideal
for the real-world.

Every time the ledger is updated with a new transaction, the miners need to
solve the problems which means spending a lot of energy. However, not all
blockchain solutions work in the same manner. There are other consensus
algorithms that have solved the problem. For example, permissioned or private
networks do not have these problems as the number of nodes within the network
is limited. Also, as there is no need for global consensus, they use efficient
consensus methods to reach consensus.

But, if you take the most popular blockchain network, Bitcoin, the problem still
persists that needs to be solved.

In short, permissioned networks are efficient when it comes to energy

consumption whereas public networks can consume a lot of energy to remain
operational.

4. Blockchain Cannot Go Back — Data is Immutable :

Data immutability has always been one of the biggest disadvantages of the
blockchain. It is clear that multiple systems benefit from it including supply
chain, financial systems, and so on. However, if you take how networks work,
you should understand that this immutability can only be present if the network
nodes are distributed fairly.

What I mean to say is that a blockchain network can be controlled by an entity

if he owns 50% or more of the nodes — making it vulnerable.
Another problem that it suffers from is the data once written cannot be removed.
Every person on the earth has the right to privacy. However, if the same person
utilizes a digital platform that runs on blockchain technology, then he will be
unable to remove its trace from the system when he doesn’t want it there. In
simple words, there is no way, he can remove his trace, leaving privacy rights
into pieces.

5. Blockchains are Sometimes Inefficient

Right now, there are multiple blockchain technologies out there. If you pick up
the most popular ones including the blockchain technology used by Bitcoin, you
will find a lot of inefficiencies within the system. This is one of the big
disadvantages of blockchain.

First of all, when I tried to set up the bitcoin miner on my system, I quickly
found out that the ledger can easily cross 100’s of GBs. It was not efficient in
data storage which can lead to storage problems for multiple nodes who want to
become part of the network.

Clearly, there needs to be a better way to handle this as whenever the data is
updated, nodes need to replicate it. Moreover, the size of the blockchain grows
with more transactions and nodes. If it continues to grow, then the whole
network is slowed down. This is not ideal for commercial blockchains where it
is essential for the network to be fast and secure at the same time.

Slowly inefficiencies are being improved with the help of other blockchain
solutions. Bitcoin is also trying to solve inefficiencies with the help of lightning
networks.

6. Not Completely Secure

Blockchain technology is more secure than other platforms. However, this
doesn’t mean that it is not completely secure. There are different ways the
blockchain network can be compromised. Let’s go through them below one by
one to make more sense out of it.

1. 51% attack: In the 51% attack, if an entity can control 51% or more of the
network nodes, then it can result in control of the network. By doing so,
they can modify the data in the ledger and also do double-spending. This
is possible on networks where the control of miners or nodes are possible.
This means that private networks are more likely to be safe from 51%
attacks, whereas public ones are more vulnerable to this.
2. Double-spending: Double-spending is yet another problem with the
current blockchain technology. To prevent double-spending the
blockchain network deploys different consensus algorithms including
Proof-of-Stake, Proof-of-Work, and so on. Double spending is only
possible on networks with a vulnerability to the 51% attack.
3. DDoS’s attack: In a DDoS attack, the nodes are bombarded with similar
requests, congesting the network and bringing it down.
4. Cryptographic cracking: Another way the blockchain technology is not
secure is that the cryptographic solution that it utilizes. Quantum
algorithms or computing are more than capable of breaking cryptographic
cracking. However, blockchain solutions are now implementing
quantum-proof cryptographic algorithms.
7. Users Are Their Own Bank: Private Keys

To make blockchain decentralized, it is important to give individuals the ability

to act as their own bank. However, this also leads to another problem.

To access the assets or the information stored by the user in the blockchain, they
need private keys. It is generated during the wallet creation process, and it is the
responsibility of the user to take proper note of it. They also need to make sure
that they do not share it with anyone else. If they fail to do so, their wallet is in
danger. Also, if they lose the private key, they will lose access to the wallet
forever. The reliance on users makes it as one of the disadvantages of
blockchain.

So, if you as a user who forgets its private key, are eventually logged out of
their wallet and no one can get it back. This is a serious drawback as not all
users are tech-savvy and have more chances to make mistakes. If there is a
centralized authority that takes care of it, then it defeats the purpose of
decentralization.

8. Cost And Implementation Struggle :

The underlying cost of implementing blockchain technology is huge. Even

though most of the blockchain solutions including Hyperledger are open source,
they require a lot of investment from the organization that is willing to pursue it.

There are costs associated with hiring developers, managing a team that excels
at different aspects of blockchain technology, licensing costs if you opt for a
paid blockchain solution, and so on.

You also need to take care of the maintenance cost associated with the
solution. For enterprise blockchain projects, the cost can go over a million
dollars as well.

So for businesses who like the idea of blockchain, but do not have the funds or
budget to carry out, might need to wait more before they can jump into the
blockchain bandwagon.

9. Expertise Knowledge :
Implementing and managing a blockchain project is hard. It requires thorough
knowledge from the business to go through the whole process.

They need to hire multiple experts in the blockchain field that leads to the
problem and hence it is counted as one of the disadvantages of blockchain.

Not only that they also need to train their existing professionals on how to
utilize blockchain and then ensure that the management team can understand the
complexities and outcomes of a blockchain-powered business.

This way, they can understand their requirements and help transform their
business processes to utilize blockchain.

Not to mention, if you find blockchain developers and specialists, they are
harder to find and will cost more compared to traditional developers due to their
demand and supply ratio.

If you are eager to learn about Blockchain use-cases then you can check out the
articles listed below.

▪ 12+ Practical Blockchain Use-Cases 2020

▪ 10+ Must Know Enterprise Blockchain Use Cases

10. Maturity :

Blockchain technology is only a decade old. This means that it is a new

technology that requires time to mature. If you take the
different consortium into account, you will notice multiple players trying to
solve the decentralized problem with their unique solution.
For example, we have Corda, Hyperledger, Enterprise Ethereum, Ripple, and so
on! All-in-all, there is still a lot of time left before the blockchain technology
matures and businesses will have less hesitation to adopt blockchain
technology.

Like any other new technology, maturity is another problem that blockchain has
to solve, and hence it is one of the disadvantages of blockchain.

Blockchains are also not getting matured in a long time for now. There is still a
lot to go before we can see changes in standardizing blockchain technology.
Right now, there are too diverse solutions that aim to solve the core problems,
but are not working together to standardize it.

11. Interoperability :

Another disadvantage that blockchain technology suffers from is

interoperability. As mentioned in the last point, there are multiple types of
blockchain networks which work differently, trying to solve the DLT problem
in their own unique way. This leads to interoperability issues where these chains
are not able to communicate effectively.

The interoperability issue also persists when it comes to traditional systems and
systems using blockchain technology.

12. Legacy Systems :

Not all businesses have changed from legacy systems. There are still many
organizations that rely on legacy systems to run their business. However, if they
want to adopt blockchain technology, they need to completely get rid of their
systems and change to blockchain technology — which is not feasible for every
business out there.
 INTERLINK BETWEEN BLOCKCHAIN
AND CRYPTOCURRENCIES

Blockchain and cryptocurrency are terms you’ll often hear being thrown
together. While they are two distinctly different technologies, they are also
inherently intertwined with one another.

In its most complex state, blockchain is a digitalised, decentralised, public

ledger. Put simply, it’s a formation of digital information, or blocks, stored in a
public database, or quite literally, the chain. When verifiable transactions take
place, the information is stored by the blocks, and the blockchain grows in size.
Cryptocurrency operates through the blockchain, as it too is a decentralised,
digital system. Defined as a digital or virtual currency, it uses cryptography for
security, and is not owned by any particular authority – essentially rendering it
immune to authoritative control.

Bitcoin was the first and original cryptocurrency, but now the list is expansive.
Additionally, Bitcoin was at one point, the only blockchain. Despite many
doubts, and a lot of skepticism, it seems both technologies have become an
important part of our economic systems, for at least the foreseeable future.
Much has changed and advanced in recent years, but with the terms so closely
aligned, a great deal of confusion still exists.

Blockchain isn’t an optional technology for cryptocurrency, but a foundational

feature of cryptocurrency. Ultimately, blockchain and cryptocurrencies are
joined through common beginnings. However, they are by no means of a similar
calibre; when it’s one versus the other, blockchain transcends cryptocurrencies.
Not restricted to the financial sector, blockchain offers multiple solutions that
are likely to disrupt diverse markets in the years to come.

Blockchain isn’t an optional technology for cryptocurrency,

but a foundational feature of cryptocurrency.

Why the terms have become so synonymous is perhaps because the first
blockchain was the database on which every bitcoin transaction was
stored. When it originated in 2009, blockchain wasn’t known as such. It
assumed its name due to the way the transactions were grouped into blocks of
data, then chained together by way of a mathematical function which creates a
hash code. The design had existed before Bitcoin’s emergence, but it was this
revolutionary, and first, cryptocurrency that brought the system to prominence.

Cryptocurrency is simply the first form of Blockchain in the worlds existence,

as Blockchain underpins the currency through its technological ability to
become its own banking system or more specifically distributed ledger system
which due to its digital advantages can also allow for the creation of alternative
offshoots to its traditional form, as the users also referred to as ‘miners’ can
actually design an individual blockchain with one set of agreed parameters,
whilst other users can change these rules in order to better the nature of their
transactions or the interests of all involved parties.

In order to use Blockchain for currency transfer all users must possess their own
individual ‘cryptographic key’, which is much like a standard password
although it utilises a personal string of data in order to allow account holders
access to their wallets of value within the defined system. Once a transaction is
agreed, it must also be approved/authorised before it becomes a block in the
chain and this when occurring in a more common ‘public’ chain will mean that
the decision to approve will need to be decided by that specific chains other
users also known as nodes who will then be incentivised through rewards in
order to encourage the validation of the original transaction. This process is
known as ‘ proof of work’ and often will involve the need for every expensive
computing equipment as they must solve an algorithm in order to obtain the
financial prize, and so this mining process can be very difficult to achieve and
often take a single computer a number of years to complete.

Despite its conceptual purpose as a corridor for the utilisation of

Cryptocurrency, there is a much wider and diverse future for the blockchain
technology. In terms of business it is considered to be a next generation
software with many applications into business management improvement, with
large conglomerates and many different industries all looking at it to improve
areas such as voting, security, advertising, secret documents, journalism and
much more. The blank canvas it represents due to its transversality means that
the scope to implement blockchain processes relies heavily on its distributed
and far reaching nature that could be a crucial key into the advancement of
society, with this giving players in different parts of the same process a single
network within which to connect and therefore securing the integrity and
immutability of the operations that are circulated. The existence of such a
workstream is the equivalent of a common operating system and allows for the
creation of digital assets, therefore with all involved utilising an encrypted bank
of verified information the chance of mistakes being made are severely limited
with the need intermediary parties becoming almost insignificant. This kind of
improved efficiency is transferrable into just about any environment where their
currently exists a need for secure and privately accessible information with the
reduction in security risk.

Drawbacks do exist however in the adoption of Blockchain with such intricate

and expansive architecture of individual branches of chain becoming difficult
due to the regulatory challenges that are presented by being able to legally
validate transactions. To effectively do this, you are faced with the
responsibility of universalising a decentralised structure that thrives on its
expansive nature and so without a clear pathway for legal standards to exist, the
question of protection both physically and by the law of possible hacking
attempts is posed, which furthermore brings some doubt as to the legitimacy of
the global application of the Blockchain concept In its current form.

From a business perspective, it’s helpful to think of blockchain technology as a

type of next-generation business process improvement software. Collaborative
technology, such as blockchain, promises the ability to improve the business
processes that occur between companies, radically lowering the “cost of trust.”
For this reason, it may offer significantly higher returns for each investment
dollar spent than most traditional internal investment.

Here’s an easy way to think about the difference:

Imagine you’re in a casino. You enter the building and exchange your cash for
chips. You can use these chips to gamble at the casino, but outside the building,
they have no legitimate purchasing power.
In this example, the casino chips are cryptocurrency coins, and the casino is the
blockchain network providing an ecosystem of participants and putting coins
into play and allowing them to be transacted.