- The immutability myth
The term ‘immutable’ which in blockchain terms, means ‘can never be changed’ is technically impossible, the researchers said in their report.
There are two main ways changes can be made to the blockchain.
“One is to recompute the chain, either in its entirety or to the point before an undesirable event occurred; this erases and recreates history – in the early days of bitcoin, something like this happened,” they said.
“The other is to fork the chain, which preserves the historical code and transactions, but means the software now works differently. The best known example of this is likely to be the Ethereum fork that was introduced to deal with the DAO disaster.”
The researchers also said that from a technical perspective, permissioned blockchains are easier to change and have far fewer nodes than public blockchains, particularly in the early stages.
“This also makes them technically more vulnerable to being suborned by criminals or fraudsters that have credentials for the network. In practice, the security and governance mechanisms that apply to the network keep the risk in check.
“Ecosystem participants must be cognizant of the fact that it’s not the technology per se, that protects blockchain records from being changed, but how the network is designed, implemented, and run. This applies to networks with consensus mechanisms that support greater scalability, but which on their own may provide little or no protection against malicious attack,” the researchers said.
- Bitcoin is a currency
A currency is a medium of exchange created to make the buying and selling of products and services easier than having to barter for them. That obviously requires that the value of the currency be relatively stable. In the case of Bitcoin, notwithstanding 2017’s stellar gains, its price has fallen by over 85%, not once but three times, over the last seven years. And it has experienced a drop of 20% or more every quarter since 2013. Never in history has any country’s currency fluctuated by so much in such a period of time.
What would be the consequences of using Bitcoin to purchase goods? Suppose you bought a $1000 4K TV using Bitcoin on November 30th. You would have paid $1000 (the price in dollars) divided by $9937 (the Bitcoin value per dollar on that date), or 0.1006 Bitcoins. Did you get a good price? If you had waited just one week, you could have purchased the same TV for $1000 divided by $16,858 (Bitcoin’s price on December 7th), or only 0.0593 Bitcoins. That’s almost half the price. Buyer’s remorse, anyone?
What if the store instead had chosen to keep the price constant in Bitcoins? In that circumstance buyers on December 7th would have paid 0.1006 Bitcoins for the TV, the same as the price on November 30th. But in dollars, that would have been 0.1006 times $16,858, or $1695. This time it would have been the December buyers regretting that they had ever heard of Bitcoins.
As a medium of exchange, Bitcoin is completely impractical. That’s why 90%+ of all purchases and sales using Bitcoin are taking place on the dark web. Presumably the lack of traceability is more important for illegal trading than price stability.
- Blockchain is all about money
This brings us to the common misconception that blockchain and Bitcoin are one and the same thing. While Bitcoin is a digital currency that is based on blockchain technology, it is not the same thing as blockchain.
There are many other blockchains out there like Ethereum, Waves, and Ripple. Each blockchain is conditioned for a different purpose. Bitcoin may have gotten there first but it is not the same thing as blockchain. If you think of blockchain as the base on which Bitcoin is built, you will get it right each time.
This myth is widespread because many people assume that Bitcoin Blockchain is the only blockchain, and that the two are interchangeable.
- Mining is basically a useless calculations
A large number of people do not understand how the process of mining works. This is because it is a complex process which involves the understanding of computer science. To most, a miner burns a lot of electricity for some calculation process and gets bitcoins in exchange. This has led to this popular myth that mining is a ‘useless calculation’.
If you look at the larger picture, the Bitcoin network is essentially a group of connected computers which keep the record of all transactions that are happening! This network is free to use and allows anyone to join. After users join the network, they can send and receive payments in the form of Bitcoins. Moreover, they also become a part of this record keeping process – keeping a record of all transactions that are happening. The Bitcoin network is transparent because all these transactions are visible and updated.
When miners ‘mines’ for Bitcoins, they are basically getting their computer to agree with other computers on the network. When computers perform this aforementioned ‘useless calculation’ they are basically agreeing over the shared data they have. All transactions are verified, thereby ensuring that a trustworthy network of electronic cash is created.
- Blockchain is unhackable
This is one of the biggest misconceptions of blockchains and usually used as the main selling point that they are truly permanent and transparent. Blockchains are not inherently unhackable, but their distributed nature makes them much more difficult to hack than traditional systems which are usually centralized in a location.