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Advantages and Disadvantages of Blockchain

Advantages and Disadvantages of Blockchain Blockchain 101

The blockchain and crypto industry went through a lot of ups and downs. Different people see the advantages and disadvantages of blockchain in different lights.

This blog post is an attempt to consolidate those ideas and create a contrast for whoever wants to form an opinion on blockchain. But before we go through the points laid out in this piece, let’s acknowledge that the people who would search for “advantages and disadvantages of blockchain” in Google are either students or simply beginners when it comes to the technology. So, before we proceed, let’s first take an in-depth dive into how blockchain really works.

Blockchain, as its name suggests, is an intricate chain of blocks that contain information in a public and cryptographically secure database. It is a distributed ledger that operates through nodes—communication endpoints running in various computers scattered across the globe, all containing backup copies of the information stored in the blocks.

Since there are many backups, it’s easy to verify when someone is trying to tamper with information in the blockchain, making blockchain’s security one of its most unique components. Blockchain invention led to the public transaction database of the cryptocurrency called Bitcoin. To understand blockchain further, let’s have a look at its first application—Bitcoin and its creator/s.

Satoshi Nakamoto developed the first cryptocurrency called Bitcoin. So far, no one has uncovered the true identity of this person/organization. Satoshi wrote the Bitcoin whitepaper and deployed the first bitcoins. Through the process, he was able to solve a long-time flaw of digital money called “double spending” which is the potential of balances being duplicated or digital tokens being spent twice. In the same way as counterfeit cash, double spending can cause a drop in the purchasing power of money.  Because blockchain is resistant to data modification, it is almost impossible to duplicate it.

Bitcoin has no central bank or third-party agencies facilitating it. This means that users can transact in a peer-to-peer (P2P) manner without the need for any intermediary. To verify the validity of transactions, bitcoin and blockchain enthusiasts around the globe run nodes from their computers to confirm transactions. People can acquire Bitcoin or other cryptocurrencies by purchasing it through cryptocurrency exchanges or through a process called Bitcoin mining.

Bitcoin mining is similar to mining gold—except the miner for Bitcoins is an application-specific integrated circuit (ASIC) that does specific tasks in order to get bitcoins.

When a transaction happens in the Bitcoin network, miners take the transaction information and convert it into a hash (a unique 32-character length string). After this, the miners link this new hash to a preceding hash—creating a transaction chain called a “block”. This new block is then linked to other existing blocks using the previous block hash seen in the blockchain. After mining, the miner will send the data of all the mined transactions as well as the new block to all the nodes.

After securing transactions, miners get a transaction fee from users. This serves as a reward for all the work done. As a result, miners also receive new bitcoins. These new blocks form the entirety of blockchain.

Advantages of Blockchain

While the cryptocurrency market struggles in a highly volatile environment with prices going up and down at any moment, interest in blockchain seems to have gone to the moon. According to Statista, experts predict that blockchain technology revenue is expected to climb to “over 39 billion U.S. dollars in size by 2025.

Because of the sheer potential and advantages that this technology brings, it became an industry on its own. Businesses that want to be successful become early adopters of blockchain. Thus, they started to explore various opportunities and applications for blockchain technology. There have been a lot of startups that were successful in collecting funds to power their blockchain businesses in 2018. They did this through what is called initial coin offerings.

The success of the blockchain startups shows that there are many people who trust in the power of blockchain—and for good reasons too. There are many advantages in the utilization of blockchain technology. Let’s take a closer look at the advantages of blockchain below.

Payment Transaction Security

If you’ve asked yourself the question: is it safe to use bitcoin? The answer is yes. The most popular application of blockchain is still financial transactions. Because Bitcoin was successful, altcoins that follow the steps of Bitcoin utilize blockchain technology as the backbone of their projects. With blockchain, startups can save money by eliminating the need for middlemen and high transfer fees from banks. Above all, the payment transactions are all very secure and cannot be tampered with. Blockchain networks record all the transactions. Hence, it ensures that every transaction history is cryptographically secured.

Smart Contracts

Another interesting application for blockchain manifested in a technology called smart contracts. A smart contract code is applicable to the blockchain. This code automatically executes when pre-defined terms and conditions are met. In simpler terms, smart contracts are self-executing contracts. It contains the terms of the agreement between buyers and sellers being directly written into lines of code.

Data Storage

A blockchain is a form of distributed ledger technology. Your business can utilize blockchain technology for distributed data storage. With blockchain, the capacity of information and digital resources eliminates the requirement for what is called a server farm. It usually only utilizes a private key. With this technology, a business can use other people’s hard drives to store information and distribute it globally through various nodes.

Confidence and Authenticity

With a blockchain, it would be easier to prove the authenticity of asset ownership or intellectual property through a verifiable information framework. With this technology, purchasers and vendors can be confident in the legitimacy of a transfer of assets that are backed by blockchain. Both parties can share a record that auto-renews after each new transaction.

Digital Identity Fraud Protection

Digital identity fraud has been rampant in many industries—especially finance. Because of this, businesses are starting to utilize blockchain technology to counter digital identity fraud. Aside from the usual Anti Money Laundering (AML) and Know Your Customer (KYC) policies, the blockchain acts as a reliable fraud protection measure. Blockchain solutions make it a lot easier to track and manage digital identities through various authentication processes.


There’s a big difference between a blockchain and a normal database. It’s called centralization. This means that the records stored in a database are in one central storage. On the other hand, each participant on a blockchain has a complete copy of all transactions and updates so that every participant can confirm the provenance of the data stored in a blockchain. This makes it so much safer to use blockchain in accounting compared to standard ledgers. The technology potentially eliminates human error in accounting activities and creates data that is impossible to be tampered with.

Supply Chain and E-Commerce

Another potential advantage of blockchain technology is its application in supply chain management. With blockchain, businesses can greatly reduce the costs of operation. It’s possible to create a platform where you can easily track the transfer of goods. This further improves the process by creating an ecosystem that is very transparent. Furthermore, payment transactions in e-commerce businesses can also simplify the payment structures with blockchain.

Cryptography and Transparency

While blockchain boasts its security through cryptographic hashes and whatnot, it also manifests a seemingly contradictory feature—transparency. If you’ve used cryptocurrencies before, you might already be familiar with block explorers.

With blockchain, anyone can see transactions. Yet, it’s very hard to pinpoint who transacted. But for transfer confirmation purposes, blockchain is very transparent. From contracts to financial transfers, everything can be done in a blockchain. It leaves a very clear audit trail.

Disadvantages of Blockchain

Have you ever tried to run a miner or a node of bitcoin? If yes, then you understand that blockchain has its share of disadvantages as well. As an emerging technology with only a few years on its belt, blockchain still is a work in progress and cannot be

Similar to all things, blockchain doesn’t only contain positives. It’s a combination of both advantages and disadvantages. So, after covering the advantages above, we can now discuss the things that contribute to why many are still skeptical about this new technology.

Energy Usage

One of the obvious issues when it comes to blockchain technology use is its energy consumption. Compared to the outcome, which is the creation of the next block, miners—especially mining farms use a large amount of electricity. While they might be paying their dues, the environmental issue brought about by large electricity consumption is a very valid concern for the world as well.

Not A Distributed Computer System

Believe it or not, some people think that blockchain is some sort of supercomputer running distributed computations. However, that is far from the truth. The millions of nodes running all over the world that maintain blockchains are doing the same exact thing. They record the same thing, they verify the same transactions in compliance with the rules, and they perform the same operations. While it is really distributed, it’s not a distributed computer.

Scalability Issues

One obvious disadvantage of blockchain is scalability. In the case of Bitcoin, if you want to scale or upgrade it, you need to perform a fork. However, there are many projects in the market that claim to have solved blockchain’s scalability issues. Still, having Bitcoin as the most popular and most used blockchain application gives the disadvantage of not being able to perform a system upgrade. Bitcoin’s transaction-processing speed just isn’t efficient when the number of users has increased.

51% Attacks

Many believe that since blockchain nodes are distributed, authorities won’t be able to shut down a blockchain. Since there is no control center or centralized servers, then there’s no way to shut down a blockchain—right? Wrong.

Numerous blockchain (particularly Bitcoin) advocates contend that miners keep up the strength and security of a blockchain. If there are sufficient miners, this assumption is valid. However, if more than fifty percent of miners come together, they can rework or change the records that are put into the blockchain. If this is the case, then the security of the information in the network dissolves.

In Bitcoin mining, miners join mining pools to ensure that they get rewards for their processing efforts. Because of this, there’s a challenge to avoid mining pools to become large enough to comprise 51% of the entire network. Because blockchain is only strong when it’s properly dispersed, countries with a lot of nodes and users are in danger of their governing bodies and local enforcement agencies. If the authorities in countries with large populations such as India or China confiscate the nodes running in their jurisdictions, there is a possibility of tampering with the blockchain.

Pseudo-Anonymity and Privacy

Everyone can see all the transactions in a blockchain. While it is cryptographically secure, if you pay for goods and services using blockchain-based currencies, the receiver or the sender can see your balance. It’s not only that, you can analyze the spending patterns of someone just by looking at their transaction histories. It will not be private anymore.

People value their privacy. Lawmakers recognize this and many created regulations that support data protection and privacy. Blockchains being this open might clash with these laws because of its nature. Openness in financial matters always possesses many dangers, and it’s one potential disadvantage of blockchain use.

Consensus Algorithms

Even if we ignore the disproportionate energy consumption, proof of work may still be considered inefficient. It’s arguably not viable for the long-term for many reasons. Some may be its inability to penalize validators, the low correlation between the network value and the economic collateral of the validator, the high variety of validator payoffs, and the finality of transaction is a probability, not 100% guaranteed.

While the “upgraded” proof of stake and many other solutions solve the energy issue, has lower barriers to entry, and is generally faster, it still has its own issues. These manifest in stability and whales having really high influence on the consensus.

While these are obvious cons, there are many projects out there that are working to improve everything when it comes to consensus. Since blockchain is an emerging technology, at the right time, people will be able to figure it out.

Running a Full Node

Most high-grade blockchain network nodes store a complete copy of the exchange history. This means that many full nodes have to run in different places worldwide. To run a full node of Bitcoin, you need the following according to

  • Desktop or laptop hardware running recent versions of Windows, Mac OS X, or Linux.
  • 350 gigabytes of free disk space, accessible at a minimum read/write speed of 100 MB/s.
  • 2 gigabytes of memory (RAM)
  • A broadband Internet connection with upload speeds of at least 400 kilobits (50 kilobytes) per second
  • An unmetered connection, a connection with high upload limits, or a connection you regularly monitor to ensure it doesn’t exceed its upload limits. It’s common for full nodes on high-speed connections to use 200 gigabytes upload or more a month. Download usage is around 20 gigabytes a month, plus around an additional 340 gigabytes the first time you start your node.
  • Your full node can run for 6 hours a day. (You can do other things with your computer while running a full node.) More hours would be better, and best of all would be if you can run your node continuously.

The site also mentions that there are many possible problems for running nodes. These problems include legal issues, bandwidth limitations, anti-virus issues, and becoming vulnerable to attacks.


After going through the advantages and disadvantages of blockchain, it would still be good to take it all in with an open mind. We can still achieve many possibilities when we consider the cons and work on solutions that can improve the state of the industry.

Many experts say that blockchain is still widely underrated. Though Bitcoin continues to make its strides through the digital finance market, blockchain applications have a lot of space for improvements.

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