What are the advantages and disadvantages of a blockchain?

Some of the advantages are

On the basis of the distributed ledger (general ledger), each transaction is securely documented and transparent for all participants. Updates are only possible if everyone agrees. Data stored in a block chain is therefore accurate, transparent and consistent. They can be accessed by all authorized persons. The modification of a single transaction record would require the modification of all subsequent records and the approval of the entire network.

Security is a major advantage of the block chain. Transactions must be agreed upon by all parties before they are recorded. Once the approval process is complete, the transaction is encrypted and linked to the previous transaction. Because the information for this is not located on a single server but in a network of computers, it is virtually impossible for hackers to compromise transaction data. This makes the block chain theoretically suitable for all scenarios in which different parties exchange critical information – i.e. not only for food producers, but also for banks, logistics companies, public authorities or even health care companies.

  • One argument in favor of the block chain is the traceability and thus also the authenticity check of products.
  • An insight into historical transaction data can help to verify the authenticity of products and assets and prevent fraud.
  • Companies can therefore not only detect weak points in branched supply chains, but also trace articles back to their origin and producers.
  • This can go so far that consumers know which farmer harvested their mango and when.

The block chain enables more speed in traditional business transactions. Anyone who uses paper or e-mail-based processes knows about the duration and error-proneness of complex transactions involving many parties. Errors often result in lengthy mediations or legal proceedings. A “centralized digital accounting”, as made possible by digital ledger technology, ensures less frictional loss and disorder. It becomes easier to trust each other, so that clearing and settlement can take place more quickly.

In fact, a significant reduction in costs for administration and internal and external financial transactions and reporting is also expected. Those who rely on the block chain do not need so many third parties or other entities to provide guarantees. Trust in the trading partner no longer plays a role, you can fully rely on the block chain data.

The disadvantages are to be mentioned

With every block the block chain grows and with it the storage effort. If data in the terabyte range were to accumulate, it would have to be stored on every node in the network, which is hardly realistic, especially since the Internet connection would be extremely heavily loaded. It is therefore necessary to play through exactly which transaction scenarios can be mapped and which cannot.

  • Block chain technology is not easy to integrate into existing IT landscapes, especially when many legacy applications are running. This is why it is a real challenge for IT departments.
  • Users might struggle with the new technology at first. Sophisticated change management is advisable, which could result in costs.
  • What happens if there is no agreement among the peers and some reject a software update while others support it? In extreme cases, the block chain splits and two independent new block chains with the same history are created.

The block chain is also not 100% tamper-proof. If a participant manages to control more than half of the participant nodes (which de facto never happens), he can theoretically change the transaction history.

The performance of a block chain is not even remotely close to that of a central database. The verification of transactions and their synchronization take time. Furthermore, transactions in the network must be processed independently by each node.

Transparency is actually desired with the block chain, but the shot can also backfire because others can also see past and sometimes future transactions.