Taking a Closer Look at the Benefits of Blockchain and Its Limitations

The term “blockchain technology” often arises when crypto is discussed. This modern and valuable technology has attracted the public's attention due to its ability to reduce fraudulent activities.

Although it is a growing space, the advantages of blockchain are limitless. Transparency has typically represented an issue in many traditional institutions, with this pressing challenge being a primary reason for various stakeholders to get involved with blockchain technology. In fact, bringing transparency to the incumbent systems means eradicating mistrust.

In the same vein, cryptocurrency, as well as Bitcoin, offers both advantages and disadvantages. In this article, we will take a look at some of the pros and cons of the blockchain infrastructure.

A Brief Definition of Blockchain

A blockchain functions similarly to a ledger; but, the differentiating factor is the data structure. In conventional databases, information is collected after which it is grouped into tables, while in blockchains, information is collected and grouped into bits called blocks. Its protocols rely on encryption to secure the blocks, which is a major benefit of the blockchain.

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Blocks function as records or catalogs in recording and keeping information. Once a block has reached its peak, a new one is created. The latest one is stamped or tagged with its exact creation time.

One of the advantages of blockchain is a decentralized network. Decentralization refers to the absence of a leading government or institution. Rather, information is disseminated among people who run a node. This technique sustains sincerity and honesty in every transaction.

Even though generally utilized to confirm and document a crypto transaction, the advantages of blockchain extend beyond cryptocurrencies. It is being applied in health care, automotive, financial services, voting, etc. Top companies have likewise started incorporating the technology as part of their processes.

Blockchain: How Exactly Does it Work?

Blockchain is essentially used for documenting data. However, it becomes unachievable to tweak data stored on the chain. This is because it employs the working model of Distributed Ledger Technology (DLT), where every transaction or deal is recorded using a hash (an unchangeable cryptographic signature). This feature remains a substantial benefit of blockchain technology.

Simply put, a blockchain is an efficient “digital ledger”. Despite the fact that it was not originally recognized as a digital ledger, it has now made its way into online retail, healthcare, and other businesses. Its main function is to log transactions, replicate them, then disseminate the info among a group of computers sharing a network. To exhibit integrity, everyone on the network is alerted whenever a transactional activity occurs.

For any blockchain to work, a consensus model is crucial. A medium through which all network stakeholders agree on what is true and what is not is known as a consensus mechanism. There are various consensus models, such as proof-of-stake (PoS), proof-of-history (PoH), proof-of-work (PoW), etc.

Assuming a person wishes to perform transactions in Bitcoins; a proposal is initially sent to the peer review network for assessment. Bitcoin uses the PoW, and it is made up of a pool of miners whose goal is to verify blocks.  After this process, the resulting newly verified blocks are put into the blockchain.

As we have established before a new record is added to previously validated blocks, it must first be validated by nodes on the network using their computers.

There are a few blockchain limitations and one of them is scalability. The dilemma of blockchain is that it can't fully sustain large-scale use, decentralization, and security at the same time. One must fall for the others to remain.

Pillars of the Blockchain Technology

As beneficial as it has proven to be, blockchain is not without limitations. But before discussing its shortcomings, let's highlight its important qualities:

Decentralization: Thousands of nodes throughout the world share control and maintain a close eye on transactions taking place. This distribution ensures fair play among all participants, and no server has a higher authorization than another. In addition, participants across all nodes are usually kept nameless or pseudo-anonymous.

Decentralization also ensures that there are no points of vulnerability. Any endeavor to hack from just one node will be futile. Before a node approves a transaction, it must correspond with all other nodes. Any mistake or deliberate alteration is voted against by the majority.

Cryptography: Cryptography is a strategy for guaranteeing the highest safety level on the blockchain by encrypting data. It also ensures transparency. Due to the irreversible nature of encryption, blockchain transactions are almost impossible to tamper with.

Consensus: The consensus model ensures transparent operations across all nodes. In the proof-of-work consensus, the miners across all nodes function as bookkeepers. They verify and approve the entire transactions taking place. Before a foul play can be successful, about two-thirds (or 75%) of the miners must reach an agreement. However, the ever-expanding size of the cryptocurrency community worldwide makes such a threat rather negligible.

Having explained how it works, let us now examine the pros and cons of blockchain technology. Immediately after we will likewise glimpse at cryptocurrency's advantages and disadvantages.

What Are the Benefits?

Many have asked this question; "What is the advantage of using blockchain technology?" To this question, there is no singular answer as there are numerous advantages of blockchain technology. Let's glance at some.

Reliability: One prominent advantage blockchain technology has over the conventional centralized system is the high level of reliability it assures. A centralized control system that relies on a few servers is vulnerable to technical failure and malicious attacks. It is challenging to retrieve data if it is lost on a server. Occasionally, it is lost for life.

However, a technical failure or a malware attack at one node does not affect the others. Information lost on one node will still be accessible to a thousand others.

High-Security: Another benefit of blockchain technology is the huge degree of safety attached to transactions. As earlier explained, the blend of cryptographic, consensus, and decentralization, guarantees protection and a degree of namelessness. Manipulation is difficult, as a thousand networks of nodes ascertain each transaction carried out.

Low Cost: Zero interference from intermediaries like the government or banks reduces cost. Therefore, the extra cost that comes with hiring an intermediary for payment processing is also avoided.

Transparency: Most blockchains run an open-source software made accessible to the public. For instance, in Bitcoin's blockchain, no single person takes credit for managing its code. Everybody may view and suggest changes to the codes. If most Bitcoin users agree that there is a need to change the code, it will be then deployed by the core devs.

In addition, every transaction ever executed in the system is made available to the public for viewing and scrutiny. Since it’s available to the public for review, the chances of manipulation or changing figures are eliminated. This crucial advantage of the blockchain help boost public trust and promote transparent operations.

Unalterable: Once data is listed on the chain, it becomes unalterable. Since alterations are easily observed, no one can delete or edit data without the knowledge of the consensus.

Attempting to alter a block will change its hash. Since one block's hash has changed, all the preceding blocks will have to get a new one. A lot of time and computational power will be required to rectify this discrepancy. Therefore, once data is recorded. It is unalterable.

New data must be added to reverse the effect if an error is made. But, again, this will be visible for everyone to observe.

Although some consider this immutable nature to be a  disadvantage of blockchain in some contexts.

No Errors: Because records are circulated over an extensive network, the likelihoods of making mistakes are nearly inconceivable. A perfect illustration is Bitcoin. Any information that is documented on the blockchain must have been validated by thousands of nodes. However, errors may be inevitable in a centralized system where only one person may be responsible for the processing of data.

Greater Efficiency

With transactions distributed among the network, time-wasting record reconciliation is eliminated. To further speed up the cycle, a set of rules dubbed smart contracts can be saved on the blockchain and implemented automatically.

Drawbacks of the Blockchain

As we have highlighted the pros, however, there are also certain disadvantages of blockchain technology. So let’s look at a number of them.

High Energy Consumption: Cryptocurrencies like Bitcoin that run the PoW consensus have advantages and disadvantages. One primary concern is the increased consumption of electric energy and computational power. According to Statista, in 2020, the mean power consumption of a solo Bitcoin transaction in 2020 was 741 kilowatt-hours. By comparison, the exact amount of energy can make nearly 500,000 Visa transactions. Myra also claims that "the cumulative storage requirements of branched blockchain databases are much higher than those of centralized servers."

Slower: By comparison, many blockchains are slower as compared to other centralized payment processing systems. On average, it takes Bitcoin ten minutes to process a transaction, which could be done in seconds in a centralized cloud architecture. Due to this time lag, the number of processed transactions is comparably lesser.

The 51% Attack: Another major disadvantage of the cryptocurrency and the blockchain system is susceptibility to the 51% attack. If an individual can successfully gain control of 51% of the network nodes, then the system's integrity has been compromised.

Cost of Implementation: Even though blockchain may seem less costly for users who pay occasional transaction fees, it is expensive to implement. The technology is still relatively new, and only a handful of personnel have expertise in the field. In addition, there are expenses associated with hiring a developer, management, licensing, etc for setting up and maintenance. Therefore, it is expensive to implement for growing businesses that lack the fund for its implementation.

Other disadvantages of cryptocurrency include;

The Use of Private Keys: A private key is a stringent set of letters and numbers randomly generated when a user creates an online wallet. This key grants users access to the blockchain. In any event, leading to the loss of the key, the cryptocurrencies stored in that wallet are forever lost. Also, if a key falls into the wrong hands, the user will suffer the loss of his asset.

Government Regulations: Some government agencies have put measures in place to restrict the use of cryptocurrencies. In some other countries, unfavorable regulations have resulted in the ban of cryptocurrency.

All the aforementioned points are the pros and cons of blockchain technology. These factors combined, directly and indirectly, influence the use of the technology.


We have examined the pros and cons of blockchain technology at length. Even with its limitations, we are optimistic that the technology will play an instrumental role in the coming internet era. We are happy to see many industries finally embracing the advantages of blockchains altogether.

Blockchain is safe because it guarantees that the transaction cannot be altered. It is set to become a significant component of any global monetary system, given all of its novelties. The general use of blockchains has been aided by the advent of cryptocurrency and its many advantages and disadvantages.

*This communication is intended as strictly informational, and nothing herein constitutes an offer or a recommendation to buy, sell, or retain any specific product, security or investment, or to utilise or refrain from utilising any particular service. The use of the products and services referred to herein may be subject to certain limitations in specific jurisdictions. This communication does not constitute and shall under no circumstances be deemed to constitute investment advice. This communication is not intended to constitute a public offering of securities within the meaning of any applicable legislation.