As the business and technological landscapes evolve, enterprises are increasingly exploring decentralized blockchain systems. However, most governments and enterprises are still heavily reliant on centralized network systems.
Why is there still such a strong preference for centralized systems despite known weaknesses in them? Are blockchain systems just a hype then and unable to offer any real-world practical solutions? Perhaps it is the blockchain trilemma that is hindering adoption?
Let’s take a look at some advantages of blockchain systems and how they can solve some problems that are prevalent with conventional centralized systems. We will also discuss the technological breakthroughs that are needed to effectively address the blockchain trilemma.
Blockchain Advantage #1: No Single Point of Failure
In centralized systems, a single point of failure can render the entire network dysfunctional within seconds. Worse still, downtimes may even cause the network to be vulnerable to cyber attacks. Millions of us who live in a modern city had experienced numerous system downtime that significantly affected our access to public services. These problems might be intermittent but nonetheless, it still affects our important access to banking services, transportation, payroll, etc.
This is where decentralized blockchain systems can offer a more resilient system against downtimes and DDoS attacks. A blockchain system certainly does not guarantee that the system will never suffer downtime or be totally safe from cyber attacks. Nonetheless, it will spread out the risk by not having an essential single point of failure. Hence, the enhanced security provided by decentralized systems should be a strong incentive for enterprises to adopt the technology.
Blockchain Advantage #2: Data Transparency
Blockchain technology provides a transparent ledger that records all transactions in an immutable manner. In a large organization or government department, making data transparent will significantly foster trust among all stakeholders.
Let’s compare between Tether (USDT) and USD Coin (USDC) to see how transparency can be a key advantage. Although Tether recently achieved an outstanding 10-figure profit, it faces criticism and lawsuits that question the transparency and authenticity of its operations. USD Coin on the other hand, has always thrives on transparency and trustworthiness.
Therefore, blockchains’ distributed ledger technology can significantly foster trust as it is theoretically impossible to alter or tamper the data. A transparent network system will be particularly beneficial in large organizations that make daily transactions involving huge sums of money. Industries such as finance, supply chains and healthcare can greatly benefit from a blockchain system as they deal with a variety of sensitive data.
Blockchain Advantage #3: Reduce Business Costs
Decentralized blockchain systems can reduce operational costs by streamlining processes that traditionally require middleman entities to handle the processing. Smart contracts, for instance, can automate and enforce contract terms without the need for intermediaries, resulting in significant cost savings for enterprises.
In business to consumer (B2C) trading, merchants have also reported to have benefited from accepting cryptocurrency such as Bitcoin that rely on a decentralized blockchain. Because transactions are irreversible on the blockchain, the customer cannot exploit the system for their own selfish gain. For the merchants, this means less product returns and refunds which all add-up to business costs.
This is in contrast to the centralized credit card systems offered by banks. Intermediaries like Visa and Mastercard charge a myriad of fees if you want to accept credit cards for your business. First of all, there is the commission that is deducted out of the selling price, which means less money into the pocket of the merchant. Then merchants also incur chargeback fees for credit card transactions that cannot be approved by the bank. Cases of unapproved transactions are typically those that came from products bought with fraudulent credit card details.
If you look at the above scenario with a keen eye, the big wealthy banks are actually pushing the onus onto the merchants to detect frauds. It’s as if they are telling the merchants – “If you accept fraudulent payments, we will penalize you with a fee.” This of course does not make sense at all, because we all put our monies in the banks because we trust them to protect our wealth. It is thus also the banks’ responsibility to protect their customers from frauds.
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Blockchain Advantage #4: Easier Regulatory Compliance and Auditing
As the Internet advances, we find that users are becoming more sensitive towards issues like data privacy, data security and online frauds. Cyberbullying on social media is also another hot topic now, particularly among young online users. As these issues evolve, it will prompt the authorities to introduce more regulations around our usage of the World Wide Web.
Regulatory compliance therefore will be an increasingly critical concern for enterprises. Heavily regulated industries like finance, healthcare and social media will surely attract the attention of watchdogs as we advance into a more technological driven society.
Blockchain technology can thus simplify compliance by providing an immutable record of all transactions and activities. This technology makes it easier for enterprises to demonstrate compliance with regulatory requirements and audits.
Blockchain Advantage #5: Driver For Innovation and Competitive Advantage
The need to remain competitive in the market is particularly compelling in sectors where technological advancements can provide a competitive edge.
Within the Web3 industry alone, there is a hive of activities surrounding a multitude of blockchain projects. For example, we still hear of the metaverse term popping up sometimes and numerous cryptocurrency projects are still striving to gain market share or find a profitable niche market.
Enterprises that leverage blockchain technology to improve their products, services, and operations can therefore differentiate themselves from competitors. Already we are witnessing some pilot projects that seek to explore the full benefits of using blockchain systems.
For example, IBM, along with global transport and logistics company Maersk is building a blockchain solution that would improve data sharing around supply chains. If the system functions efficiently, it could potentially save the industry billions of dollars. Walmart is also another corporation that testing the blockchain to improve the way food is tracked.
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