How Blockchain Can Solve Problems

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 from the perspective of the merchants, 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 is not a fair deal because we all put our monies in the banks as we trust them to protect our wealth. It is thus also the banks’ responsibility to protect their customers from frauds.

My Web3 Domain

By the way, sparkster.eth is my Web3 domain registered on the Ethereum blockchain. If you’d also like to have a decentralized Web3 domain / username, you can register for it with the Ethereum Name Service (ENS) web app.

Have you also registered for your Web2 domain? You never know when you might need one even if you don’t have plans to publish a website. In fact, there is always a possibility that regulations surrounding domain registrations will become more strict as the authorities enforce more regulations on how we use the Web.

Blockchain Advantage #4: Easier Regulatory Compliance and Auditing

As the Internet advances, an increasing number of users become 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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How Blockchain Can Solve Problems

Risks of Centralized Network Systems

Centralized network systems for the most part, have serve the world well for decades. Fortunately, most of the centralized systems around the world are still secure and mostly operational.

The centralized systems certainly serve the people very well when everything is running smoothly. But after decades of digitization in societies, even the least techy layman is aware that computer systems carry inherent risks.

Here are some disadvantages of centralized network systems that we have most likely experienced the negative effects ourselves:

1. Single Point of Failure:
   When centralized systems fail, it could cause the system to be susceptible to cyber-attacks, outages, and data breaches. Once the data on the system is stolen, it is most likely unretrievable as it will be put up for sale in the black market. This is why we are all getting those scam calls and other forms of frauds on our computers.
2. Lack of Transparency:
   Centralized systems often lack transparency, which cause mistrust among stakeholders and potential issues with regulatory compliance. For example, criminal breach of trust in corporate affairs is a continuous problem worldwide. Corruptions among civil servants is also another problem that stem from lack of transparency.
3. High Operating Costs:
   Maintaining and securing centralized systems can get expensive. This is a prevalent issue, particularly for large enterprises with extensive data and infrastructure needs.
4. Limited Innovation:
   Centralized systems can stifle innovation due to their rigid structures. These legacy systems have been in place for decades and it will take a tremendous amount of groundbreaking technological advancements for the industry to change.
5. Data Control and Privacy Issues:
   Centralized systems require enterprises to trust third-party providers with their data. This immediately raises concerns about data security and data control.

Technological Breakthroughs Needed to Overcome the Blockchain Trilemma

The blockchain trilemma refers to the challenge of achieving decentralization, security, and scalability simultaneously. To fully realize the potential of decentralized blockchain systems, several technological breakthroughs are needed.

In order for blockchain systems to be truly suitable for mass adoption, it will thus require a combination of strong market forces and major technological breakthroughs to address the trilemma issue.

1. Scalable Consensus Mechanisms:
   The Proof of Work (PoW) and Proof of Stake (PoS) pose limitations in scalability. We cannot scale up PoW or PoS blockchains without compromising on decentralization. Solana seems to offer an alternative solution with its Proof of History (PoH) mechanism but the network seems to be prone to downtimes.
2. Interoperability Solutions:
   For blockchain to achieve widespread adoption, different blockchain networks need to communicate and work seamlessly together. There are several solutions that seek to address the interoperability issue but none has yet managed to truly dominate the industry.
3. Advanced Cryptographic Techniques:
   Enhancements in cryptographic methods, such as zero-knowledge proofs promises to improve privacy and security while maintaining decentralization. Cryptography is a crucial component in blockchain as it provides the underlying security that protects the data from tampering.
4. Layer 2 Scaling Solutions:
   Layer 2 solutions, such as the Lightning Network for Bitcoin and Polygon for Ethereum, seem to offer viable solutions to scale blockchain networks. They are doing a pretty good job thus far but the number of active L2 users are still miniscule compared to established payment networks like Visa and MasterCard.
5. Decentralized Governance Models:
   Blockchain governance is a highly complex process, yet essential aspect of managing enterprise consortia and decentralized networks. This aspect alone will prolong the time needed to fully integrate blockchain into existing network systems.

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Conclusion

Enterprises are certainly exploring the potential benefits of decentralized blockchain systems. However, there remains significant barriers that must be overcome. The technologies behind blockchains still need to advance quite a bit more in order to truly appeal to the demanding needs of enterprises, governments and businesses.

Even though the advantages of blockchain systems mentioned above sound attractive on paper, we are still faced with the trilemma present in blockchain systems. Therefore, it looks like we still need significant technological breakthroughs before we can expect a widespread adoption of decentralized blockchain systems.

In the meantime, we can still hope that our digital future will be more transparent, safer and filled with revolutionary innovations.

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