Blockchain has gained immense popularity since the launch of Bitcoin. As a result, individuals and businesses worldwide are exploring the use of blockchain technology.

In this lesson, we will explore a selection of the advantages and disadvantages of blockchain.

The Potential of Financial Inclusion
Blockchain holds the potential to combat barriers associated with financial inclusion and accessibility. According to the world bank, almost 2 billion adults across the globe do not currently have bank accounts. The decentralized nature of cryptocurrency allows unbanked individuals to store and access funds without the need for a central authority. 

Additionally, the blockchain technology behind crypto dramatically increases the speed of financial transactions, allowing access to funds in a far shorter time frame.

Decentralization
Decentralization allows users to bypass any sort of central authority when accessing information. Information on a blockchain is instead stored on a network of computers (also known as nodes) that all have duplicate ledger copies. When a new block is added, each node is updated. Having information stored across the network in this way increases security and makes it extremely difficult to hack.

Transparency
Transactions on the blockchain are stored on a public ledger that is accessible to all. Everyone can view the source code, including auditors, who can review cryptocurrencies for security purposes. Furthermore, since there is no central authority, the system can be upgraded based on anyone’s suggestions, provided a majority of users agree with the new version of code.

Reduced transaction fees
There are fees charged for third-party verifications of financial transactions, document notarizations, and other types of contracts.  Businesses are also charged fees for transactions, such as accepting payments from merchant payment processors like credit cards. The use of blockchain can reduce or eliminate third-party verifications, thereby decreasing costs for both businesses and consumers.

Quick transactions
Another advantage of blockchain is its cross-border potential and its capacity to execute transactions within a few minutes or even seconds. Traditionally, such transactions may take several days before they reflect as completed since all parties must agree to terms and confirm payment.

With the use of blockchain, however, third-party intermediaries are no longer needed. Instead, the transaction occurs automatically via a smart contract with agreed-upon terms written into the code. As a result, transactions are initiated and completed in a much faster time frame than with traditional methods.

Private transactions
Transactions on a public blockchain are stored on a public ledger that is accessible to everyone. Although the transactions are both public and transparent, the identity of users is kept private through the use of cryptography.

With cryptography, the transaction is encoded with an encrypted key which only the receiver can decode. So while the public can see the time and amount of the transaction, they are unable to view the personal information of the sender or receiver. This level of transparency combined with privacy adds to the system’s overall security.

Now that we have explored some of the advantages of blockchain, let’s look at some of the disadvantages and impediments to adoption.

Climate Costs
Out of concern for the planet, many people throughout the world do not want to adopt new technology with high environmental costs.

The cryptocurrency mining process, which adds new units of crypto into circulation via a process known as Proof-of-Work (PoW), has a high carbon footprint due to the amount of computer processing it uses during the mining process.

A growing number of blockchains employ an alternative to PoW known as Proof of Stake (PoS). PoS is more energy-efficient and environmentally friendly as it does not rely on high-powered computing for its process. See Lesson 2: How Blockchain Works for more on blockchain energy issues.

Regulation
There has been a long-standing concern in the crypto space regarding government regulation. Multiple governments have worked to curtail or ban the adoption of Bitcoin specifically, the effects of which leave ripples of concern throughout the Cryptosphere. Despite this, crypto popularity and the daily use rate of Bitcoin continues to grow.

With the growing adoption rate of Bitcoin and crypto as a whole, it will be increasingly difficult to stop the use and integration of crypto. At the same time, governments worldwide are investigating regulation, and we are likely to see various regulatory measures go into effect over time. 

Bitcoin has  been in existence since 2009. As a relatively new currency, Bitcoin and the cryptocurrencies that came after are bound to face all kinds of advancements and retractions on the path to mass adoption.

Illegal activity
The confidential nature of blockchain protects the user’s identity from being known. These privacy measures are intact for all users of blockchain technology, including those who engage in trading illegal goods and services.

Whether the positives of blockchain and crypto can outweigh the negatives in this regard is a matter of debate. However, it is worth noting that fiat currency (cash) is still used for most illegal activities and is typically laundered, which renders it untraceable in order to provide anonymity.

Implementation Costs
The underlying cost of implementing blockchain technology can be very expensive. At this point, the price tag associated with building, licensing, and maintaining blockchain solutions is prohibitive for many businesses and organizations. Blockchain technology is advancing across most industries and it is highly plausible that there will be less expensive solutions available in the future.