Learn about the five common mistakes of blockchain and Bitcoin in one article

Nov 22,2022
Learn about the five common mistakes of blockchain and Bitcoin in one article

As an emerging technology, blockchain has a disruptive impact on many fields. The most typical use cases are Bitcoin and other cryptocurrencies. The core of the blockchain is a distributed ledger system, which allows data to be stored in a way that cannot be changed. Moreover, cryptocurrencies such as Bitcoin are built on the underlying infrastructure of blockchain technology. Blockchain and Bitcoin have existed for more than ten years, and they have also been flooded in many news media. However, the public still has many misconceptions about them. So, let's take a look.

Analysis of five common misconceptions of blockchain and bitcoin

Myth 1: The data on the blockchain is secure!

This misunderstanding is particularly widespread. It is wrongly believed that the data on the blockchain is stored with some encryption algorithm, and this information is "safe". Once the data is stored on the blockchain, no one can view or browse the data without proper authorization. Therefore, you will feel able to store your bank account, password and social security number in the blockchain without fear of being attacked by hackers. In their opinion, nothing is more authentic and reliable!

However, for some people in the blockchain network, the data stored on the public chain is actually visible, that is, each node in the public chain network has a local copy of the entire blockchain on its node, and can view the block data content.

Yes, anyone can query the information stored in the blockchain!

Therefore, the public blockchain is not suitable for storing sensitive or personal information (such as passwords, social security numbers or bank accounts), because anyone can query the blockchain content.

When people say that the data on the blockchain is "safe", it just means that the data cannot be changed. Specifically, once someone tries to change the information in the blockchain, someone will find out.

The data on the blockchain is not absolutely safe, it just cannot be changed.

People will have different understanding of the word "security". In the blockchain industry, the word "security" only means "cannot change". For those who try to read or browse it, it is not absolutely safe.

Myth 2: Blockchain is especially suitable for storing data!

In fact, blockchain is not suitable for storing large amounts of data.

The distributed characteristics of the blockchain represent that each node, as a part of the blockchain network, has a complete group of blockchains. If the blockchain is used to store large documents (such as images, videos, etc.), the blockchain will be too large, and each node will have to copy the entire blockchain data on itself, which makes it inefficient.

In fact, blockchain is particularly suitable for recording transaction data. The general approach is to use some distributed file systems (such as IPFS, Swarm, SAFE network, perkeep, etc.) based on the location above and below to store big data documents outside the blockchain, and store the hash address of data files on the blockchain.

Myth 3: Smart contracts are conventional real contracts stored on the blockchain!

Smart contracts have nothing to do with real contracts. As a computer program stored on the blockchain, smart contracts can be implemented on the blockchain.

Smart contracts should be written in programming languages, such as Solidity or Serpent in Ethereum blockchain and Go or Java in HyperledgerFabric blockchain. The smart contract is implemented on the Ethereum blockchain according to EVM (Ethereum Virtual Machine). On the Hyperledger blockchain, the chain code is implemented in the Docker container.

The concept of smart contract was introduced as a part of Ethereum blockchain (Ethereum is called the second generation cryptocurrency). The EVM is imported into the Ethereum blockchain platform, and the effectiveness and use cases of the blockchain can be expanded by enabling computer programs to be stored and operated on the blockchain.

Without the concept of smart contract, Bitcoin blockchain (called the first generation cryptocurrency) cannot create smart contracts on the Bitcoin blockchain.

In fact, smart contracts are byte codes on the Ethereum blockchain. Both smart contract programs written in Solidity programming language and byte codes compiled by Solidity compiler are stored in the Ethereum blockchain. The smart contract operates on the Ethereum blockchain and is implemented by EVM (Ethereum Virtual Machine) at each node of the Ethereum blockchain.

By comparison, HyperledgerFabricChaincode program is designed to remain isolated from blockchain. Chaincode programs are written in Go or Java, and are implemented in separate Docker containers running on each node, rather than on the blockchain. As a result, the modular architecture of HyperledgerFabric has been implemented, so that consensus algorithms can play a plug and play role.

Myth 4: Bitcoin is a combination of digital currencies

Bitcoin is not a combination of digital currencies. In fact, Bitcoin does not exist in a physical way!

Bitcoin is stored only as part of the transaction record.

Although this may sound confusing, there is no such thing as "newly forged" Bitcoin. Using computer computing skills, miners can explore the next block on the Bitcoin blockchain and get new Bitcoin. However, the way these problems occur is that only one transaction record indicates that "12.5 bitcoins were transferred to the miners' bitcoin wallet", and this transaction is regarded as an effective transaction by the blockchain.

It is worth noting that the 12.5 bitcoins transferred to the miners' wallet do not come from any other region, that is, there is no "coin bank" with "virtual currency" and the statement that miners get rewards from it. 12.5 Bitcoins have never existed before and will never exist. The only thing that exists is (efficient) transaction records. 12.5 bitcoins were transferred to the miners' wallets, that is, bitcoins are only stored as transaction records, not real virtual currencies.

In addition, it is also important to understand that there is no virtual currency in Bitcoin wallet.

Bitcoin wallet is just a key (address), not a real Bitcoin repository. As mentioned above, Bitcoin does not actually exist as a virtual currency (Bitcoin is just a transaction record). Therefore, the user's Bitcoin wallet will not include the virtual currency, but only the encryption key. If the customer can use Bitcoin as a part of the effective transaction record, the node is allowed to verify.

If the customer really wants to add the Bitcoin blockchain as a node, it means that he must download the whole Bitcoin blockchain through the computer (the first download may take several hours). The only reason why customers want to add bitcoin blockchains as nodes is to "mine" new bitcoins.

As the computing level required to "discover" new Bitcoin blocks continues to increase, the computing rate of personal computers will be insufficient. Generally, customers will connect computers to the "ore pool" (to generate the next block for excavation, gather a group of computers that operate cooperatively, and distribute rewards according to the contribution ratio of each person).

Myth 5: The reason Bitcoin is not used as a mainstream currency is the threat of the government!

The only reason preventing Bitcoin from becoming a mainstream currency is Bitcoin itself!

Because of its inherent scalability problems, Bitcoin can only solve 7 transactions per second! As the second largest cryptocurrency platform, Ethereum can only handle 20 transactions per second.

By comparison, Visa and PayPal were able to resolve 1667 and 193 transactions per second.

The inherent limitation of Bitcoin is that, according to the design, it takes 10 minutes to generate new blocks on the Bitcoin blockchain, and the size of each block is limited to 1MB. If the Bitcoin blockchain solves thousands of transactions per second, all nodes on the blockchain need to have high network bandwidth, so that they can closely follow all new records in the local blockchain.

This makes the Bitcoin blockchain very suitable for use cases such as money transfer. In this scenario, it is not necessary to confirm the transaction immediately, and you can wait for about an hour before the transaction is confirmed. However, it is not suitable for rapid and immediate transaction settlement.

Speaking of this, I believe you have a certain understanding of the five common misconceptions of blockchain and Bitcoin. In general, blockchain is just a computer application mode that combines some communication technologies and encryption algorithms. It is not absolutely secure, and its founders may have established some loopholes or interfaces. Bitcoin has no value. There are also some doubts about the number of technical documents issued, and there are many risks in the transaction.