Investing in blockchain - pros and cons

Many people are hyped by the idea of blockchain and want to use it, not knowing what kind of technology they want to use. To avoid this mistake, here is a brief outline of what blockchain is and can do.

What is the blockchain?

Blockchain technology is mainly a documentation system. Like in an accounting system, transactions are documented in it and thus recorded for posterity. In a classic accounting system, the accountant is therefore a person who enjoys a great deal of trust. Misuse can accordingly have far-reaching consequences. In information technology, this trust is viewed critically. That is why a technology has been developed in which verification does not require a central office.

This decentralized method of documentation is known today as blockchain. In a digital network, all participants verify the accuracy of new entries. This way, all participants can be sure that no entry is wrong and the report is seamless. Moreover, the journal is encrypted and cannot be viewed by strangers. Nevertheless, it is possible via mathematical encryption methods to verify the correctness of the encrypted section - a block - without having to decrypt it.

Pros and cons for companies

Forward-looking companies in particular are toying with the idea of using blockchain for their own purposes. The question then often arises as to whether it is a constructive idea for improving work or whether someone is just using the buzzword to improve their marketing image. Small and medium-sized companies in particular are hoping to gain an innovative edge from a potential investment in blockchain technology. But caution is advised when making this decision.

There are various arguments in favor of using blockchain. But these do not mean that its use is always sensible. However, the encryption speaks in favor of the technology in any case. In modern times, safeguarding company secrets is more important and more difficult than ever. Storing sensitive data in the blockchain can then provide a secure way to archive information. But other processes can also be handled digitally and encrypted via documentation in the blockchain.

In safety-critical processes, this technology can also be used to provide proof. In this way, changes can be tracked and are subsequently recorded in a tamper-proof manner. In this way, for example, auditing processes can be optimized and guaranteed with a high degree of security and traceability.

But what is the argument against using blockchain when there are so many advantages? In general, too little time is devoted to this question when it comes to where blockchain should be used. Because even if it offers the advantages mentioned, no matter where it is used, there are, however, established ways of working that are sometimes incorporated by law. In such places, knowledgeable lawyers have yet to determine whether the blockchain meets the requirements.

Familiarizing employees with the system could also prove difficult. This is because the technology is based on complex mathematics and mistakes in understanding encryption and handling digital information can quickly turn blockchain into a risk. The big mistakes that take place when dealing with young technologies have not yet occurred or become known with blockchain.

What do entrepreneurs need to consider with blockchain?

If you as an entrepreneur are toying with the idea of using blockchain for your company, many questions should be clarified in advance. The most important of these is whether its use actually represents an improvement over the traditional approach and whether the expense of acquisition and training is justified by the result. In addition, the proprietary blockchain must have a network that handles verification. Blockchain-based accounting would not make sense if only the accountant's computer produces blocks and also confirms the correctness of the blocks.

Medical facilities in particular can benefit from the technology. The increasing digitization of medical devices makes it possible to have many participants in the network. The circumstances of work, such as prescribing medication or billing for therapies, are such that digital, decentralized documentation can be useful. But here, too, technicians must ensure the functionality of the devices.

Blockchain technology

Many people consider the blockchain to be a digital cash cow from which Bitcoin is slowly trickling, as little understanding of the system has been created so far. This is because blockchain technology, as used by the digital cryptocurrency Bitcoin, is a system for documentation or accounting. So it's less of a digital mint and more of a land registry.

For some others, blockchain technology is simply uninteresting.

As in a financial journal, all transactions are recorded there. The particular advantages offered by blockchain technology are encryption and traceability, which makes subsequent falsification of the chain almost impossible. Depending on the system for which the blockchain technology is used, the creation of the blocks can thus be subjected to certain rules.

Whether blockchain technology is so suitable for companies in the free economy is not yet clear. It remains to be seen whether an implementation can meaningfully improve work processes or what else blockchain technology is suitable for. So far, Bitcoin and Blockchain are a technology that is not efficient in combination, which does not meet the needs of business.

To the author:

Alexander Kretschmar studied law at the Humboldt University in Berlin, graduating with an intermediate law degree. This was followed by a bachelor's degree in journalism. Since then, he has combined the fields of interest "law" and "reporting" and works as a freelance legal journalist for various associations in Berlin.

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