Blockchain technology is relatively reliable, but not without vulnerabilities. Despite its decentralization and distributed nature, there is a risk of hacking. There is also the possibility of users with high computing power colluding to make changes to the blockchain. In addition, there is the risk of loss of assets due to Internet fraud. And the loss of a private hash key to access a blockchain wallet actually results in the loss of assets, i.e., a direct loss of funds.
Advantages and disadvantages of blockchain
Blockchain’s main advantages are its decentralized and distributed transparency and the impossibility of changing or destroying information within blocks.
The disadvantages of blockchain include the poorly developed regulatory and legal framework in the vast majority of countries in the world. This leads to attempts by regulators to control blockchain transactions, even to the point of banning cryptocurrency circulation (for example, the Chinese authorities did this). Regulators usually explain their actions by the risk of fraudulent schemes when exchanging digital assets for real money due to the anonymity of transactions. Another disadvantage of blockchain is the irreversibility of transactions.
Digital assets, especially cryptocurrencies, also have high volatility, which can threaten to completely lose money.
Blockchain is a technology for encrypting and storing data distributed across multiple computers in a shared network. Blockchain records are presented in the form of blocks linked by special keys.
The technology is used to store and transfer digital assets and can operate in both public and private networks. Blockchain can be used in many areas where rapid transfer of information with a high degree of protection is required. Any cryptocurrency functions based on blockchain technology. Blockchain also enables smart contracts and the issuance of NFTs.
Blocks in blockchain, such as when issuing cryptocurrencies, are created through a mining procedure. The creation of blocks in large networks is handled by special persons – miners.
For accounting, storage and other actions with digital assets, a blockchain wallet – a special program that keeps records of its owner’s account and the entire history of transactions – is used.
Blockchain features are decentralized and distributed: information is stored simultaneously on all devices in the network, and there is no single data management center. But to maintain the integrity and stability of the network, there must be multiple participants. In general, blockchain technology is not without vulnerabilities, such as the risk of losing access to assets due to fraud. When investing in digital assets, it is also necessary to keep in mind their high volatility.