7 Big Misconceptions About the Bitcoin Blockchain

There is always some confusion about the function of Bitcoin blockchain. To this end, Gartner analysts have listed seven common misconceptions about the technology.

Today, the Bitcoin blockchain — the global distributed ledger technology that digitizes Bitcoin transactions — has become a public topic, enabling peer-to-peer payments over the internet.

According to Gartner, the Bitcoin blockchain is an “authoritative record of Bitcoin transactions that is not stored or controlled by a central server.” Instead, thousands of coins are exchanged en masse for transaction data in a peer-to-peer network.

The Bitcoin blockchain is now widely used in multiple industries, such as the Internet of Things, digital rights management, and global payments.

However, amid the discussions around the world, there is no shortage of confusion about the application and functionality of the technology. In a recent report, Gartner analysts Ray Valdes, David Furlonger and Fabio Chesini shared seven common misconceptions about the Bitcoin blockchain.

Myth 1: Blockchain is a “magic database” in the cloud

The analysts pointed out in the report that blockchain is not a "universal database" but conceptually a flat file - a linear list of simple transaction records. "The table can only be appended, so entries can never be deleted, whereas the file (currently about 50 GB) can grow indefinitely and must be replicated at every node in the peer-to-peer network (thus causing scalability and latency issues)," the report said.

Myth 2: The integrity of the ledger is determined by the majority of nodes in the peer-to-peer network

The analysts point to the fact that the integrity of the ledger is largely determined by “hash power” (the computing resources used for data mining) rather than the number of different nodes in the network. “This means that a single sufficiently powerful entity in the network can overwhelm other nodes,” the report states.

Myth 3: Ledgers represent irreversible records

The analysts believe that this is true in practice, but "in theory, accumulating enough hash power can rewrite all records including the genesis block (the first block in the blockchain)."

“Such behavior would have a negative impact on the incentives of ordinary participants in the Bitcoin ecosystem because it would undermine all users’ confidence in blockchain technology and the commercial economy it supports,” the report said.

Myth 4: Blockchain technology can scale to the global economy

Analysts believe that this is no longer just a misconception, but a widespread view as people gradually realize that the current Bitcoin technology stack has scalability issues.

Due to its design limitations, the network can only process a small number of transactions per second.

“Due to the 1 MB maximum block size limit and a confirmation delay of approximately 10 minutes per block (depending on the average transaction size), the maximum transaction rate is 7 transactions per second (tps),” the report said.

“In fact, as the size of transaction records continues to grow, the transaction volume has been decreasing and is currently less than 3 tps, which is really pitiful compared to peak capacities such as Visa’s 47,000 tps or Nasdaq’s 1 million tps,” the analysts said.

Myth 5: Blockchain can be separated from currency or digital tokens

Some financial institutions that are considering using blockchain say they don’t care about the currency, just the blockchain. But analysts point out that bitcoin in its current form is only one of the main components of blockchain.

“A blockchain is simply a list of transactions based on Bitcoin. Furthermore, the consensus mechanism is designed to rely on a currency that rewards data miners for confirming transactions,” the report said.

“Thus (as some members of the Bitcoin community have said), people who support blockchain but think that currency is unimportant and can be ignored do not understand the technology and how it works,” the analyst argued.

Myth 6: Bitcoin transactions are anonymous, instant, and secure

“In the Bitcoin technology stack, transaction participants use pseudonyms,” the analysts noted.

“By design, there is a minimum 10-minute delay in confirming a transaction, and in reality, someone may have to wait up to an hour for confirmation,” the report said.

“Transactions within a blockchain are random, not absolute, so in theory an attacker could construct an alternative chain (data derivative) that doubles the spend. But unless the attacker has a majority of the hash power, this won’t work.”

Myth 7: Blockchain is a decentralized system

Analysts say blockchain was originally a decentralized peer-to-peer network, but it has become increasingly centralized.

“The number of peer-to-peer nodes in the network continues to decrease by about 15% each year,” they noted. “Most data mining is done in just four Bitcoin mining pools, all of which are located in China. In theory, any two of these four mining pools could collude and together constitute the majority of the computing resources (hash power) required for mining, thereby controlling the updates of the distributed ledger.”