Blockchain. The revolutionary game-changing and disruptive technology, with the potential to completely change how some industries work, like the banking and insurance sectors. But is it for everyone? Blockchain technology definitely has its benefits, but it also has its downsides when compared to current technologies like a database.
There are different types of blockchain available: permissionless blockchains, where anyone has access to the data on the blockchain and can validate transactions, and the opposite being permissioned blockchain, where only a small set of selected trusted parties will be responsible to hold copies and validate transactions.
When Satoshi Nakamoto released the modern blockchain technology alongside Bitcoin, it was indeed an innovative creation, having a decentralised trustless platform for people who want to transfer digital currencies with privacy without the need of an intermediary.
Blockchain technology resists hacking, DDOS attacks, and other forms of fraud. Once each block is validated and completed, it will be encrypted by a hash. A hash is basically taking data and scrambling it through an algorithm to the point that it becomes a string of letters and numbers with a fixed length. The hash includes the previous block’s information, so if someone wants to tamper with the records, they have to decrypt all other previous blocks too.
Another thing is that most blockchain relies on reaching a consensus with the majority of the nodes that store all the data in a blockchain, to make sure that information that is added to the blockchain is correct. A hacker needs to take over at least 51% for malicious acts such as double spending (sending a transaction, but reversing it, making it seem like you spent your coins, but in reality still hold it; doubling coins), but with a more spread out network, it will be exponentially harder to tamper with the nodes.
Data resilience is also a benefit of using blockchain since copies of the same data are distributed to every node across the network, so in the event of data being corrupted or a blackout leading to nearby servers going offline, one can easily get a copy and resume operations.
Blockchain also provides immutability as the chains are append-only. It’s virtually impossible to edit the blocks and the data like transactions contained in it, providing assurance that your data is accurate. This point, however, can also be a negative trait, which will be covered below.
Before we start, some of these negative traits could be solved and irrelevant in the near future, but as of writing this article, blockchain technology still faces these problems.
Since the data entered is immutable, in some applications where data is entered (semi-)manually, that is a point of failure as human error or malicious intent can cause the data that is entered into the blockchain to be inaccurate. Like a double-edged sword, the immutability also means that there is no method of extracting or removing sensitive data is shared onto the blockchain by accident.
The main benefit of blockchain as mentioned above is the security against hacks, but if the network isn’t vast enough, the task of taking over and tampering with the data is much easier for hackers, since they can reject/approve any transaction they wish as seen by the recent case of Bitcoin Gold, where it was successfully taken over and hackers double spent coins, resulting in a loss of more than $18 million worth of tokens.
Compared to a database, blockchain is much slower, since you have to factor in the time it takes for miners to validate a transaction, which is about 10 minutes for Bitcoin.
Solving the complicated computational problem also uses an immense amount of processing power, resulting in the need of a computer rig (or known as a mining rig) that is able to run efficiently, which in turn guzzles electricity like no other, making the process very expensive, and bad for the environment.
1. Do you need to store data on the blockchain?
The very first step and the most basic question, since blockchain and alternatives like a database are used to store information like transactions.
2. Are there multiple writers?
Writers are parties that write and edit states. They also participate as part of the network that reaches consensus and updates the blockchain. If there is only a single authority that is in charge, there is no need for a blockchain.
3. Can you use a TTP (Trusted Third Party)?
If you need a trusted third party to be online 24/7 to maintain the system, you don’t need to use blockchain.
4. Are all the writers known?
If all writers are unknown, a permissionless blockchain can be employed, where everyone can join the network as a node, hold copies of the blockchain, participate in the consensus protocol, validate transactions or just making transactions.
If all the writers are known, then permissioned blockchain can be used here since you only authorise a small group of participants to be writers/readers.
5. Is public verifiability required?
Do you need the public to verify if the blockchain is correct at all times? Since companies in the financial industry usually handle private and sensitive information, and shouldn’t release it to the public, a private permissioned blockchain should then be used.
PAL Network does things slightly differently. Instead of normal public or private permissioned blockchain or permissionless blockchain, it is a dual-layered protocol that involves both public and private permissioned blockchain.
The public layer comprises Supernodes, where anyone can stake the low specs required Supernodes as long as they hold 100,000 tokens PAL tokens in their PAL wallet. These Supernodes pre-confirm and pre-process transactions before sending them to the Masternodes in the private layer.
The private layer holds encrypted data, where only insurers and policyholders have access to it (Sensitive information, smart contracts, dashboard).
PAL Network offers Blockchain-as-a-Service (BaaS) platform with predetermined parameters coded into Smart Contracts on our blockchain to distribute new microinsurance products via API integration.
Since its Mainnet launch, PAL Network also offers microinsurance products hosted on its own chain, showcasing not only its technological solutions but also its product range.
Read also: Why Microinsurance?
We hope this article is helpful for individuals and businesses to make an informed decision before adopting blockchain solutions.