One question we are consistently asked is “How is a blockchain better than the current options?”. For people coming to grips with the technology this is a key component to understanding why a blockchain can be useful. The short answer we usually give is – it all depends on what you are attempting to do. There will be cases where a blockchain is the best option for you and there will be cases where a traditional database will be most suitable. Blockchain is NOT a panacea, one-size-fits-all solution to everything. It can be thought of as a tool to add to your box, it is an option you have but not one you always need.
This is not an exhaustive article explaining every nuance between the two, but rather an attempt to provide an overview on the key difference/advantages & disadvantages of both. The authors here are assuming a basic level of understanding of blockchain technology.
There are essentially traditional databases & then there is blockchain. A blockchain is a DIFFERENT type of database. It is a tool in your database repertoire. To continue that analogy, a Phillips head screwdriver and a flathead are both screwdrivers but they are used for different screws.
Most of the advantages that blockchains offer over traditional databases come down, in some way, to trust. Blockchains are well suited to recording data and facilitating sharing between parties that either do not trust each other or where the cost of lying is high (for example with money, or tracking the safety and security of a food supply chain).
Some of the key advantages/differences are:
- Blockchains remove intermediaries, there are no middle men & no central authority so there is not one single point of failure or corruptibility.
- No central point of failure. There is no central server or database which removes the ‘honey pot’. Hackers would have to attack multiple points with a huge amount of computing power (the 51% attack) to even have a chance of falsifying data on a blockchain vs a traditional database- with one point of entry/verification, if this is compromised it is easy to edit, corrupt or falsify the whole database.
- Append only – blockchains are append only, which means you can only add entries, you cannot edit older ones, you cannot delete older ones. You can create and read.
- Immutability & transparency – continuing from the point above, blockchains are immutable, you cannot edit older data, you keep an entire record of all transactions since the start of the blockchain, giving you a trustworthy and transparent record. Traditional databases often delete earlier entries which can lead to more opaque or confusing records.
- Can eliminate confusion and mistakes when manually tracking or transferring data. Reconciliation is not an issue, as for data to be added to the block it has to have achieved consensus. There is one single source of truth and everyone sees the same data.
- Trustless exchange – Blockchains reduce friction in cases where parties don’t trust each other. They do not have to, they just have to trust the data on the blockchain.
The cons of using a blockchain over a traditional database:
- Blockchains are slower than traditional databases. This is precisely because of the security advantages they offer. Each transaction or request has to be verified. Each node must process the transaction whereas a traditional database only has one verification request and then you can enter as much data as you would like. To use consensus mechanisms effectively you currently have to sacrifice speed for security. Traditional databases can process thousands of transactions per second.
- Transaction costs can vary significantly. If a network is busy you can pay extremely high fees for small transactions. Conversely if it is quiet you can get extremely low fees. There are solutions being worked on for this on different blockchains.
- Energy consumption of a blockchain can be much higher than a traditional database. Alongside this, as they are append only, the amount of data stored is much higher as you always have the entire history of that blockchain saved. You may need a huge amount of storage space.
In essence blockchains offer greater levels of trust and security. If the data being processed and shared, or the environment that you are operating in requires high levels of security and confidence blockchain can often be a great option. If the payoffs of removing a central point of failure and middle men is high, this can also be an incentive to use a blockchain.
Traditional databases offer quicker processing at the expense of security. They also currently offer a more varied and friendly user experience, although that is changing as new blockchains and UX designs continue to be developed. These are the kind of questions you need to be asking yourself when questioning whether your business needs a blockchain or a traditional database.
We hope you enjoyed this article, please leave any thoughts/comments/ additions below!
If you have any questions or want to understand more about blockchain and career options in this exciting and growing market – please reach out to us.
Best wishes from the whole team.