What is Blockchain? Top 5 Misconceptions.

An edition of the MIT Technology Review featured blockchain on its cover. The article showed a Venn diagram between “hope” and “hype.” The intersection labeled “the future” was quite small.

Things have remained the same over the past few years as the inflation of Bitcoin has kept the hype cycle of blockchain alive and well.

I believe that one way to combat hype and push blockchain to the mainstream is to address misconceptions that those new to blockchain have been asking me.

Earlier, I wrote a blog post answering the question - what is a blockchain? In this list, I conclude with clearing up 5 common misconceptions about blockchain:

  1. Misconception: Blockchains are always the right solution.
    REALITY: Blockchains should not be used in every situation.

Blockchains are data structures, which should be used for applications that make the most of their unique attributes. As with all tools, we should use the right tool for the right job.

Gideon Greenspan has a nice presentation here on when blockchain should not be used. Here are some other examples:

Consider the notion of a smart bond—a bond based on a blockchain and enforced electronically. Is there a real advantage of having an issuer float a smart bond over a typical bond? If the debtor of the smart bond defaults, the issuer will still need to cover the losses of the bond, depending on the terms. In this instance, all you have is a buzzword compliant bond with additional infrastructure costs.

Another example is where a transaction cannot be electronically verified. Imagine that I want to track expensive bottles of Dom Perignon, so I make a blockchain app relying on RFID codes. What’s to stop me from emptying the bottles while keeping the RFID intact?

The physical world needs to interface with our nice blockchain-ized computers. This is why the notion of an oracle exists; oracles enable the physical world to interface with blockchains.

There are real bona fide reasons to use blockchains, but there are real bona fide reasons to use machine learning or microservices. Or the wheel. Or fire. Use blockchain when it’s the correct tool for the given scenario.

  1. Misconception: Blockchains are infallible.
    REALITY: Blockchains can be wrong.

Anyone can put bad data into a data structure. Since blockchain is a data structure, anyone can put bad data into a blockchain.

Though application programmers will try to write code to prevent bad data, there is nothing inherent in a blockchain that prevents a bad data entry. Recall the term GIGO: garbage in garbage out.

Consider a scenario where there is a real application for blockchain that is full of bugs. All the blockchain does is enforce consensus, which means that we treat the wrong data in the blockchain as correct data.

We should take care not to conflate consensus with infallibility.

An example of a blockchain full of bugs was the forking of the Ethereum tree. There was a posting error, but some folks opted to go with the original tree, while others opted to go with the corrected tree. Both sets of users continued happily on, knowing full well that there was another tree that disagreed with theirs.

Indeed, consensus is not correct-ness.

  1. Misconception: Blockchains can replace centralized traditional databases.
    REALITY: Blockchains should not be conflated with traditional databases.

Blockchains are a form of storing data called persistence. Traditional databases are also a form of persistence, but this does not mean that blockchains should be equated with traditional databases.

Some newbies want to eliminate centralized traditional databases completely, treating blockchains as a replacement. This fails to recognize the blockchain as a data structure with its own specific attributes, which are very different from traditional databases:

  • Blockchains must propagate every change to all other participating computers. However, every field you include in the blockchain is a field that may change and therefore trigger consensus updates. Adding unnecessary fields to the blockchain is a recipe to increase network traffic.
  • Blockchains are immutable, meaning once something is put into a blockchain it can’t be changed. While you can do offset records, users must be extra careful about what is put in a blockchain. The more you plan to input, the more error checks you need to implement and enforce.
  • Blockchains are supposed to enforce radical transparency—everyone with access to the blockchain should be able to see the records. This can pose issues if the data includes personal information and medical records.

  1. Misconception: Blockchains are totally secure.
    REALITY: Blockchains can be compromised.

Most people I know take it for granted that a determined hacker can hack any account—regardless of cryptographic cybersecurity measures. However, some of those same people don’t consider the fact that blockchains can also be compromised.

If you realize that your online accounts can be hacked, then you must also acknowledge that your blockchain can be hacked, because the same encryption algorithms are used. It is unfortunately not an unbreachable solution.

  1. Misconception: Blockchain smart contracts and apps are legally binding.
    REALITY: Blockchains do not replace the legal system.

Blockchain smart contracts are electronically enforced agreements and are not legal contracts. However, this does not stop speculation that blockchain smart contracts can replace not just legal contracts, but indeed the law itself.

Since blockchain apps are sometimes improperly called smart contracts, blockchain apps are confused for legal contracts. A computer science “contract” is a different beast altogether than a legal “contract.” The use of “contract” in computer science is meant as a metaphor to legal contracts, not a conflation.

If someone wants to have a witness for their transactions of a $10 T-shirt, they can make use of blockchain. Blockchain is an electronic system to obtain witnesses for transactions. This in effect creates trust to enable transactions that otherwise wouldn’t happen. In a sense, this provides the same service as a form of cheap, ubiquitous escrow on demand.

If the person doesn’t get their t-shirt after paying $10, that person has the option to go to small claims court to get a refund or the t-shirt. While it doesn’t make sense to hire a lawyer for a $10 transaction, you can be sure that if there is a million-dollar transaction, lawyers will be included in the mix.

Blockchain has the evidence of the transaction, but it does not enforce the law. Blockchain needs the law to enforce it.


Readers of this blog post may conclude that I’m bearish on blockchain, but it’s quite the opposite; I believe that blockchain and distributed ledgers are among some of the most promising computer science technologies in recent years.

And I believe blockchain is here to stay.

Blockchain is an ideal solution for problems where transactions can be electronically enforced, such as electronic payments and electronically verifiable claims. In fact, blockchains are ideal for parties that wouldn’t otherwise trust each other such as energy companies, governments, and watchdog NGOs.

However, if they trust a blockchain system to be in consensus and to enforce radical transparency, they may rely on the system to track energy exchanges and carbon credits amongst different countries. This is an amazing accomplishment.


It means that a transaction can move forward,
where otherwise the parties
would not have established enough trust to proceed.


In my opinion, this is where the future of blockchain is—enabling transactions that otherwise would not be possible since the parties did not trust each other.

Perhaps over time, where there is a history of successful transactions, it just might in fact engender bona fide trust. It is in this regard I allow myself optimism around the blockchain.

As with all posts, I welcome your thoughts and comments:

  • Am I too bearish or pessimistic about blockchain?
  • Do I make too much of the need for electronic verification?
  • Are there other points that you think should have made the list?

I look forward to the discussion.

And as always, thank you for reading.

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