Blockchain technology is moving, morphing and changing so quickly that it’s challenging to keep up with, even for those of us who work in within the area. And the rate of change seems to be increasing. To complicate the situation, even more, new applications for the technology sometimes appear hourly. Add to this the fact that this is a relatively new technology with origins going back just a few decades for the core technology, but the unique combination we now know as Blockchain dates from 2007/2008, barely a ten year old infant at this point.
In fact, the technology is moving so fast that today many professionals don’t understand the basics let alone the many critical subtleties one must consider when assessing it. And even some of the most popular narratives and explanations of blockchain are somewhat dated and misleading. So how should we move forward, and what are the real advantages behind the green curtain of the blockchain. Let’s start with some practical definitions of the Blockchain and hope they are not too outdated by the time you read this.
What is Blockchain?
The blockchain is a distributed network of computers (“nodes”) that utilize the underlying infrastructure of the Internet to validate and process transactions of some value. These transactions are validated and added to “blocks” of data that are processed in a pre-defined interval of time (i.e., 12 seconds, 10 minutes, etc.).
Blockchain uses existing cryptography schemes to append new blocks to previous blocks. This way, blocks are never overwritten or destroyed, just appended to, forming a chain of blocks, hence the term “blockchain.” This chain of blocks is synchronized across all of the nodes by providing an economic incentive to the node that is able to first validate and then add the block to the chain by solving a complex mathematical task. Each node on the blockchain network maintains the same chain of blocks, also called a “ledger” as in an accounting ledger of records. This chain of blocks or ledger of records is distributed across multiple nodes that agree to the correct state of the ledger through the process of consensus. Different consensus mechanisms exist, but the most common one is called proof-of-work, as described here. Once a block has been added to the blockchain, it becomes an immutable record.
There are many different blockchains – the major types are, public, private and consortium blockchains.
In a public blockchain, anyone can join and become a node. All transactions are publicly available, the value of the transaction is public, and the identity of those parties who are sending/receiving the transaction is pseudo-anonymous. In other words, the wallet ID is visible, not the name or ID of the person or entity that controls the wallet.
Public blockchain has known participants. The sole distinction between public and private blockchain is related to who is allowed to participate in the network, execute the consensus protocol and maintain the shared ledger. Allowing control and privacy while still cutting down costs and transaction speeds.
Consortium blockchains exist where rules, roles and consensus mechanisms can be pre-defined. Instead of allowing any person with an internet connection to participate in the verification of the transaction (public) or allowing a single company to have full control (private), In a Consortium blockchain, a few selected nodes are predetermined. For example — imagine a consortium of 10 groups, each of which operates a device connected to the Blockchain network. If group ‘2’ only shares data with ‘3’, ‘4’ and ‘5’ there is no need for the other groups to be given the permissions to read the shared data. Although some degree of decentralization is maintained in their structure, the participants have the power to grant read/write permissions to other participants, leading to the ‘Partially Decentralised’ design of Consortium blockchains.
The “next Internet”
Blockchain has been called the ‘next Internet’, or the ‘Internet of value’. The current Internet facilitates communications and the sharing of information. We can send each other information, we can learn, collaborate, socialize, and work using the Internet. In fact, one could argue we couldn’t function without it. Sharing information is something the internet is really great at.
What is this new Internet of value exactly? I can create an article and post it online for you to read. You have a version of my article, but I retain the master. Alternatively, I can also email you a copy of my article. In either case, if I change the master article, and don’t post it online or send you an update, you now have an outdated version. To overcome this problem, solutions like Google Docs enable people to share documents and collaborate online in real time. This way, everyone shares the instance of the article. This works well when the object (as in the case of the article) has no tangible value. Now think about something of value such as money: it would not be such a great thing if I sent you a copy of a dollar and retained the original. That would be fraud. Yes, one can send and receive money online and via banks, but when you think of doing this across international boundaries or for a very small fraction of the transfer amount, then the existing solutions are too expensive, take too long, or just cannot handle the fractional value of the transaction.
This is where blockchain comes in. Blockchain leverages a combination of several existing technologies innovatively to address the challenges of the traditional Internet and existing systems. Blockchain enables the transfer of value (cryptocurrency currency, digital assets of any kind) almost instantly at a fraction of the cost and time of the traditional way. It also stores the record of such a transaction in an immutable and tamper-proof manner by distributing the record of the transaction across a large distributed or decentralized network.
Trouble in Paradise?
Yes, Bitcoin has some negative perceptions, but don’t blame the technology or the concept for the wrong-doing of some people. Any technology has capabilities of being used for the wrong reasons, including the internet. And there is the recent spike in cryptocurrency values, and network congestion (as a result of scaling limitations of public blockchains) has led to increased cost of transactions. There is a trade-off between how much you pay for your transaction to be processed quickly and how long you wait. Therefore, this early narrative of the public blockchain needs some refinement. So you really need to understand a few things before you begin the journey of implementation.
Implementing Blockchain
How to plan and implement the right blockchain solution are critical to success. To appreciate the blockchain you will need for your organization; you will need to learn more about the following topics:
The Blockchain Ecosystem_
Distributed Ledger Technologies and Architectures
Smart Contracts
Decentralized Autonomous Organizations
Cryptocurrencies and Tokens
Blockchain Business Opportunities
New Blockchain business models being created
Blockchain Governance Models
Blockchain Disruptive Threats
Time Flies Faster in ‘Blockchain space.’
First, the rate at which blockchain activity is growing has fast outpaced what we saw at similar stages of the Internet. This is understandable, as most disruptive technologies are disrupting at a faster rate now. Of note though, is that not only is the activity accelerating exponentially in the blockchain, blockchain has eclipsed most of other trending tech over the last few years (see Figure 1 below).
Source: Google Trends, April 2017. RedMobile Consulting via Introduction to Enterprise Blockchain Training Course, TranformationWorx.com
Time Flies with Great Intensity
Second, the intensity with which new blockchain platforms, middleware, and applications are popping up is astounding. Think of a business, any business that has several parties involved in fulfilling a ‘value-driven’ transaction, where the end-to-end transaction is time-consuming or has costly intermediaries, or where transparency and trust are an issue … and viola! There is a good chance that a blockchain-based solution is already out there. A solution waiting to disrupt or transform the ‘old Internet’-based way of doing things.
Blockchain has already evolved from a purely public, immutable, open, and shared ledger set up to one that has over 100 platforms offering several types of configurations and consensus mechanisms to suit the varying needs of different business applications. The blockchain is a fast-evolving space. Figure 2 below demonstrates that the disrupters of not-so-long-ago, such as PayPal, Dropbox, Amazon Cloud drive, are now ‘incumbents’ ready to be disrupted.
Source – BTCS and updated for market cap on May 22, 2017,
You Feel the Rush
If you are involved in this space, in almost anyway, you can feel the rush; it’s not like the gold-rush, it’s like the gold-rush on steroids. It doesn’t really matter how you look at it: the passion and drive of the people in this space is contagious. The dramatic increase in cryptocurrency prices is unnerving, hitting a market cap of $60B in mid-May of 2017 growing to almost $111B in June of 2017 (see Figure 3).
And some currencies have gone 8x to 50x over the last few months (Figure 4).
The velocity at which capital is being raised through Initial Coin Offerings (ICOs) will make anyone in funding venture and capital markets take serious note (Figure 5).
And I can write a book on this, but it would be out of date by the time I finished the first chapter. However, one thing that may surprise you is that while maturity of blockchain will likely take 5+ years, don’t kid yourself: many of us were saying it will take at least 10 to 15 years just a year ago.
Your Business is Being Disrupted Already – Delay and be Disrupted
These are exciting times, but they are also times to be very careful. The reality is that most businesses operate under some form of existing regulation, are either themselves an intermediary, or are working within an eco-system of value chain partners that are intermediaries. So, when we hear of blockchain disrupting the central authority or the middleman as its main goal, it raises some concerns as well as presenting new opportunities. Organizations realize that despite concerns, they cannot ignore blockchain, so many are starting to explore blockchain technology via a proof-of-concept. Before starting with a particular solution or selecting a vendor, however, it is critical that one assess the many considerations that come into play when selecting the best approach to exploring blockchain. Disruption of parties alone provides for a limited view of the potential of blockchain. When one speaks with enterprise decision-makers, there are more questions about blockchain than answers, illustrating the challenge with blockchain when it comes to an enterprise:
The fact is that there are a multitude of complex considerations:
How will implementing blockchain impact my business?
How will it impact the customer experience?
What is the impact on my partner eco-system including my supply chain?
How will I ensure privacy, security, and integrity?
What type of use cases makes sense for my business?
What platform is best suited for my needs, and does it scale?
How do I handle regulatory requirements?
Where do I start?
And the questions go on.
What Can You Do?
The answer, if there is one-answer, is that ‘it depends’. And, as cliché as it sounds, it really is true. What this really means is that there is no one approach or secret recipe that would apply. Also, blockchain doesn’t make sense for everyone and for many use cases. One has to go through a process of understanding the business, application and user needs, and take into considerations external factors such as the regulatory environment, etc. before determining the approach. An enterprise needs to keep multiple considerations in mind in order to assess the best technology, platform, solution, and overall approach to its blockchain implementation.
These include:
Identifying and managing risks of implementing blockchain
Determining the type of blockchain (i.e. permissioned, permission-less.) that best meets your application and organizational needs
Identifying the requirements to meet the needs of your application (i.e. scale, speed, cost, etc.)
The skill-sets required to implement and maintain the blockchain solution
The strength of the particular blockchain platform and supporting vendor ecosystem for middleware and applications
Additionally:
Does business processes (“logic”) need to be embedded in the blockchain or not
The degree of desired privacy in the blockchain: this can help determine if a public blockchain is viable or another solution is better suited
Consensus mechanisms impact the degree of scalability, speed, finality, and impact the blockchain of choice
Immutability and what this means for governance in the blockchain – i.e., what happens if you need to change a rule in the future?
The impact of moving an existing application from a centralized to a decentralized or distributed system can be very challenging: it may in fact be better to start with a new opportunity or process that is not as disruptive to the core business.
Only once all of these are determined, can decide the platform solution that best meets your needs.
Michael Noel
CEO Blockchain Consultants
https://BlockchainConsultants.io
