Need a Blockchain? A perspective.

Disclaimer: I fully support blockchain technology and its immense applicability, this article just rationalizes and suggests to put it in use for right use cases.

Blockchain is one of the most promising modern-day technologies and today everyone is trying to derive some value out of it. Most organizations on-route a digital transformation journey believe that Blockchain is the next big disruptive technology among others and its impact will be enormous. Lately there has been a tremendous amount of hype as well as doubts about blockchain and its use.

Many senior industry innovation leaders are asking “Do we really have a problem that only blockchain can fix more effectively?”. That said I thought it would be a great idea to put this into perspective.

“Blockchain is not the thing. It’s the thing that enables the thing”.

– Mark Buitenhek, Global Head of Transactions Services at ING

This is an interesting quote that explains that the real value of blockchain is not in itself, but in what it can enable. Let’s begin with a little understanding of what blockchain is all about?

In simple terms Blockchain is nothing but a decentralized database. It is a distributed ledger of transactions where no single person or organization is incharge of the entire ledger. There are several transactions recorded in the chain compiled into something called a block and everyone in the chain can view the detail of each record. Each block has a time stamp and is encrypted using cryptographic techniques. Only the person who owns the transaction can edit it. All owners are recognized and provided access to their transaction or block through a private key that only they own. When someone changes any block, everyone’s distributed blockchain is updated with it.

“In essence Blockchain is a platform that makes transactions possible between multiple parties in a trust-less environment without the need of an intermediary”

So would we really need banks, broker firms, lawyers, governing bodies in future? Food for thought!

While organizations wish to use blockchain to solve some real life issues, there is also a hype, peer pressure and FOMO kicking in that puts pressure to do something on the blockchain for the sake of it. There are various ways in which individuals and organizations are exploiting the hype behind Blockchain to sound innovative and or to get some quick funding.

One of the first use cases of blockchain in finance industry i.e. Cryptocurrency has encouraged numerous startups to issue ICOs to raise millions of dollars in a blink. As per latest studies over 80% of these ICOs could eventually be scams, thus blockchain cryptocurrency based use case raises huge concerns.

“Kodak’s cryptocurrency ploy hits all the major buzzwords – blockchain, smart contracts, distributed ledger, ICO, etc. But look through the PR spin, examine the true merits of using blockchain for the proposed service, and its obvious the project is poorly thought out and will never work as promoted” 

(https://www.kerrisdalecap.com/wp-content/uploads/2018/02/Eastman-Kodak-Company-KODK.pdf) The above is an excerpt from Kerrisdale Capital’s report on Kodak’s attempt to harness benefits of blockchain technology. This in really appears to be a typical example of a large company to save themselves from bankruptcy riding the hype on Blockchain and cryptocurrencies.

I witnessed another example of someone using Blockchain for the sake of it when I attended one of the blockchain hackathon’s at ECE graduate school of engineering, Paris last year. Several groups were invited to create prototypes or MVP’s based on blockchain solution in a 48 hour period. There were some great projects on blockchain use cases in energy redistribution, electrical charging, eCommerce, land-registry, travel money etc.  However, over 70% of ideas were rejected because they actually didn’t need a blockchain. It would have been much easier and cheaper to build them on alternate technologies.

Konrad Dobschuetz a senior leader at Pfizer said during London blockchain summit 2018, that he will entertain blockchain solution providers and is ready to invest provided they can solve their real life business problems.

Let’s for a moment look at the other perspective keeping scams aside. Even if the intentions are good & legitimate, do we really need to use blockchain? The answer may be a “Yes” but it is worth qualifying this because blockchain is not for everyone.

Now how do you decide who should use Blockchain technology?

The most basic applicable scenario is where:

“A transaction of digital assets (that have value) needs to happen over a business network that consists of various parties who may have conflicting interests and do not trust each other”

You may get some very basic guidance based on the below flowchart.

If you compare traditional relational databases and distributed ledgers, a major constraint of traditional databases is that it is centralized and controlled by a single entity which is responsible for data integrity and security. Using it in a business network makes it hard to achieve trust and maintain security. So if trust and data security is more important, then blockchain with its distributed ledger technology may well be the ideal solution for that use case.

Although there are very few Blockchain solutions available in the market today that could truly be used for an Enterprise providing performance at scale & multi-chain interoperability and integration, we are going to see some innovation soon and Blockchain will become more useful for larger organizations.

To leave you with some final thoughts “I believe if blockchain technology can

• Improve speed or time of a transaction
• Reduce cost & complexity of a process
• Reduce risk of fraud & Improve trust
• Provide better integration (with legacy applications)
• Provide better monitoring & auditability

and if all of above is possible at a large scale, in a way which is achieved in a much simpler way than other available standard technologies, that’s where it makes most sense to use Blockchain”

Stay tuned for more similar discussions but for now wishing you all the best in your Blockchain journey!