To Blockchain or not to Blockchain
Blockchain might not be the answer for your business
Since you opened this article, you are probably considering Blockchain technology but you are not confident if it’s the best technical or strategical decision to make for your business. Let me help you decide, this article is meant to help you both understand on a high level what a Blockchain is, and what is meant to do.
I worked on Blockchain solutions in my Ph.D., I read a lot of scientific papers about the topic, it made me think that Blockchain technology is the solution to every problem, my job was to figure out how to exploit it to solve some problem. Trust me when I tell you it is theoretically possible to use Blockchain to solve a lot of problems. Some claim that Blockchain is going to end world poverty. But the reality is very different, Blockchain is very expensive, complex, and in many cases unnecessary. It is used in many companies as a marketing buzzword to attract investors and clients. Gartner estimates Blockchain will generate $3.1 trillion in new business value by 2030, meanwhile another CIO survey stated that only 11% of respondents have deployed or will deploy Blockchain because the majority of projects fail to get beyond the initial experimentation phase.
First things first, let me explain what a Blockchain is, if you already know, you can skip this paragraph.
What is a Blockchain?
Trust, Blockchain is a trust protocol. Let me explain, we write legal contacts because we don’t trust that the other party is going to respect agreements. Governments go through international banks because they don’t trust each other. You might buy expensive products or services because you don’t trust cheaper brands. It is all about trust. And the need for trust increases when the stakes are high and risky. So we put in place middlemen, contracts, ledgers, proofs, laws, and rules to compensate for the need for trust.
Blockchain technology is designed to provide an authoritative tamper-proof, distributed ledger of records among a network of untrusted parties. It is powered with a lot of cryptography to reach the immutability advantage, and it leverages different consensus mechanisms to reach an agreement between parties within the network. Proof of work is one of the very first consensus mechanisms, used in the Bitcoin Blockchain. If you want to learn more about the proof of work consensus, check out my article about Bitcoin.
Bitcoin is the first implementation of Blockchain, so consider it as the first utilization of Blockchain in the monetary/financial world. If we all agreed to use Bitcoin then there will be no need for banks or any financial institutions. After Bitcoin, new Blockchains emerged, some use different consensus protocols, some tackle different problems or limitations found in the Bitcoin Blockchain. Some came with other capabilities. Ethereum supports smart contracts, a code on top of Blockchain that can add business rules.
I will explain further what a Blockchain is while walking you through the questions you need to answer if you are considering integrating Blockchain technology into your business.
When to Blockchain?
Understanding the properties of Blockchain technology is important, but being aware of the properties that your business needs are key:
Do you have assets that you need to track?
Anything that is capable of being owned or controlled to produce value, is an asset, it can be intangible like a cryptocurrency or digital art, and it can be a virtual representation of something tangible like a product or property. If this asset evolves in time, and you need to record its lifecycle and not just the current state. And the legitimacy of the history of that asset is of high importance. Then a Blockchain can help you achieve that. If not, a database can be a better solution for you. You should know that a Blockchain is not like any storage mechanism with the traditional database management capabilities. It does not have the “update” and “delete” utility found in conventional database technologies. Instead, it only has the “create” and “read” ability. And the addition of new data is performed with respect to a consensus mechanism.
Bitcoin is an asset, cryptocurrency on a Blockchain, the Blockchain keeps track of every bit of a Bitcoin, from the creation to the transfer between different accounts. Everledger is a company that uses Blockchain to store data relating to the manufacturing process of diamonds. Customers can view the entire provenance of the diamond, from the source to the name of the artisan who performs it and other metadata points.
Do you have a well-defined and persistent process that manages your asset?
You should be able to describe the governance of your assets, the business process should be consistent in time with no random behaviors. If yes then a Blockchain can help you automate that governance and smart contracts can add significant value to your business. If not, other distributed storage technologies like IPFS can be a better solution for your business. Blockchain once put in place, no one can alter or change its code consistently.
Are you the only custodian of your asset?
The lifecycle of assets usually goes through many parties, so there are multiple voices of truth about the asset, a collection of members in your business network manages and are involved in the history-making of that asset. If this is not the case for you, then you a Blockchain is not gonna bring added value to your business.
Blockchain is a promising technology, investing in the technology is not a bad decision, but don’t fall for the hype, be mindful. Do your research, start with a proof of concept, but don’t jump to production quickly.