Insights
July 29, 2019

What does blockchain for biz look like?

In our previous article on how blockchain adoption will affect the average user, we discussed the fact that blockchain technology is essentially a database, and that end users rarely need a database. Business, on the other hand, lives on databases. From employee records to client lists, and everything in-between — where there’s information, there’s a database of some sort behind it — and a frightening number of them are vulnerable.

In our previous article on how blockchain adoption will affect the average user, we discussed the fact that blockchain technology is essentially a database, and that end users rarely need a database. Business, on the other hand, lives on databases. From employee records to client lists, and everything in-between — where there’s information, there’s a database of some sort behind it — and a frightening number of them are vulnerable.

Before looking into how blockchain and DLT can improve the enterprise software ecosystem, we need to look at conventional databases. Without going into technical detail, conventional databases are vulnerable to illegal access (internal and external), physical compromise, and data compromise.

Illegal access is a sickness that spreads from the root — or at least root-level access. Hierarchic permissioning means that many databases grant blanket access to certain levels of permission. This leaves them ripe for exploitation, or simply vulnerable to user error.

Physical compromise is an inevitable product of storing all one’s data eggs in a single basket — or data center. Even with some redundancy, centralised data centers are vulnerable to outages, infrastructure failure, natural disaster, and even terrorist attack.

Data compromise is when the data itself is corrupted, either by error or attack. From a simple bad field to malicious software, an error can become self-replicating throughout the database without control.

So how does blockchain mitigate these risks, and is the effort worth the reward?

Making friends with the new kid on the block…

Blockchain and DLTs have their pros and cons, just like any other technology. The benefits they offer primarily stem from increased robustness — compromise is very difficult, as the data doesn’t exist in a single location and bad data can’t be propagated easily. A majority of the nodes in the ledger must agree that incorrect data is correct, which is very difficult — although not theoretically impossible — to achieve.

The various chains and ledgers use a variety of means to make their technology secure, but they all work on the same general principle — for data to be accepted as correct, a majority (or supermajority) of nodes must find consensus and agree that it is correct. The actual validation of the data is ensured by cryptographic continuity — each block on the chain is mathematically related to the previous one, ensuring that the data can be validated.

How each of these options manage consensus, and the speed and reliability of the technology by which they manage it is a critical point. In most cases, consensus mechanism defines the differences between the many chains and DLTs on the market horizon today, and indicates their appropriate use-cases.

Or working on the chain gang?

The criticisms of blockchain/DLT generally centre around three basic points — resource consumption, transaction speeds, and governance. In general, newer generations of the technology are trying to resolve some or all of these issues, but there are no perfect solutions — yet.

We’ve all seen the dramatic headlines regarding resource consumption — “bitcoin consumes more electricity than Denmark!” and the like. This is a fair criticism, because older proof-of-work chains like Bitcoin or Ethereum are designed to be resource intensive. Requiring increasing levels of computational power to validate the block is a way of ensuring strong consensus — but unfortunately, it also raises energy costs and slows down transaction speeds enormously.

Speed is, as always, of the essence. No organisation wants to slow down their pace of business — but Ethereum, the current leader in the space for smart contracts and dapps only being able to process 15 transactions per second. This is orders of magnitude slower than Visa for example — which can process 15,000 transactions per second. Obviously, business applications will need to be at least as capable as existing platforms in order to achieve large-scale adoption, and the technology just isn’t there yet.

The last issue, governance, is interesting because it’s either a feature or a bug, depending on your attitude to centralisation. For classic blockchains like Bitcoin or Ethereum, there is no “governance” in the institutional sense. Governance is permissionless, and achieved only through consensus. This leads to forks and copies, as splinter groups pursue their own vision of an effective chain. Again, not ideal for business.

On the other hand, permissioned DLTs like Hyperledger are designed to work with business, and allow for centralised control. The issue that they face is that by extending centralised control to the DLT, they reopen the door to illegal access and data compromise — after all, in a centralised system, one bad actor can upset the apple cart.

So what now?

Pros and cons notwithstanding, it’s increasingly clear that blockchain/DLT is here to stay. To what extent, and in what role is yet to be seen. However, the potential impact is readily apparent. Even without touching on the hot-button issue of cryptocurrency, this technology — specifically the power of smart contracts — has the potential to radically change any business that currently requires data to be passed through many hands.

This includes firms in the finance, government, and logistics sectors, and any businesses that deal in sensitive data, such as those in the medical and insurance industries. Blockchain/DLTs will offer increased data security — with less chance of a breach and less opportunity for fraud — while radically reducing the number of people involved in the transactions. Making processes more efficient has a massive impact on balance sheets, which is always something that big business likes.

But what will it look like for the average corporate end-user? If we do our jobs right, not much will change. People are conservative, and institutions doubly so. Nobody wants to be the old dog learning new tricks, so adoption will work best when the user experience is compatible with workers’ expectations. Blockchain/DLT needs to move out of the sandbox and into the real world.

Staying relevant in a changing world

Here at THE RELEVANCE HOUSE, we think a lot about the future of blockchain and DLTs. After all, it’s our professional focus. Everything we do is aimed at playing our part to create a sustainable, functioning ecosystem for blockchain/DLTs, and to do that we need to keep one eye on the future without forgetting the lessons of the past. After all, it takes both context and vision to create relevance — and only relevance has impact.

Photo credits:

Photo 1 by wirestock on Freepik
Photo 2 by Mathew Schwartz on Unsplash

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