Blockchain has become such a hype that there is more confusion about it than clarity. Part of the reason is Bitcoin's valuation. Many companies and startups are smitten by it and are racing to launch cryptocurrencies without really thinking about the real use cases.
While there is no denying that Blockchain is the bedrock of any virtual money exchange system, it is also well suited for business applications. In this blog post, we will unravel the inherent capabilities of Blockchain and explain its novelty with illustrative examples that are easy to understand for non-technical folks. First, let us start with the most obvious question.
Almost every explanation around use cases of Blockchain elicits the same question: “This can be achieved even without Blockchain so why use it?”. This is a valid question because Blockchain is not one of those technologies which cater to our existential requirements. But let's attack it from a different point of view, using the power of analogy. This question is also very important for business owners who have to invest in a Blockchain based solution for their organizations.
Sometimes to understand WHY, we have to shift our focus on HOW, i.e. how can Blockchain benefit someone? Before we address that, here is a rant-full tribute to the technology cynics undermining the Blockchain's novelty.
Disrupting Comfort Zone With Technology
"Why should we adopt this technology?". Often times, this question is asked by the employees of a company who consider a new technology as a threat to their job.
Historically, every new technological innovation has had a certain level of influence on society as well as businesses. Think of electricity and telephone. Electricity extended the social lives of people well beyond the twilight. Similarly, before the invention of the telephone, people did conduct business, albeit slowly as they had to either meet face to face or send postal mails. The telephone just made this whole process faster and brought in newer ways of interaction.
In a similar fashion, Blockchain also brings in certain benefits that can enhance the existing businesses and make them faster, better or cheaper in several different ways. It is worthwhile to explore the Blockchain technology and assess whether it can be applicable to your business.
You must act fast before your competitors take the lead and your business gets relegated to a snail’s pace, eventually dying an oblivious death.
In case you are a total novice and wondering WHAT is Blockchain then look around the world wide web and you will find plenty of resources. Here is a nice illustration on the use case possibilities of blockchain.
As a business owner or a c-level executive, responsible for overseeing the entire organization or a business unit within a company, you have to keep a close tab on the key metrics of your business, operational or service processes. Depending on your nature of the business, you might need a Blockchain based solution.
This blog post by Sebastien Meunier provides a very nice explanation of the various decision models that will help you decide when to use Blockchain, based on a business scenario.
In general, I have found this flowchart to be very useful in deciding the applicability of Blockchain.
Blockchain decision model for a typical business scenario
Some people consider Blockchain as a special kind of database that stores data in a tamper-proof way. Some might say that Blockchain is a protocol for secured message exchange and consensus agreement. Both the definitions are true, however your interpretation of Blockchain is largely governed by which feature of Blockchain you are paying attention to.
Let's look at the core, fundamental features of Blockchain that makes it worthy of being considered for solving some critical business problems.
Cryptographically Linked Data Blocks
Blockchain's internal data storage is not like the typical database where rows of data are dumped based on a predefined schema. Blockchain follows a cryptographically linked block storage. Each block contains the stored data that is submitted as part of Blockchain transactions and has a link to its previous block. This link is created in the form of a random hash signature from the data within the block. You can visualize this signature as a visual pattern.
The first block starts with its own signature hash pattern, and the subsequent blocks' signatures contain the patterns of their previous blocks along with a new hash pattern added. This pattern is a function of the entire block content and is cryptographically generated. In this way, the blocks are linked via this combination of signatures, such that if any block's data has tampered, it will create a ripple effect of invalid signatures across all the blocks. This is a very powerful way of validating data integrity. For someone to tamper the data unnoticed, they have to replace the block signatures of all the blocks. With thousands of blocks, this is quite an impossible task to achieve.
Benefits of Crypto Linking
Databases are always targeted as part of hacking attacks. While Blockchain cannot eliminate breach of data visibility, it can very well prevent modification of data. The crypto linking provides an inherent mechanism to ascertain the integrity of data. When deployed as part of an IT infrastructure, it eliminates the need for deploying additional security layers that are designed to prevent or detect such malignant actions.
Blockchain's philosophy is to foster trust and transparency among multiple stakeholders. Like in real-world, the best way to ensure transparency is to share the information. In the same way, Blockchain's underlying architecture ensures that all stakeholders share the data.
Blockchains' way of sharing the data is achieved by having distributed nodes. Each node represents a data store of transactions performed by a person or a business entity. If you consider a Blockchain system between three entities represented by three nodes, then transaction between Node 1 and Node 2 will also be propagated to Node 3. But hold on, Blockchain is not a dumb system that it will just replicate the data stored in one node to another node. There exists a set of protocols under which this is achieved.
Benefits of Distributed Data Store
Distributed setup is suited for multi-party business transactions wherein each party needs to know about the veracity of transaction. In a bipartite transaction, two parties are dealing with each other directly. However, in a tripartite transaction, one party might be acting as the middle man and the two other parties do not have direct interaction. If you extend this chain then this leads to an ever-growing challenge of visibility and trust. A distributed data store offers a solution to such multi-party transaction scenarios.
In your day to day business dealings, you rely on intermediaries who are not part of our core business but yet form an essential part of the running the business. Most often, these are from a third party company. If you supply certain goods to your customers then the transporter is your intermediary. If you have a manufacturing plant then your raw material supplier is the intermediary. Dealing with the intermediaries is a necessity and yet painful because they need to be tracked to ensure that your business runs at an optimum efficiency. With the help of Blockchain, this can become a lot easier if you can track and record their activity. However, apart from recording the activity, Blockchain provides yet another powerful feature called the smart contract.
A smart contract is a self executing computer program, but it is not just a typical program. A smart contract is a program which runs and performs certain operations which can automate the business interactions between you and your intermediaries, based on the transactions recorded on Blockchain. Think of the myriad tasks to be achieved in business transactions, such as quality check, proof of delivery or work completion, raising of invoice, payment follow-up. Blockchain can automate these steps to reduce manual intervention and bureaucratic roadblocks.
Benefits of Smart Contracts
Smart contract is a powerful feature of Blockchain. It is a separate layer specifically designed to execute contract terms. All Blockchain applications are composed of a set of transactions which are part of a contractual protocol between multiple business entities. In a traditional system, these are part of the business logic layer itself. Moreover, the business logic is executed centrally. However, in Blockchain, the smart contract layer is an independent execution environment which is distributed across all Blockchain nodes belonging to the individual business entities. Further, the data uploaded to Blockchain can be identified based on the sequence of transactions that are approved by all participants as part of the contract terms.
The Way Forward
Blockchain is still in its early adoption phase and deploying a Blockchain network is costly. Hence, any decision to explore Blockchain should be tightly coupled with RoI. For certain applications, Blockchain is overkill. There are some trimmed down versions of Blockchain-ish platforms, which offer a subset of the above features. As an example, Amazon Web Services is coming up with a service called "Quantum Ledger Database". It offers only the crypto linking feature. Hence it acts as an immutable database without distributed storage and smart contracts. Such solution are better suited for many business applications.
If you are looking for a detailed analysis of your business scenario and want to explore the Blockchain platforms to solve your specific problems then get in touch with us.