Four questions to validate your blockchain use case

This article was originally published at www.blockchain.ae

I am frequently approached with ideas for blockchain projects. It is natural, given the relative immaturity of the technology (particularly in an enterprise context) and the huge amount of attention it is generating, that a disproportionate number of these are ideas that, to put it diplomatically, are not always well-suited to distributed ledger technology. In some cases, the use case is secondary to “doing something on blockchain”; in other cases, it is due to a misunderstanding as to what makes a good blockchain applications; and, for some, it could be valid technical use of the technology but not necessarily something that delivers significant business value to the enterprise or the industry.

So how do you test that the use case you have developed — or that someone in your organisation wants to pursue — is actually a good potential application of blockchain technology? Here’s four basic questions that you might ask:

1. Is there a business problem and is it real?

The first question to ask is this is a real business problem. There are an awful lot of blockchain Proofs of Concept (POCs) and projects that are proposed and do not actually solve a real problem (a subject of a future article). These are often defined to address a use case that the initiator may (or maybe not) find personally interesting or sounds, on the face of it, like a good use case; or, in other cases, it is simply copying a use case that might have been written up as a press release or described in a trade journal.

Therefore, it’s critical to think about whether the problem is really an enterprise problem versus a problem felt by an individual or subset of individuals. Aside from the obvious benefits of tackling real enterprise problems, they are good because many are industry problems and thus lend themselves to a blockchain-based solution.

Next, consider whether there are quantifiable business benefits to be achieved by solving this problem. These benefits may be financial, in the form of reduced cost or increased revenue, or they can be qualitative in the form of better end user experience. The key thing is to understand why this is a problem worth solving.

2. Is there a network with trust boundaries? 

The value of a blockchain-based solution is, to a large extent, a function of the size and aggregate value of the network. The second question is therefore whether there is a network at all and, if so, whether there are trust boundaries. By trust boundary, I mean two or more organisations or entities that do not fully trust each other.

Firstly, a lack of trust creates friction, process and ultimately cost and inefficiencies so this further enhances the value that blockchain can bring. Examples could be the boundaries between a manufacturer and their many suppliers; or between a government department and the private sector.

Secondly, enabling trust in business networks is precisely the problem that blockchain networks address so, in order to realise the full value, it’s important to identify business networks where there is a trust boundary. For example, between suppliers and manufacturers; customers and providers; regulators and regulated entities; etc.

If there’s a network but every participant trusts each other already, such as might be the case between different departments in a single company, then perhaps blockchain isn’t the best solution; and something such as a distributed database might more more sense.

3. If there is a network, then is the business problem a problem across the network or felt by just one participant?

In short, you need to look for what economists would call “positive network externalities“. This describes an effect where the marginal utility to a network to an individual participant increases with the number of other participants. A classic example is, of course, the telephone: a single telephone is useless, two people with telephones make it marginally more useful, but when an entire country has access to the telephone then the value is orders of magnitude greater.  The same applies to blockchain networks.

But how do you get other participants to join? If your business problem is just felt by you then you will need to create other incentives for companies or individuals to join your network. If you are a sufficiently large manufacturer then you can perhaps mandate it; or perhaps there are other economic incentives you can provide for them to participate. However, the optimum and easiest approach to get others to join is to ensure that your business problem is one that is felt by either an industry or a vertical within an industry (such as a supply chain); or where you have a clear vision on how each type of participant will derive value. This is critical since, in an enterprise context, up to eight percent of the effort is expended in taking the network and integrating with existing systems or building new front-ends and user experiences. As such, participants need to see the return on investment.

4. Is the use case supported by other intrinsic qualities of blockchain technology?

Having established there’s a business network and trust boundaries — therefore a need for consensus — it is also useful to consider whether the qualities of finality, immutability, and provenance could also be valuable. The more of these that you identify, the greater the “fit” of blockchain (as a technology) to the problem space and the greater the liklihood that value will be realised by the enterprise and the network. This also helps you to filter out use cases that might better be addressed using more traditional technology, such as databases (distributed or otherwise), content management systems, or integration and business process platforms. If you find that, for your use case, you can’t really see the value of consensus, finality, immutability or provenance, it’s a good indication that there may be better and simpler approaches to this issue.

In conclusion, the technology is new and its ultimate application and uses are still not fully defined or understood. It has been likened, in many respects, with the internet both in terms of its potential transformational value but also in terms of where we stand today: a time not dissimilar to the early stages of the internet where topics such as protocol evolution and the development of foundational technologies were still front of mind. As such, whilst challenging the suitability of blockchain to a use case is important, organisations would also be encouraged not to waste time with lengthy studies: the learning that can be achieved from doing is exponentially greater than what can be derived from mountains of paper-based studies.