Let’s make it clear: Can Blockchain be a game changer for your business?

Availability, high security, faster dealing and cost saving, auditable and verifiable are not buzzwords only!

This article is a very succinct approach to a very serious question. Can a blockchain solution bring benefits and results to your business? ??

To start, I would like to say that I don’t really understand why some people think blockchain is complex. Let’s try to demystify it. Here is my definition of blockchain:

The blockchain is a distributed database that is used to record some data (assets, transactions, etc), has characteristics such as consensus, provenance, immutability, finality and the blocks of data are connected with hash functions and uses cryptography — Me ??

Boom! That’s it! Blockchain expert!

I never understand why so many people when they are about to explain what a blockchain is, they would start by saying, “oh, this is a bit complex but…” But what?? A blockchain is just a distributed database, a peer-to-peer thing! PLEASE ?? don’t turn a simple concept into something complex!

“The blockchain is like a huge, global, decentralized spreadsheet.”  myetherwallet.com

Blockchain characteristics allow business networks (different parts of a business or consortiums) to conduct transactions in completely different ways compared with traditional, centralised legacy systems, and that’s why blockchain is disrupting so many industries. The industries that are currently most benefiting from the blockchain are supply chain, banking and fintech, insurance, health, govtech, real estate, energy, retail, education and of course, don’t forget the fundraising and ICOs ?? which is a cross-industry thing.

The global blockchain market size is expected to grow from USD 1.2 billion in 2018 to USD 23.3…

A 23.3 billion dollars market! Amazing right? Well, not so fast! It looks like there are some companies trying to adopt blockchains without real use cases and that’s why you should go through the “blockchain decision path” down this article, before moving forward spending money with blockchains.

Let’s go down to the ?? hole?!

What is a blockchain for?

• Blockchain allows recording the ownership and state of an asset and an “always updated” cross-entity database
• Blockchain removes the trust issue (trustlessness) and enables parties that do not know each other to transact efficiently and faithfully. Sometimes the additional trust brought by the blockchain is the fact that is fully auditable too, i.e. participants can trace back any transactions (may be dependent on the permission or status of the participant)
• Automate any contractual agreements between parties in a business network (this is referring to the “smart contract” stuff)

Classes of assets that can be recorded on the blockchain:

• Tangible (for example a house, cars, property)
• Intangible (for example a mortgage, securities, bonds, loyalty points and tokens that represent a service)

Intangible assets may subdivide:

• Financial (shares, bonds, REITs, loans, etc. This is where the STOs came to place)
• Intellectual property (e.g. patents, music rights)
• Digital assets (music, content, art, video, games)

And

• Currency is also an asset

Which are the attributes a business needs to consider when adopting a blockchain?

There are 4 attributes that any blockchain has in order to be considered a blockchain. Which means that when considering to adopt a blockchain, there are attributes that will always be presented and cannot be changed or avoided (which means, if you don’t agree with them, you’d better use MongoDB, SQL, Oracle or Access ???♂?).

• Consensus — all parties in the network agree on the data
• Provenance — parties, can trace records (of an asset or data changes) to its source
• Immutability — records in a ledger cannot be altered or removed
• Finality — when a transaction is committed there is no rolling back

Do you notice that I didn’t say “decentralisation” is a blockchain attribute? Haha! Some people may not like it, but if you want to be correct, a blockchain can be a blockchain with only 2 nodes! ??

“A blockchain is a shared ledger that everyone trusts to be accurate forever”,  David Siegel

Just a small observation to the quote above: in some cases it’s hard to guarantee that the information on a blockchain is accurate. The blockchain is a distributed database and a bad actor can insert some sort of fake or inaccurate information. However, it is possible to audit that information and trace back to the person who inserted it, which is already a big step comparing with current systems.

To better understand what an enterprise blockchain is about, let’s look at the examples below and compare them.

The Traditional System:

As you can see in the picture above, traditional systems have some challenges to track and monitor the data or asset ownership. It is extremely inefficient because:

• Each actor keeps a different ledger and different records that need to be conciliated
• Since there are different ledgers, this system is expensive due to duplication of effort and intermediaries
• From the business point of view, contracts need to be duplicated across the business network which increases inefficiency
• This system is also vulnerable to incidents that may affect the entire business network. There are multiple single points of failure that are vulnerable to mistakes, cyber attacks, fraud or even simple power failures or hardware issues may affect the network

The Blockchain Solution:

Blockchain: a shared, replicated, permissioned ledger (only authorised participants can participate). This kind of blockchain is also private, which means that only participants can have access and read the data. The blockchain can offer some great value in the case of this business network! NOTE that everything happens at the level of the database, plugging in some blockchain enablers or data feeders such as IoT devices, existing ERP systems, asset management systems and “in the field” interfaces. In most of the cases, the user front-end doesn’t need to be changed.

Values brought by the blockchain:

• Availability, high security, faster dealing and cost saving, auditable and verifiable
• The blockchain solution allows the participants to share a single ledger — the same database — which is updated real-time every time a transaction occurs
• The blockchain use cryptography features to ensure participants read and write only what is relevant to them and that the transactions are secured and authenticated
• Blockchain also allows the creation of smart contracts or chain code to embed the business rules and transaction conditions. These smart contracts are self-executing conditional statements “if, then” that represent some of the business network rules
• The nodes network agrees how the transactions are verified and the state of the ledger through a consensus mechanism. The consensus means that all participants agree on the version of the ledger. Private permissioned blockchains such as Hyperledger Fabric use Byzantine Fault Tolerant consensus mechanisms that don’t require proof-of-work used on for example, Bitcoin network (which spends a lot of electricity)
• The participants are the same as before. Any business network that meets certain requirements (see blockchain decision path below) should explore the benefits of adopting a blockchain technology
• Provenance: participants can track any transaction or asset. The provenance characteristic is linked to other blockchain characteristics such as immutability. It is possible for any member to trace back any transaction any point in time and check its data
• Finality: once a transaction is committed there’s only one single place to check the details of that transaction or asset (the blockchain)
• Immutability: no participant can change a transaction that was already settled on the blockchain. Immutability is extremely important to ensure trust and allow provenance. One may ask “What if we insert some wrong data or fake data on the blockchain? Can we delete it or change it?” The answer is no. However, it is possible to write again the correct data and it is also possible to audit and understand who inserted the faulty data, increasing the transparency of the database

And… At this stage, I think we all agree that there are 4 requirements of Blockchain for Business. Let’s review them!

• Shared ledger: Append-only distributed system of the record shared across the business network
• Privacy: Ensuring appropriate visibility; transactions are secure, authenticated and verifiable
• Smart Contracts: Business terms embedded in the transaction database and executed with transactions
• Trust: Transactions are endorsed by relevant participants (nodes)

“An open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way”,  Wikipedia

How is a blockchain different from other traditional databases?

Let’s make a clear distinction between blockchain and traditional databases (many people are still not understanding it!!!). Here you can find a table with the main differences between a blockchain and traditional databases.

For those who are “decentralisations maximalists”, please understand that decentralisation is not a blockchain catachrestic. Any blockchain is distributed and resilience increases with more nodes (and more decentralisation) BUT decentralisation is NOT necessary to have a blockchain. When we are talking about enterprise solutions it is important to have a certain degree of centralisation with well-defined governance rules but for example, 20 nodes may in many cases be already considered decentralised.

When gathering requirements and trying to understand the business use cases, these are the points that need to be discussed and evaluated (and you can also use the decision path below to help??).

Do we get any value from a distributed database or a centralised one is already ok? Do we achieve any kind of efficiency having consensus on data and single shared source of truth or do we want to have each entity with different databases that need to be reconciled? Do we want distribution and some level of redundancy and increased security and which risks do we face having a single point of failure? Do we want a single point of control? Do we want middlemen and gateways or a peer-to-peer architecture? Are the cryptography and digital signatures that it brings important? How much resiliency do we need?

All these questions are key!

If you see at least some advantages on the left column, then a blockchain may be a good fit for your business network.

Blockchain benefits for businesses ???

• Saves time — Transaction time from days to near instantaneous. Note that blockchains are not the fastest database in the world. However, transactions that used to take days can now take a few seconds to be settled. If the objective is to record thousands of transactions per second and scale, one must consider that a blockchain solution may have some scalability issues.
• Removes costs — Overheads and cost intermediaries, cutting the middleman and reducing errors.
• Reduces risks — Tampering, fraud & cybercrime and the 3 big risks that a blockchain can improve. However, from my perspective, a business can also reduce a lot of risks related to errors, misunderstandings and conflicting standards. A blockchain solution will also ensure 100% uptime.
• Improves discoverability — When everyone on a business network can view the same ledger, it is easy to broadcast an intention (or offer) by appending it. For example, in a trading network, every ask and bids would be visible to every network participant.
• Opens new business models — reshaping business networks, profit sharing and increased transparency to the market. A blockchain also helps to automate trusted processes — unlike a centralized system where only the network operator can create a generalised solution that fits every user’s needs, blockchain networks allow each participant to create customised solutions using their own proprietary business logic while running on the same common ledger.
• Ensures trusted record-keeping — By design, no party can modify, delete, or even append any record to the ledger without the consensus from others on the network, making the system useful for ensuring the immutability of contracts and other legal documents.

The great blockchain decision path ??

Not everything is sunshine and rainbows when we are talking about implementing a blockchain. That’s why every business needs to go through a “decision path” and understand if the blockchain really fits the needs, reduces costs and automates processes. We’ve already seen some businesses spending money and time on worthless blockchains, just to ride the blockchain hype but I guess… it is the way it is! ??

When deciding whether a blockchain is suitable for a business, you should ask some questions to make the final decision.

If you are not sure about answering “yes” to these questions, trying to move forward with a blockchain solution will probably be a waste of time and money. In case of any doubt, reach someone like me! ????

Blockchain decision path:

Hope this article was useful and has helped you to understand the characteristics of blockchains for businesses, advantages and decision process.

Also, take a look at my other article Blockchain Technology in Supply Chain — How to change the Supply Chain forever!

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