My class on Blockchain … Blockchain Wednesday Series #12 GO or NO GO

We have concluded the BWS #11 (blockchain wednesday series #11) with the following statement?“Technology seems to be faster than people. Let us always come back to the problem we want to fix”.?Blockchain can be misleading. It is easy to fall in the trap of using blockchain while it is not necessary. Thus, creating more cost and loosing efficiency. Enterprise blockchain is growing at a very rapid pace. Many industries and companies look at blockchain as a coordination tool. They find it very useful in the context of “many to many” relationships; when large number of stakeholders are involved. For instance, there are a number of steps in supply chain; one has to pick up the goods from the factory, it has to be loaded on a truck, it has to be driven to the port, it has to be transferred into a boat. The container travels the other side of the globe and the goods have to go thru a similar process again; offload, transport, re-work … until it is retailed on shelf and picked up by the shopper. Blockchain allows to coordinate the work of all these stakeholders without depending on one single player.?The aim of today?newsletter is to help us qualify when it is relevant to use the blockchain technology and when it is not.?

As a reference point, blockchain is a ledger. Understand that blockchain is a data base of transactions, a register of all transactions.?A?core value of blockchain is decentralization; meaning we do not have to trust one central authority. The overall consensus protocol plays that role in the network. A transaction in blockchain cannot be neither deleted, nor amended once posted (unlike a payment on a credit card where the charge can be reversed). We say it is immutable. Of course, it is transparent while protecting privacy. The hash process let the network know it is you (there is no other “you”) without ever revealing your identity or your private information. The very first question to ask is whether you need a Database. Do you need at any point of time to store or retrieve, process data? If the answer is NO then you do not need blockchain. Think of a webpage that help people calculate their tax. It is a free service and the output is neither stored nor maintained. This platform does not require blockchain.?

You can move to the second question provided you have responded YES to the previous one. It is about the centralized authority. Do you trust a party that can control things for you? Actually, people do trust their bank, their government to do the job for them. A subsidiary question would be about the cost being charged by this trusted party. You still may decide to go for blockchain if you feel that the transaction fees are too high. How many people are involved in your application? If your process involves limited number of parties (ie; one party or 2 parties) then blockchain would be a far too complicated trust model. Another challenge of blockchain is its ability to scale up. Bitcoin can handle maximum 8 transactions per second and guaranties only 4.6.??This may change as technology makes progress. Ethereum 2.0 platform is already on a 45 transactions per sec. Visa credit card handles 2000 transactions per second without blockchain. Similarly, the stock market handles about 1 million transactions per sec; they are not able to use blockchain. We do not recommend to use blockchain If your application handles a high number of transactions.?

Once something is verified in blockchain people cannot modify it any more. This characteristic is very useful in situations where a chain of responsibilities is involved. Blockchain works well in use cases of traceability.??A customer may use the QR code on a frozen item and see whether the product was indeed maintained in negative temperature all the time. In case the product moved to positive temperature somewhere in the supply chain … it will show and no one can change it. The consumer won’t buy it. The retailer won't put it on shelf.??Same apply for products that claim being organic, or luxury items that claim being genuine … Blockchain is a good option if your application involves tedious and repeated validations.

One key constraint of blockchain is to ensure all the stakeholders are part of the process … and commit to it. Key players not joining the system will make the whole thing lengthier! See below a flow chart borrowed from the University of Honk Kong class on Blockchain; it does summarize when to use blockchain.

If you don’t have a trusted authority or if the trusted authority is charging too much then you can scrolling down to the next question. We do insist that it is very important to have all the entities join the blockchain platform. It means that all stakeholders are willing to work together for the greater good of the network.

In case you decide to go with blockchain, you still have to choose whether you go with a public model or a private model. The trust model of public blockchain relies on all entities to make the decision of validating a transaction.??These entities can join at ease; no permission or authentication is required. They also participate in developing/growing the software itself. The other option is to go with a private model (it is more common for enterprise blockchain); the user will have to be authenticated and authorized to join. You will give permission to join only if there is a purpose; i.e. the shipping company in a supply chain enterprise blockchain. You also control how and when to work on the software; what to add and what to remove.?

The Blockchain you shall pick depends on how much of ownership you want to release to the participants. Let us always come back to the objective; make sure that blockchain brings value to your enterprise thru either saving money or saving time.

Reda

Note: information and knowledge base of this article is collected while attending the Berkeley webinar on Blockchain Technology EDX platform (Berke?CS198.2x), The Honk Kong University webinar on Blockchain and Fin Tech EDX Platform (HKUx?HKU_10x)