Blockchain technology: hype or reality?

There’s been a lot of coverage in the technology press recently about an emerging technology garnering a lot of interest in multiple industries: blockchain, and it’s ecosystem. There are still some limitations with the technology before it is widely accepted and deployed, but in some industries (for example, banking), initial testing has proven to be successful. Today’s CIO should take a closer look at this technology, as there are some real benefits that are starting to come to light through these tests and initial deployments.

Even though there are disadvantages, and gaps requiring closure, the fast developing blockchain ecosystem is addressing these gaps to drive further blockchain adoption and deployment.

Let’s begin by looking at some of the key terminology and the common definitions in the blockchain ecosystem.

Definitions

Bitcoin: A decentralized payment network that successfully uses and leverages blockchain technology. Bitcoin is a digital currency created in 2009. Bitcoin offers the promise of lower transaction fees than traditional online payment mechanisms and is operated by a decentralized authority, unlike government issued currencies.

There are no physical bitcoins, only balances associated with public and private keys. These balances are kept on a public ledger, along with all bitcoin transactions that are verified by a massive amount of computing power.

Blockchain: A web-based distributed ledger system in which applications can be built upon to increase data integrity and control, provide time-stamped verification and attribution, and increase efficiencies through automation. A blockchain is a public ledger of all bitcoin (cryptocurrency) transactions that have ever been executed. It is constantly growing as ‘completed’ blocks are added to it with a new set of recordings. The blocks are added to the blockchain in a linear, chronological order. Each node (computer connected to the bitcoin network using a client that performs the task of validating and relaying transactions) gets a copy of the blockchain, which gets downloaded automatically upon joining the Bitcoin network. The blockchain has complete information about the addresses and their balances right from the starting block to the most recently completed block.

The blockchain is seen as the main technological innovation of Bitcoin, since it stands as proof of all the transactions on the network. A block is the ‘current’ part of a blockchain, which records some or all of the recent transactions, and once completed goes into the blockchain as permanent database. Each time a block gets completed, a new block is generated. There are a countless number of such blocks in the blockchain. Blocks are linked to each other (like a chain) in proper linear, chronological order with every block containing a hash of the previous block. It is very important to note that bitcoin is enabled by blockchain technology–they are not one and the same. Think of blockchain as the pipe, while bitcoin is the water. Or, in another way, blockchain can be visualized as the road, and bitcoin as transportation travelling the road.

The movement towards decentralized computing

Technology and computing is moving more towards a decentralized model, as consumers want more control of their digital assets. Decentralization technology allows assets to be stored in a network of computers accessed via the Internet.   Blockchains inspired and triggered ideas about moving not only cryptocurrency (i.e. Bitcoin) on decentralized networks, but also any digital asset (art, music, written content, photographs) that would benefit from Blockchains inherent characteristics and benefits.

Decentralized communications via the Internet was the first step in giving individuals more power and control over the information they consume. Next, the elements of computing (communication, processing, storage) are all moving in the direction of being decentralized, and a new decentralized stack is available now in the blockchain ecosystem. An excellent description and reference example of this new decentralized stack can be seen in this LinkedIn post from Bruce Pon, Founder / CEO at ascribe GmbH.

 Decentralization of computing and blockchain specifically, has identified initial advantages and disadvantages:

Initial advantages of blockchain

• Security of big data through cryptography and permissioning.
• Decentralization technology paves the way for aggregate and analysis of large pools of data across institutions as well as verification and validity of data points.
• Automation of the identification of system “leaks” in supply chain, financial, and other business processes.
• Rationalization, cost reduction and cost avoidance of infrastructure investments.
• Reduction of internal and external direct transaction, collateral, reporting/regulatoryand custody costs.
• A system and mechanism to re-engineer and improve management and regulatory reporting and accelerate the financial close.

Initial disadvantages of blockchain

• Scalability.
• Throughput capacity.
• Storage limits.
• Permissioning.
• Challenges of integration with corporate legacy systems and systems of record.

As blockchain technologies are further developed, many of the initial disadvantages and gaps of blockchain are closing through further development of the ecosystem and decentralized stack through communication (internet – already there and “integrated” to corporate systems to some degree), processing (Ethereum is decentralized processing, but also can be seen as a system of engagement for blockchain to bridge to corporate systems and assets), and storage and data (BigData, IFS, BigChain DB). BigchainDB fills a gap in the decentralization ecosystem: a decentralized database, at scale. It is capable of 1 million writes per second throughput, storing petabytes of data, and sub-second latency. The BigchainDB design starts with a distributed database (DB), and through a set of innovations adds blockchain characteristics: decentralized control, immutability, and creation & movement of digital assets.

Blockchain application platforms that are being developed now and delivered (for example ERIS, R3CEV) are providing the “business rules” engines to bridge new transparent, secure, audible, transparent business models to IT. This decentralized stack and improved blockchain ecosystem of course, benefits the CIO in their charter–faster delivery for the business, more secure transaction processing, reduction of costs, and tighter alignment and adherence to regulatory needs. Integration to existing systems is still a challenge, but not insurmountable, and can be justified based on the advantages of blockchain based on business and IT needs.

Throughout my career I help my teams and clients determine the reality of technology, and how it may be used and applied to solve “real” world business problems, whether they “are” or “have been”, but also ideally, that may, can, or will exist.