3 things to know before adopting blockchain
Here are three things to keep in mind about blockchain before you dive into it.
The true value of blockchain is realized in collaboration across trust boundaries
Trust is a fundamental pre-requisite in any business. At the core of blockchain’s value proposition is its ability to enable trust through technology rather than central authorities or trust agents. Cryptography and pre-defined consensus mechanisms are used to enable trust based transactions. Blockchain can create a reliable record of transactions which can span organizational boundaries. And this record, or ledger, is available to all the members of the network at all times, enabling a highly visible, reliable and secure environment for exchange of value or information across peers.
While blockchain plays a critical role within the confines of an organization, the inherent trust and hierarchy of decision-making within an organization can render its key capabilities redundant and take away from the value it can deliver. However, in cross-organizational processes, blockchain ushers in efficiencies by eliminating time staking paper based exchanges and latencies created due to hops across one or more central authorities that orchestrate trust between the parties. It can help create previously difficult-to-achieve levels of visibility across organizations and enable faster and better collaboration. With transactions and information exchange made easier and more reliable, it can even open up new and transformational possibilities for businesses to collaborate on new services and offerings.
Blockchain goes well beyond technology and calls for deliberate collaboration
Blockchain is at the heart of it, a piece of technology - driven by cryptography, digital assets, distributed storage and digital contracts. However, unlike some other technology innovations that can be adopted by simply having the IT department buy and install a software, platform or a box, blockchain calls for much more.
Realizing value from blockchain’s promise of enabling trust based interchanges across organizations requires a paradigm shift in how businesses think and strategize. Blockchain opens up new opportunities to be leveraged by engaging differently not only with partners but also with competitors. The delicate boundary between collaboration and competition, between sharing and withholding must be navigated. Motivations, incentives and funding models must be negotiated. Governance, administration, operations and accountability across organizations must be collectively worked out. Collaboration can no more be an afterthought; it has to be part of the design of the process.
There are costs and trade-offs in blockchain, like with anything else in life
Blockchain creates many exciting possibilities, and it is tempting to think of it as the panacea for all ills. But it is prudent and important to be realistic about its capabilities and limitations, and understand the tradeoffs that will be necessary in the context of where and how it is used.
One of these is transparency vs confidentiality of data. A fundamental premise of blockchain is complete transparency of the data on it, and this is ideally required to establish the level of transparency and trust promised by blockchain. However, while this is very desirable in public value exchange networks like the
Another factor is the cost of disintermediation – in a completely trustless network such as the peer-to-peer Bitcoin network, disintermediation comes at the cost of reduced transaction speed (in comparison with traditional database systems). A consensus mechanism such as proof-of-work (through the mining process) demands a significant time window that is in proportion to the size of the network. While research and technology work is ongoing to enhance this, in networks where there is already complete or some element of trust, simpler and faster consensus mechanisms can be used thereby achieving much higher transaction speeds.
A third is decentralization vs centralization of data. The distributed and shared ledger concept of blockchain essentially implies that all data is replicated and stored in every copy of the ledger at each node. This works well enough in networks like the Bitcoin where the only data stored is the transactions of bitcoins. However, in an enterprise context where more, heavier information is to be stored and exchanged, such as a documents or images, storing such information at every node can prove to be expensive and unwieldy. So, while still talking about a decentralized network, it makes sense to centralize the storage of heavier data assets and enable linked, need based access through the decentralized nodes.
Getting a deeper understanding of the blockchain technology is necessary to ensure that it is used to address the right business problem, there is awareness of the elements and approach required for its design, and informed choices are made in designing the network; all these aid in mitigating the risk of getting ahead and then slipping into the trough of disillusionment.
(This article is authored by Prasad Joshi, Vice President and Head,