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5 Tips for Harnessing Blockchain for Business
Blockchain, the technology underpinning cryptocurrencies and other distributed ledgers, has been a fad for several years now. Recently its prominence started to reach beyond the financial sector; businesses of all kinds yearn to profit from the ground-breaking innovation too.
One advice all commentators give to corporations big and small is to act today. But what exactly should you do? Here are the five most important things to consider.
1. Make sure there really is a use-case
If you have a hammer, everything looks like a nail. A blockchain is indeed a powerful tool, but to deploy it costs much time and money. The last thing you want to do is break up a well-functioning machine and replace it with an expensive spreadsheet. Blockchains are slower than traditional databases. And in 95% of cases, it makes more sense to have a database rather than a blockchain. So you must first ask whether the hyped applications really solve a problem and whether there might be a better and simpler alternative. The following questions show whether deploying a blockchain should even be considered:
- Do I need a database? (the answer must be "yes")
- Do multiple nodes need editing rights to this database? (the answer must be "yes")
- Is there a privileged party this is trusted by all nodes? (the answer must be "no")
- Are the nodes trusting each other? (the answer must be "no" for open blockchains)
If the first three questions are answered as suggested, then a blockchain might make sense. Blockchain enables a database maintained by nodes that don’t trust each other as they are controlled by different entities. And even then a trusted third party might be a better option as long as it does not make costs and operational complexity shoot through the roof.
So far, the most promising use cases of blockchain have been in moving money or other assets, as well as in supply chain management as when you want to track the authenticity and origin of objects. The startup Everledger does so to make sure diamonds originate from responsible sourcing. In realms such as finance and supply chain, you need databases in which multiple nodes have writing rights. Thus they are use-cases par excellence. Yet, a major question is whether those nodes trust each other, because the answer decides about your most basic architectural design as described in point 2.
2. Opt for the right technological setup
By the time you have determined whether you need a blockchain and for what, you should also know who should have reading and writing rights. If everybody should be able to read it – as in the case of Bitcoin – a public blockchain will do the job. Otherwise, you must restrict access rights with a private blockchain as many banking collaborations do.
The editing rights are more consequential. Deciding which nodes are permissioned to write and validate forces you to determine the level of centralization. It is usually a trade-off between scalability and speed on the one side, and openness on the other. Bitcoin has no restrictions. Nobody must approve when a new validator node wants to join the network. But the centralization question is often one of degree, rather than a dichotomy. Hence, you will expert knowledge.
The next step is to choose a fitting development platform and a consensus mechanism. Unless you are a tech-affine company, going with a commercial development platform is probably a better choice than an open source one. Commercial platforms are easier to implement, can be helpful to follow regulations, and may offer more features. Some of the best-known include Corda, Hyperledger Fabric, or Ethereum.
3. Provision for interoperability
Regardless of what architectural design you go for, it is indispensable to build routes for future interfaces. Even private blockchains should be able to communicate with other blockchains.
Imagine a blockchain built by a travel agency. Huge potential would be wasted if it couldn’t be linked to the chains of hotels or airlines. The aforementioned Everledger that makes transparent diamond origin is built on an IBM blockchain and couldn’t interface with a jeweller’s blockchain if it was built on Corda. Unfortunately, even blockchains deployed on the same platform cannot link unless they are designed to do so from the onset. Projects such as R3’s Corda platform help you to do exactly that. Corda’s aim is that specific, private blockchains cooperate with each other seamlessly, but it is too late if you find that out once the programming has already started.
4. Consider Blockchain-as-a-Service
Once built, a blockchain must be kept operational, the infrastructure updated, and scalability must be ensured to cover growth and peak times - and the initial operational expenses for building blockchains from scratch are massive. Smaller and medium-sized companies have the same problems when there are no alternative to in-house IT.
Cloud computing and Software-as-a-Service has made it possible to move a firm’s entire IT-infrastructure to flexible datacenters. Blockchain-as-a-Service (BaaS) works the same way. For a monthly fee a provider – most likely Amazon Web Services (AWS), Google, IBM, or Microsoft Azure – will host and keep your blockchain (app) running. The smaller and less IT-savvy a company, the more sense it makes to implement BaaS. And the number of potential apps is increasing permanently.
5. Build the right team and corporate setup
Obviously, you will need experienced blockchain-coders and architects. Since most companies don’t have those sitting around twiddling their thumbs, targeted recruiting will be necessary. But even if you decide to outsource the operations of your blockchain, such projects must not be underestimated. You will have to remove corporate roadblocks.
The technology is by its nature disruptive, which means it will kill legacy systems. This means that internal power struggles will ensue. People who have created and are maintaining the legacy systems will feel threatened and if not handled correctly inertia will paralyze the transformation process. The board must declare these efforts to be a corporate priority, not an exercise of keeping IT-staff busy. Communicating publicly on the transformation will ramp up the pressure on internal blockers too.
Sometimes it makes sense to build a task force helmed by somebody who has no stake in the way things are currently run, preferably even a complete outsider to the corporation. When engaging on a large-scale project with a heavy development load, a spin-off organization can work best. In any case, the known wisdom that transformation projects succeed or fail with the mindset, not with the technical capabilities, holds true for the blockchain as well.