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The hype surrounding Blockchain – also known as Distributed Ledger Technology – is in overdrive. Many pundits liken the potential impact of Blockchain to that of the Internet. Investments in Blockchain startups topped $1.4B in 2016 and new industry consortia seem to pop up every week. Why the feverish pace?
The Payoff Promise
While this technology began as the infrastructure underpinning for the Bitcoin cryptocurrency and is heavily associated with financial services, it is being developed for a diverse set of business capabilities including medical records, land registry holdings, electronic voting, digital identity, and drug authentication.
Despite all this investment and attention, there are still few significant Blockchain implementations happening outside of cryptocurrency. Like revenue-generating applications using the Internet, it’s going to take years – if not decades – as well as coordinating different standards bodies and leading edge companies before it reaches critical mass and begins to really pay off.
Defining Blockchain in business terms is relatively simple, but it masks the complex science, math, operations coordination and infrastructure to make it work. Blockchain implements a database that can be used by multiple entities while ensuring real-time data visibility, immutability, privacy, security, availability and other critical business requirements.
Pretty much any information can be stored in the Blockchain, from data that represent value, registration information or even electronic documents or pictures. Once written into the Blockchain, the data can’t be changed and authenticity can be verified. Also, the Blockchain can implement smart contracts, which are programmatic actions triggered by events written to the chain.
This is a real game-changer.
The Edge It Gives
How this is different than just establishing a database on a Cloud service like AWS and allowing other organizations have access to it? With any transitional database, there needs to be an owner or central authority that administers the database and has ultimate control of the data. Whether the database is on-site or hosted by a service provider, the host entity controls many critical aspects of the system and thus, the data.
While there may be many controls and audit capabilities in place, ultimately all database users need to trust the host with the integrity of their data. That’s a big reason many joint partnership organizations are established — so that the data and processes and not just owned by one company. An entire new independent entity is created to manage joint data and intellectual property.
Using a Blockchain, the data and processes can be shared by multiple entities without the need to trust a central authority. With either a Blockchain that can only be accessed by pre-authorized users (permissioned) or by anyone (permissionless), the sophisticated technology allows different organization to work on the same database and be able to trust the privacy integrity of their data.
Another important aspect of the shared Blockchain is that it enables easy and secure sharing of information between Blockhain participants without the need for complex and expensive data transfer and reconciliation functions. Furthermore, predetermined and governed business processes between partners – called “smart contracts” – can be automated using data, such as transfer of value. Being able to automate processes isn’t new, but with Blockchain you can automate processes in different locations simultaneously with assurance.
Worth The Hurdles
Just like the Internet, the value of the Blockchain technology will increase as more organizations participate and standards are widely adopted. There are also scaleablity challenges and performance issues to be resolved. Blockchain implementations that involve monetary or other value transfer, as well as those that work across country borders, face significant regulatory issues.
Given the assumption that Blockchain will soon be a competitive advantage then offer critical capabilities at some point in the future, what can a company do now to get experience with Blockchain? While it may be premature or impossible for many companies to invest money and other resources to participate in these large consortium, there are still ways these businesses can position themselves to take advantage of the Blockchain benefits and get some immediate value from the technology.
We will address the top four methods – gaining experience; identifying and performing POC for internal and external use; and keeping up with the curve – of how your company can get started with Blockchain in our next article.