Blockchain: Hype or Reality?

Blockchain is one of the hottest topics in technology today. There is a lot of poorly informed hype surrounding blockchain but there is a great deal of promise also. I recently read an article on a pilot blockchain project undertaken by a major company, one which has been responsible for some wonderful technology. The article claimed that blockchain was enabling a swathe of new capabilities, but every single capability described was simply nothing new - been around for years, in fact I designed a system over 20 years ago that had all of the capabilities of this supposedly groundbreaking blockchain. It seems that the only reason blockchain was involved in this project was to ensure that it got funding and publicity!

This type of hype could easily drive us to dismiss the technology altogether, but I think that would be wrong. This is an interesting technology that we should understand, if only to spot the hype. Its still a young technology and I think it will take years for it to mature and fulfil its potential.

What is Blockchain

Blockchain is a component of the Bitcoin cryptocurrency. It is a distributed database, where all records are synchronized across all notes in chain (in the blockchain). There is nothing new about distributed databases but what makes blockchain different is that it digitally signs entries so that its virtually impossible to tamper with a record once it has been written. Each record written is digitally signed to the whole database so that it is not possible to tamper with any of the database records.
Consider that every record is replicated across every node in the chain, therefore, if someone wanted to tamper with the blockchain, you would need to tamper with all the nodes (or most of the nodes). Whilst this isn’t technically impossible, it is extremely difficult.

Performance

There are a number of performance concerns surrounding blockchain. All records must be distributed across all of the nodes and this is an overhead. When reading, the chain checks other nodes in the chain, another overhead. The question is not whether blockchains can handle the necessary volume and whether they can perform, but really the issue is whether they take a prohibitive level of compute compared to the alternatives.

Security

Security is a complex subject but from a data perspective, we should consider the privacy of the data and its integrity. To maintain data privacy, we must prevent the wrong people having visibility of sensitive data. To maintain the integrity of the data we must prevent it from being changed or tampered with. This is where blockchain adds real value, in that it makes tampering with data very difficult.

With regards to data privacy, blockchain doesn’t really address that. It is possible to encrypt the contents of a record but the distributed nature of the blockchain means that the data is available in more locations. I think its very valid to have concerns about distributing data in a blockchain, even though the contents are encrypted. Doubtless, this will be an issue for some.

IoT

The internet of things is causing an exponential increase in the volume of structured data messages flying around the internet and security is one of the biggest concerns. A number f surveys have shown security to be one of the biggest concerns around IoT.

Blockchain may provide some opportunity to manage IoT data if we can overcome concerns over performance. There are certainly other ways to secure IoT data but I think we will see blockchain based solutions

In the past year, I have seen several articles explaining how a blockchain could be used to manage communication between IoT devices and how the blockchain would treat messages like financial transactions in the Bitcoin ledger. IoT solutions are likely to generate a massive volume of data and so I do have concerns that the blockchain architecture could struggle to perform and could need a lot of expensive processor power.

Finance Will Lead the Way

The financial services sector is leading the way with solutions in areas such as Trade Finance and with significant ongoing investment from major Securities Exchanges:
  • Microsoft, Bank of America and Merril Lynch have partnered to develop a blockchain based solution for Trade Finance
  • Ripple is a start up that has raised almost $100M, allowing banks to make real time international payments
  • The Australian Securities Exchange has announced that it will adopt blockchain technology to record shareholdings and to manage clearing and settlement of equity trades
  • The Nasdaq has launched a cloud-based media trading platform powered by blockchain technology
Just these few examples should illustrate that there are some investments that look credible and interesting

Blockchain could fuel disruption in the financial sector. Just think about the concept of removing the middleman. To move our money around, we need banks and money transfer services. They are expensive. Low volume merchants pay more than 2% to use the Visa and MasterCard networks and I hate to see how much it costs me when I make an international financial transaction. We have seen technology disrupt several industries and we could see blockchain fuel disruption in the financial sector

Trust and Traceability

I’m not convinced that we will see blockchains manage all transactions between companies, many of these are sill using EDI. I don’t see a need for a blockchain to replace these extremely high volume (and sometimes low value) scenarios but I do see some special niche use cases such as Everledger, a startup that plans to track the life-cycle of diamonds and Ascribe is a startup that allows artists to upload and track the use of their creations. Creating a secure digital record of a new creation is a great use of blockchain technology.

In Closing

Ten years from now, it’s possible that we look back at this era, as the blockchain bubble, just like the way we look back at the dotcom bubble, but I think its more likely that we look back at this as the early part of the blockchain boom.

Business and tech professionals should understand blockchain and how it might affect their worlds and we should all know enough to have a fighting chance to spot the hype. 

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