A Rational perspective for the usage of Blockchain into your technology ecosystem.
Let’s find out the answers to “Do you really need Blockchain?” and “Does Blockchain really fit your business model”.
If you are a Blockchain Enthusiast – Of course this content will look a little peculiar at first but we assure you, at the end – all of it shall resemble and add value to your knowledge kitty!
But what if you are new to Blockchain – Well, we’ve got you covered, all you need to carry is a little technology eagerness (and giving us a couple of mins of your loaded schedule!!) 😃
Let’s take a deeper dive!!
Blockchain Is changing how companies engage with their customers. To begin, Blockchain has gained notable traction because of two primary reasons:
People hyping about Bitcoin/cryptos (A separate ball game that we aren’t gonna talk about!!)
Blockchain’s ability to resolve complex issues around transparency, efficiency, and cost in a simplistic manner.
This definitely interests us and we hope you folks would like to know – how you can actually leverage Blockchain? Is it a really better choice for your upcoming or current product/technology offering?
The fastest adopters for this tech. have been in the software, Fintech, and logistics industries. In fact, it has become so popular that the largest tech companies in the world including IBM, Microsoft, and Oracle — all have divisions dedicated to the integration and evangelism of the new tech.
From a business perspective, Blockchain is looked at as a next-gen business process innovator. As the world is taking shift toward digitization, services providers are looking to offer customers the same services to which they’re accustomed, but in a more efficient, secure, and cost-effective way.
In simple terms, we look at Blockchain as a Shareddatabase populated with entries that must be confirmed and encrypted.
We try and answer a very simple question here i.e., Can regular or centralized databases be replaced with blockchain? If not, then what are the characteristic that makes Blockchain really Distinctive!
The more promises lie with it being fully decentralized, let’s understand how…
1st Gen Systems:
Where data coordination between multiple parties was executed with direct transfer of data via one or the other medium like Web service APIs, FTP’s, etc.
2nd Gen Systems:
One of the most common and widely used approaches is where everyone sends the information to a centralized entity and all data is exchanged through this intermediator and it owns the single version of truth. Different parties don’t maintain their own version of databases
3rd Gen Systems:
Finally, we land on the Blockchain model and how it’s being used as a database. The Blockchain approach solves the data coordination problem. Blockchain ultimately acts as a shared database where all parties are connected to each other in a purely Decentralized manner and all are sending messages to each other but now we have a process in place that makes sure that disagreements don’t occur.
We have transactions which are individual events that one or more companies sign using a private key using a digital signature generated. These transactions are sent not only from the sender to the receiver but they also propagate the entire network in a peer-to-peer way. Nodes are all telling each other everything they know and everything gets to everybody very quickly.
All the Blocks are connected to each other in order to make sure that there’s a single version of the truth across the whole network.
Knowing how Blockchain is different from a regular database, we come onto another important discussion, that talks about – Is it really beneficial to use blockchain for your products eco-system?
To answer that, let’s first look at some of the characteristics that are perceived to be unique for Blockchain but the same can be achieved with modern technologies and relational databases. So, if you are planning to utilize Blockchain for one of the characteristics that we are gonna talk about in a bit, you might want to re-think and weigh down the pros and cons on other aspects before making a decision.
The “Perceived” Blockchain Characteristics:
Description (about Blockchain)
Relational Database Alternate
A piece of code that executes on every single node to update the Blockchain state
Blockchain allows append-only information
Database customized with INSERT only type of query
Safe exchanges of assets
User A pays X dollars and User B re-pays them the equivalent amount in pound. This is referred to as atomic transaction
Grouped database operations can ensure that either all of the operations succeed or all of them fail.
Blockchains database is fault-tolerant with each node containing the data entry.
The same can be achieved with multi-master replication.
Blockchain processes transactions faster.
However, Blockchain needs consensus i.e. More than one party has to agree for the transaction to take place.
The consensus accounts for some time for the transaction to occur, whereas a centralized database has the sole authority to execute the transaction, which accounts for even lesser amount of time.
The centralized databases are more scalable than Blockchain because of the simple reason – that if Blockchain node wants to execute a task, it has to undergo everything that a centralized database has to do but also has to do a whole bunch more on top of that.
Secrecy is actually harder to achieve in Blockchain. Because information is transmitted over it is replicated into multiple locations and even multiple organizations.
So, it’s important to understand that as soon as the possibility of using Blockchain enters your mind you also consider the possibility of using a centralized database for the same purpose.
In terms of the types of data you can put in a blockchain you can do all of that in a centralized database.
In terms of the types of transactions you can run over a blockchain you can run all of those types of transactions on a centralized database.
What we’re looking at here is a technology choice. You can build a system on a centralized database and you can build the same system on a blockchain. There has always been some or other trade-off while choosing the right technology.
So, the question is where can Blockchain be the best fit for usage and in what kind of applications:
The key advantage of Blockchain is Disintermediation.
Simply put it’s the advantage of achieving a single view of the truth without putting any one party in charge of the database.
Blockchain allows sharing databases across boundaries, across organizations, and all of the things that database is doing. Any particular organization is not in charge of that database – that is something genuinely new compared to how databases are built today.
On the other hand, it’s a trade-off with confidentiality. So, if 20 organizations share a Blockchain database, then the transaction between any 2 of them can also be monitored by the rest of 18.
So, we drill down to – is it really beneficial for your product eco-system to have this trade-off or not?
Well, let’s view some of the giants who have already been using Blockchain for a while now.
Blockchain Application across the Globe
Some companies that have already incorporated blockchain include Walmart, Pfizer, AIG, Siemens, Unilever, and a host of others.
Major financial institutions such as JPMorgan Chase (JPM) see the potential to lower transaction costs by streamlining payment processing
IBM has created its Food Trust blockchain to trace the journey that food products take to get to their locations. You may ask why do this?
The food industry has seen countless outbreaks of e Coli, salmonella, listeria, as well as hazardous materials being accidentally introduced to foods. In the past, it has taken weeks to find the source of these outbreaks or the cause of sickness from what people are eating.
Using blockchain gives brands the ability to track a food product’s route from its origin, through each stop it makes, and finally it’s delivery. If a food is found to be contaminated then it can be traced all the way back through each stop to its origin. Not only that, but these companies can also now see everything else it may have come in contact with, allowing the identification of the problem to occur far sooner, potentially saving lives.
European bank Santander and its research partners put the potential savings at $15 billion to $20 billion a year.
Capgemini, a French consultancy, estimates that consumers could save up to $16 billion in banking and insurance fees each year through blockchain-based applications.
In June 2021, El Salvador became the world’s first country to adopt bitcoin as legal tender promoting the Blockchain application to another level.
Every single use case is about thinking does this make sense in terms of gaining disintermediation at the cost of losing confidentiality.
Even If you are not willing to make the trade-off with confidentiality – there are many encryption techniques available. So, on a blockchain network, the shared data is encrypted and only some of the parties have these encryption keys.
Our research shows that there are many areas where this trade-off can be beneficial:
1 Instant payment network between multiple entities
Each participating institution runs a node on the blockchain, they will connect to each other in a peer-to-peer way and exchange assets (e.g., Shares, Bonds, IOUs, Regular cash) in the form of token which represents the ownership of that particulate asset and then that token can be circulated between the participants on the chain
There are a lot of people that believe that one day central banks will issue their own currency onto blockchains (in the same way they issue fiat currency).
On a blockchain, once we have assets represented by tokens then we can do instant transfers between the participants and a peer-to-peer way people can send money to each other using these tokens exactly in the same way that people send Bitcoin to each other over the Bitcoin network and we should do better than that we can attach any metadata
With such type of system, Regulators can simply have a bird’s-eye view of everything that’s going on with this tech. So, most of the regulators look at this kind of technology with a positive approach because what they can do with this is, they can essentially run a node on the blockchain themselves this would be a read-only node they can’t transact but they can nonetheless see everything that’s going on and suddenly they have a real-time view of everything that’s happening in this in this space.
2 Shared Database Creation
Multiple parties form a blockchain network not to share assets but to create a shared database to put anything on blockchain:
You need to digitally sign it. Blockchain is digitally signed that everyone knows where that piece of data came from.
Every piece of data on the blockchain is time-stamped and when we talk about time stamping on a blockchain it’s not one person’s opinion about what the timestamp is or one company’s opinion about what the timestamp is, the network as a whole comes to consensus about the time-stamping of every event
Each data represented on Blockchain is Immutable. Immutability means inability to change is this notion of an append-only ledger so one of the information is on the blockchain it cannot be changed. It’s important to clarify what we mean by immutability because this isn’t the information that can never be changed, what we have here is information that can only be corrupted or changed if a majority of the validating nodes decide to maliciously collude. So, it’s immutability on a level of consensus between the participants on the network. But this network is relatively very strong rather than believing on one intermediator.
3 Multijurisdictional Process
Times when the process or workflows spans around multiple companies, multiple geographies and we want to make sure those companies will agree with each other.
Sometimes there’s a problem that they cannot agree where the centralized database that would and who will represent the ownership of it.
So, if there’s a manufacturing unit in China that ship through Europe and it ends up in a retailer in the US, well where’s the database going to sit, and which of the parties keeps track of what’s going with the data. It’s not only about where that database physically sits, it’s also about which organization is responsible for running that database and under which legal and regulatory regime does that organization sit,
In such scenarios, blockchain can be a good solution for these organizations to come together and create a peer-to-peer shared record of events without anyone being in charge of it and without them being subject to any individual legal regime. This is one place where we see that there’s a genuine value in that trade-off.
4 Live multiparty Data Aggregation (For Transacting Data, news feed, etc.)
Aggregating data between multiple participants.
E.g., Stocks that have trades on 20 different stock exchanges and their stock exchange want to aggregate together data of everything that happens so they have a single shared record of all the trades that took place.
How would they do it today either they’re all selling copies of data to each other so you think that’s 20 organizations who are each running replicas of 20 other organizations databases and if you move that from 20 to 100 or a thousand other use cases have come down weirdly or they take some central body and that central body is given the task of aggregating the data and then producing the kind of aggregate version of it and sending it back on to all the participants.
So, this is a case where no one’s trying to hide data from each other and if that’s the case of course the confidentiality side of the trade-off doesn’t exist and we can only enjoy the fact that we’re able to create a shared record here and not have to have some individual party in charge of it so that’s a very strong use case
There are many other use cases such as lightweight financial systems (for Loyalty points, gift cards, credits), Internal cleaning & settlement systems (operating between different entities, their subsidiaries, and regions).
If you are still left in confusion about to or not to use Blockchain for your ecosystem, we shall be more than happy to get in touch with you and hop on a fruitful conversation!