I have been following the world of cryptocurrency since 2011, specifically the rise of Bitcoin. As a by-product of the cryptocurrency revolution, blockchain has established itself as an exciting technology, which could have a profound political, social and economic impact.
I am not alone in this thinking, with many technology leaders speaking publicly about the opportunity:
“Bitcoin is a remarkable cryptographic achievement… The ability to create something which is not duplicable in the digital world has enormous value… Lots of people will build businesses on top of that.” - Eric Schmidt (Google Executive Chairman)
“Bitcoin is a technological tour de force.” - Bill Gates (Microsoft Founder)
Although both quotes speak to Bitcoin, there is a hidden message regarding the potential of decentralised computing and the new eco-system that it might create. For example, I would argue that blockchain is to Bitcoin, what the internet is to e-mail.
This article is part one of two, which will position blockchain from an enterprise perspective, providing framing (part one) and business recommendations (part two).
NOTE: Due to the nature of my work, the articles will be biased towards the Pharmaceutical Industry and Healthcare.
As a starting point, I would recommend reviewing my previous articles that describe different aspects of blockchain:
- 21 Million Bitcoins
- Bitcoin 101
- Blockchain Consensus
- Blockchain Opportunity
- Cryptocurrency Mining
- Blockchain Playground
- Cryptocurrency Markets
What is Blockchain?
Blockchain is an open, decentralized and distributed ledger, which is best described as a continuously growing list of records that are linked and secured using cryptography, allowing transactions between multiple parties in a verifiable and permanent way.
Blockchain has evolved to support Smart Contracts, which are computer protocols intended to facilitate, verify, or enforce the negotiation or performance of a contract. Smart Contracts are often referred to as decentralized applications (DApps), as they support custom business logic and processes.
A more detailed description can be found in the article “Blockchain”.
Blockchain can be compared to a spreadsheet that has been duplicated across a network of computers, where the network has been designed to continuously update, verify and protect the spreadsheet, without a central authority.
Smart Contracts can be compared to custom logic that is executed within the spreadsheet (like a macro), which can be triggered to complete specific business processes.
The value proposition of blockchain can be summarised into the following eight points:
- Resilient - No single point of failure.
- Secure - No single point of attack.
- Transparent - Data is shared across all parties, preventing censorship.
- Trusted - No central authority, removing the risk of manipulation.
- Efficient- Removal of central authority, resulting in cost efficiencies.
- Available - No special requirements required.
- Data Integrity - Data is complete, consistent, timely and widely available.
- Compliant - Data cannot be altered or deleted (e.g. immutable).
Components of an Enterprise Blockchain
There are four key components to an enterprise blockchain.
A solution must include components 1, 2 and 3 to be considered an enterprise blockchain. Component 4 is optional, depending on the specific implementation.
Decentralized describes the process of distributing or dispersing functions, powers, people or things away from a central location or authority.
Historically, there has been a lot of confusion regarding the differences between Decentralized and Distributed. Personally, I conform to the positioning by Vitalik Buterin (Ethereum Founder), who states:
“A Blockchain is politically decentralized (no one controls it) and architecturally decentralized (no central infrastructure), but logically centralized (one commonly agreed state and behaves like a single entity).”
- Removes the need for a central authority (e.g. Bank).
- Removes the single point of failure and attack (e.g. Data Centre).
- Improves trust and transparency, as the data is available to all parties.
Many industry analysts (e.g. Peter Levine - a16z) predict that decentralized / distributed computing will be the next major evolution of cloud computing.
A major challenge with decentralized computing is guaranteeing consensus across every node on the network.
Different implementations of Blockchain, include different consensus algorithms, however they all aim to ensures valid blocks cannot be retrospectively modified and enforce the order of the Blockchain.
Blockchain Consensus successfully…
- Guarantees the verified state of all data, ensuring it is complete and consistent.
- Automatically reconciles data conflicts.
- Ensures data can cannot be altered or deleted (e.g. immutable).
3. Smart Contracts
In law, a contract outlines the terms of a relationship. A Smart Contract enforces a relationship with cryptographic code.
Smart Contracts run on the blockchain and contain code that can interact with other Smart Contracts to make decisions, store data and/or exchange value.
Smart Contracts automatically execute when specific conditions are met and because they run on the blockchain, they execute exactly as designed, without any possibility of censorship, downtime, fraud or third-party manipulation.
Smart Contracts enable…
- Custom business logic and processes to be defined and executed.
- The creation of autonomous applications and even organizations.
- Resilience and integrity by running on the Blockchain.
A permissioned blockchain provides the ability to control access to the blockchain, this includes the nodes that help verify blocks and provide consensus.
Permissioned blockchains are popular with enterprise companies and consortiums that build private blockchains for financial institutions.
If the following three areas are important, a permissioned blockchain is worth considering.
- Privacy - Only approved parties can view transactions.
- Scalability - Simplifying consensus, helps to improve scalability.
- Access Control - Allows restricted access to the data within the ledge.
As with any emerging technology, there are a number of important barriers that must be considered before any investment.
To unlock the key value proposition of Blockchain, multi-party collaboration is required. This will require alignment across the specific eco-system (e.g. Supply Chain), which may be difficult to achieve with conflicting priorities and varying levels of maturity.
Blockchain technology is a paradigm shift, that will require new processes to be successful. This must include acceptance and adoption by regulatory bodies (especially important for highly regulated industries).
Decentralized computing, such as blockchain, is radically different to centralized cloud computing. To implement successfully at scale, new compliance, privacy, quality and security controls will need to be developed and adopted.
Smart Contract technology is still relatively immature, with limited best practices, standards and/or developer tools. There are also notable gaps and unknowns, which will likely impact early adopters.
Blockchain is still early in the “hype cycle”, meaning that there are very few production case studies to reference (especially outside of Financial Services). As a result, third-party companies will attempt to capitalize on the hype and lack of verifiable data. This will likely result in poorly positioned use cases and wasted investments.
The following table highlights the most notable enterprise blockchain players:
This concludes part one (framing). Part two will focus on the business recommendations.