New technologies and concepts are always exciting, with emerging trends becoming talking points at every level of an organization year after year, but this hype can often skew expectations, particularly with a topic as complex as blockchain.
Gartner’s Hype Cycle for Emerging Technologies 2016 predicts that blockchain is currently at the peak of inflated expectations, but will see mainstream adoption in 5-10 years. Others have likened the blockchain to the internet when it was in its infancy – nobody yet understands its full potential, but the investment opportunities were enormous.
While blockchain has been a vital component in the success of the digital peer-to-peer payment system Bitcoin, it may still be too soon to apply the technology within your own company, perhaps with a few exceptions. If you’re confused about blockchain or considering implementing a related solution soon, this primer should help you decide.
In plain English, the blockchain is an open-source, decentralized database platform that creates and stores a snapshot of the previous database with each individual new entry.
To use an analogy, imagine taking a picture of a specific portion of a sandy beach, then hold that photo in front of the camera and take another photo of the same beach. Each of these photos represents a new “block” in the chain, and these blocks are immutable, meaning they cannot be changed and will always be included in the database. With this depth of transaction history, the integrity of the data is secured, giving it an unmatched level of authenticity and dependability.
Blockchains can also be distributed, so more than one company can have access to the same blockchain database. To put this in physical terms, blockchains can be stored and maintained on a number of independent computers (called full nodes in blockchain jargon) that are constantly communicating to ensure the data’s validity. By storing data in this way, the blockchain also eliminates the associated risks of storing it in a central location, meaning it is immune to hacking.
Blockchain’s infallibility eliminates the need for “trusted third parties” in any given transaction. For example, it can allow currency to be directly transferred without the need of a financial intermediary such as PayPal or Western Union. But it’s not just the financial sector that can benefit; the application of blockchain can help with personal identification, digital signatures, data verification, and much more. The possibilities are virtually limitless.
Some examples include land ownership titles, or even criminal charges for traffic violations. Imagine if you were in an accident and the record of it was immediately added to the police blockchain, either by an officer, or through smart city/smart vehicle IoT solutions. That record would become immutable proof of the accident and could be shared with an insurance company, speeding up the processing/investigation times considerably. It also prevents corruption and fraud, as the record is permanent.
Currently, most of the investors in blockchain are fintech companies and banks, but these are investing for their own benefit, not to develop or enhance the technology universally. Their main objective is to understand whether or not blockchain is the next step for the financial world.
Nearshore development firm Belatrix is still in the initial research stages for blockchain, considering its infancy. “While we are not working on any specific projects yet, we are developing some proof of concepts and ideas for connecting tools and APIs to different devices for IoT,” said Pablo Lecea, Technical Consultant at Belatrix. “We already know its capabilities for crypto currencies and finance, but what about the rest of the technologies that it could be applied to? Almost all industries could use it in some way, but right now only the biggest companies are seriously looking into it. It’s very difficult to adopt due to the many policies and rules required to implement these distributed apps in databases.”
Security & Trust
Blockchains are not backup, encryption, or storage solutions. They are trust solutions. “There’s a lot of distrust when it comes to data; people don’t always believe that the information is accurate,” said Jose A Diaz Infante, Managing Director of Financial Services & Insurance at Softtek. “Although there has been some opinion that blockchain is dubious because of its relation to Bitcoin and Silk Road, it actually ensures that trust is not an issue because there is no way to modify the data.”
Diaz Infante believes that the low-hanging fruit for the adoption of blockchain is currently trade finance and cross-border payment systems. “When you consider the amount of remittance performed in Latin America and the U.S., there is huge potential to use blockchain and profit from it if you provide a cheaper, faster service,” he said. “A company called Abra is already using the blockchain and only charging 2% for the service. The transaction is also complete in a couple of minutes, instead of the couple of days most of these services take.”
According to Lecea, there are a number of questions that companies should ask in order to determine if blockchain is a good fit for their project. “Your application needs to meet a complete list of requirements in order for blockchain to work,” he said. “For example, if you are running a typical SQL database, then it’s insane to use blockchain as it’s not compatible with a relational database. Also, it cannot be used as a real-time database, as it is only updated and downloaded when changes are made.”
Additionally, there is no reason to implement blockchain inside a single company, because you wouldn’t need to share the database in that scenario, which is one of the technology’s underlying principles. It is perfect for cross-company applications, like logistics or supply chain operations, or when you need to track a digital asset for different companies. In the end, it’s not about processing millions of transactions every second, but excels in tracking the history, location, and ownership of a single asset.
Blockchain will likely be expensive to run due to the necessary processing speed and internet consumption required. For that reason, it’s more for large companies looking to solve big problems, such as those developing smart cities with governments.
“Governance is also an issue,” said Diaz Infante. “How do you govern something without a middleman? Who creates the policies and standards? If the U.S. and China are developing different solutions for blockchain, it will create a grey areas.”
In terms of talent, it’s going to be necessary for vendors to have subject-matter experts and teams who can lead new blockchain projects. Additionally, different companies in different verticals will need to invest in their own blockchain configurations before software developers can start shaping their solutions around them. This “chicken-and-the-egg” scenario could go on for years before we start to see blockchain solutions shaping the industry’s future, but if and when it is done right, it could change everything.