Adopting Blockchain for an Enterprise

As I examine the facets of blockchain technology and their potential benefits to enterprise applications, I realize that the blockchain landscape is fragmented, with many innovative approaches in use to apply thistechnology to problem solving. This innovation leads to specialization, and each blockchain vendor offers a variant trust system that addresses a specific business use case. These specialized vendors have defined business use cases that benefit from blockchain’s robust trust system, which allows for speed that matches the consumer’s expectations of the digital world. The tenets of blockchain, such as decentralized, distributed, global, and permanent code-based programmable assets and records of transaction, could be instrumental in managing such interactions, allowing them to keep up with the speed of the Internet. As I contemplate the benefits of blockchain technology, I also consider the adoption of blockchain by enterprises as a mainstream application transaction system. I also suggest caution when using blockchain in enterprise application platforms that are burdened with legacy and evolving design. In this post, I will attempt to demystify the perception of blockchain and will outline the challenges that may ensue if this technology is adopted within an enterprise context. I will also focus on three primary areas that will help describe blockchain in the context of an enterprise.

How does an enterprise view blockchain?

Blockchain is described as a digital trust web via radical openness, and while this may be true for cyber currency blockchain, enterprises still have to consider the meaning and impact of radical openness. Public blockchain operates with extreme simplicity, supporting a widely distributed master list of all (currency) transactions that is validated using a trust system supported by anonymous consensus. But can this model of a trustless system be applied directly to an enterprise without modifying the fundamental tenets of blockchain? Does an enterprise view this disruptive technology as a path to its own transformation or as a vehicle to improve existing processes and exploit the efficiencies of the trust system? In either case, the adoption of this technology beyond an experimental stage should not disrupt the incumbent system. This presents an interesting challenge! After all, the design inefficiencies of the incumbent system have compelled enterprises to consider this paradigm shift. Many of the use cases and concepts that have been tested, as proof points are still far from appropriate for use by an enterprise. The financial services sector was the first to experiment with blockchain but feared being disrupted by another wave of start-ups from Silicon Valley and Silicon Alley. Also driven by consumer demands for speed and low priced transactions, the industry has a well-defined structure of use cases including (but not limited to) trade financing, trade platform, payment and remittance, smart contracts, crowd funding, data management and analytics, marketplace lending, and blockchain technology infrastructures. In the near future, I suspect that this thinking may permeate other industries, such as retail, health care, and the government. While blockchain technology combines many good ideas, given the nascency beyond cyber currency and the lack of defined standards to promote interoperability between multi-domain chains, the technology requires that an enterprise establish a level of understanding that may lead to further innovations and standards. This may also create unique opportunities to not only improve existing business practices (application of technology) but also to establish new business models using blockchain’s powered trust web.

Litmus test to justify application of blockchain technology

Noted that blockchain addresses three aspects of the transaction economy:
Trade
Ownership
Trust
Technological elements of blockchain:

1. Technology behind the trust system: Consensus, mining, and public ledger
2. Secret communication on open networks: Cryptography and encryption
3. Non-repudiation systems: Visibility to stacks of processes

Chain decision matrix: While the implications of this technology may be profound, an enterprise may want to devise a set of enterprise-specific criteria that can be applied to existing or new projects that may use blockchain. Given the versatility of blockchain technology and the current hype curve, enterprises should use the chain decision matrix as a tool to ensure that an enterprise has a structured approach to apply a foundational technology to a business domain. This approach will also lend itself to a consistent blockchain infrastructure and trust management system, which will prove vital as many application-driven chains evolve and as demand for enterprise visibility, management, and control grows. (I plan to develop this thought in future posts).

Technology, business, and regulatory considerations of blockchain

From a technological perspective, the design goals of adopting blockchain in any enterprise should focus on disrupting the incumbent system as little as possible. One way to achieve this is to think about integration with an enterprise system of record, thereby treating blockchain-driven transaction processing and the enterprise system of record as interfaces for other enterprise applications, such as reporting, business intelligence, and data analytics and regulatory interactions.
A design paradigm should also separate the blockchain technology infrastructure from business domains that use chain technology to gain a competitive advantage. This will promote blockchain as an enterprise chain infrastructure that is invisible to businesses, while promoting ‘interprise synergy’ between the various business-driven chains. It will also separate the business domain from the technology that supports it. Chain applications should be provisioned by business domains using an appropriate trust system. Central to any blockchain endeavor, trust systems should be appropriate to the business needs. The choice of trust systems available to an enterprise also dictates the cost of the underlying infrastructure and the compute requirements. The distinction between the blockchain technology infrastructure, the architecture of the pluggable trust system, the trust intermediaries, and the design (which should provide a flexible and modular trust system) will allow a business chain to focus on the business and regulatory requirements (AML, KYC, non-repudiation, etc.). The technology infrastructure should be open, modular, and adaptable to any blockchain variant with specialized offerings, thereby providing manageability.
Interprise synergy implies driving synergies between the various enterprise blockchains to enable inter- and intra-enterprise chain (interledger) connections. This model would mean that the transactions cross various trust systems and cross aspects of enterprise governance; the model also indicates that control systems would be visible to such interactions. These interactions between various business units and external enterprises are important to fractal visibility and are associated with the protection of enterprise data. Invisible enterprise chain infrastructures will enable a solid foundation that will lead to the evolution of enterprise connectors and the exposure of APIs to enable incumbent systems to be chain aware. Due to conditional programmable contracts (smart contracts) between the business chains, interprise synergy will flourish. (More on this in future posts).
Are enterprises ready for blockchain? More importantly, should a consideration of blockchain consumption focus on integration with incumbent transaction systems, or should blockchain technology infrastructures be enterprise aware?An integrated enterprise will need more than one specialized use case and will need to drive interprise synergy to exploit the promises of enterprise blockchain fully. The success of blockchain consumption should initially focus on technology play, and enterprises should consider integration with existing enterprise business systems. This will create ease in the collective understanding of this technology, while establishing a path of least disruption and accelerating enterprise adoption.

How the blockchain works

The blockchain is basically a distributed database. Think of a giant, global spreadsheet that runs on millions and millions of computers. It’s distributed. It’s open source, so anyone can change the underlying code, and they can see what’s going on. It’s truly peer to peer; it doesn’t require powerful intermediaries to authenticate or to settle transactions.
It uses state-of-the-art cryptography, so if we have a global, distributed database that can record the fact that we’ve done this transaction, what else could it record? Well, it could record any structured information, not just who paid whom but also who married whom or who owns what land or what light bought power from what power source. In the case of the Internet of Things, we’re going to need a blockchain-settlement system underneath. Banks won’t be able to settle trillions of real-time transactions between things.
So this is an extraordinary thing. An immutable, unhackable distributed database of digital assets. This is a platform for truth and it’s a platform for trust. The implications are staggering, not just for the financial-services industry but also right across virtually every aspect of society.
Most blockchains—and Bitcoin is the biggest—are what you call permission-less systems. We can do transactions and satisfy each other’s economic needs without knowing who the other party is and independent from central authorities. These blockchains all have a digital currency of some kind associated with them, which is why everybody talks about Bitcoin in the same breath as the blockchain, because the Bitcoin blockchain is the biggest.
But to me, the blockchain, the underlying technology, is the biggest innovation in computer science—the idea of a distributed database where trust is established through mass collaboration and clever code rather than through a powerful institution that does the authentication and the settlement.
The way it works is, if I owe you $20, we do the transaction. There’s a huge community called miners, and they have a powerful computing resource. Some people have estimated that the entire computing power of Google would be 5 percent of this blockchain-computing power, for the Bitcoin blockchain. That platform solves this big, big problem called the double-payment problem. If I send you an MP3 file and I send it to somebody else, it’s a problem for the record industry, but it’s not a massive problem. If I send you $20, and I send the same file to somebody else, that’s a big problem. It’s called fraud, and the economy stops if you have a monetary system based on that. What happens is, I send you the $20, and these miners, to make a long story short, go about authenticating that the transaction occurred.
Each miner is motivated to be the first one to find the truth, and once you find the truth, it’s evidence to everybody else. When you find the truth and you solve a complex mathematical problem, you get paid some money, some Bitcoin. For me to hack that and try and send the same money to somebody else, or for me to come in and try and take your $20 worth of Bitcoins, is not practically possible because I’d have to hack that ten-minute block. That’s why it’s called blockchain, and that block is linked to the previous block, and the previous block—ergo, chain. This blockchain is running across countless numbers of computers. I would have to commit fraud in the light of the most powerful computing resource in the world, not just for that ten-minute block but for the entire history of commerce, on a distributed platform. This is not practically feasible.
So, sure, there have been lots of problems with Bitcoin. You had big exchanges like Mt. Gox fail. You had the Silk Road, where Bitcoin was the payment system for all kinds of horrific, illegal activity. But don’t be confused by that. Many people make the mistake of thinking, “Bitcoin? Well, that’s an asset. Should I invest? Is it going to go up or down?” Well, that’s not of interest to me, just like speculating in gold is not of interest to me.
Something that’s of bigger interest is Bitcoin as a digital currency that enables us to do these kinds of transactions. A cryptocurrency that’s not based on nation-states. The most important thing that we focus on in our work, is the much bigger question, this underlying, distributed-database technology that enables us to have a truthful and immutable record of everything.

How disruption can occur

The financial-services industry is up for serious disruption—or transformation, depending on how it approaches this issue. For the research for Blockchain Revolution, we went through and identified eight different things that the industry does: it moves money, it stores money, it lends money, it trades money, it attests to money, it accounts for money, and so on.
Every one of those can be challenged.
You pick any industry, and this technology holds huge potential to disrupt it, creating a more prosperous world where people get to participate in the value that they create. The music industry, for example, is a disaster, at least from the point of view of the musicians. They used to have most of the value taken by the big labels. Then, along came the technology companies, which took a whole bunch of value, and the songwriters and musicians are left with crumbs at the end. What if the new music industry was a distributed app on the blockchain, where I, as a songwriter, could post my song onto the blockchain with a smart contract specifying how it is to be used?
Maybe as a recording artist posting my music on a blockchain music platform, I’ll say, “You listen to the music, it’s free. You want to put it in your movie? It’s going to cost you this much, and here’s how that works. You put it in the movie, the smart contract pays me.” Or how about using it for a ring tone? There’s the smart contract for that.
This is not a pipe dream. Imogen Heap, who’s a brilliant singer-songwriter in the United Kingdom, a best-selling recording artist, has now been part of creating Mycelia, and they’re working with an amazing company called Consensus Systems, that’s all around the world, blockchain developers, using the Ethereum platform; Ethereum is one blockchain. She has already posted her first song onto the Internet. I fully expect that many big recording artists will be seriously investigating a whole new paradigm whereby the musicians get compensated for the value that they create.

What could go wrong?

I’m not a futurist. I think the future’s not something to be predicted—it’s something to be achieved. What we’re arguing is that this technology is revolutionary and holds vast potential to change society.
What could go wrong? We identified ten showstoppers and we went through them in detail in our research and in the book. There are showstoppers such as the energy that’s consumed to do this, which is massive. Another showstopper is that this technology is going to be the platform for a lot of smart agents that are going to displace a lot of humans from jobs. Maybe this whole new platform is the ultimate job-killer.
The biggest problems, though, have to do with governance. Any controversy that you read about today is going to revolve around these governance issues. This new community is in its infancy. Unlike the Internet, which has a sophisticated governance ecosystem, the whole world of blockchain and digital currencies is the Wild West.
It’s a place of recklessness and chaos and calamity. This could kill it if we don’t find the leadership to come together and to create the equivalent organizations that we have for governance of the Internet. We have the Internet Engineering Task Force, which creates standards for the Net. We have Internet Governance Forum, which creates policies for governments. We have the W3C Consortium, which creates standards for the Web. There’s the Internet Society; that’s an advocacy group. There’s the Internet Corporation for Assigned Names and Numbers (ICANN), an operational network that just delivers the domain names. There’s a structure and a process to figure out things. Right now, there’s a big debate that continues about the block size. We need a bigger block size to be able to handle all of the transactions that will be arising. There are big differences. There are legitimate points of view, but the problem is, there’s no process to be able to come up with an optimal solution.
I’m hopeful, even optimistic, that this will proceed. It feels a lot like the early ’90s to me. You’ve got all the smartest venture capitalists, the smartest programmers, the smartest business executives, the smartest people in banking, the smartest government of people, the smartest entrepreneurs all over this thing. That’s always a sign that something big is going on. Is it an irrational exuberance? I don’t know. Last year, $1 billion went into venture alone in this area. I’m more hopeful because I can see the power of the applications to disrupt things for the good. Rather than just redistributing wealth, maybe we could change the way wealth is distributed in the first place. Imagine a Kickstarter-like campaign to launch a company where you have 50 million investors and everybody puts in a couple of dollars, or very small amounts.
Imagine all those people who have a supercomputer in their pocket, who are connected to a network but don’t have a bank account, because they only own a couple of pigs and a chicken. That’s their bank account. Imagine if they could be brought in, 2 billion people, into the global financial system. What could that do? Seventy percent of all people who own land have a tenuous title to that land. And you’re in a developing-world country in Latin America, and some dictator comes to power and he says, “Well, you may have a piece of paper that says you own your little farm, but my central computer says my friend owns your farm.”
Imagine a world where foreign aid didn’t get consumed in the bureaucracy but went directly to the beneficiary under a smart contract? Rather than a $60 billion car-service aggregation, why couldn’t we have a distributed app on the blockchain that manages all these vehicles and handles everything from reputation to payments? Ultimately, they’ll be autonomous vehicles moving around. Or blockchain Airbnb? This is all about the value going to the creators of value rather than to powerful forces that capture it. In the process, we can protect our privacy. Privacy is a basic human right, and people who say “It’s dead—get over it” are deeply misinformed. It’s the foundation of a free society.
Imagine each of us having our own identity in a black box on the blockchain. When you go to do a transaction, it gives away a shred of information required to do that transaction and it collects data. You get to keep your data and monetize it if you want, or not. This could be the foundation of a whole new era whereby our basic right to privacy is protected, because identity is the foundation of freedom and it needs to be managed responsibly.