In a new book “The real business of Blockchain”, the authors allude to Blockchain as one of the most revolutionary technologies today which has the potential to unlock existing value and to create new value. However, they warn that in its current state Blockchain, from an enterprise perspective, is still young and evolving and far from a mature technology.
David Furlonger and Christophe Uzureau believe Blockchain has to prove itself in a hardened business context, but having said that, some of the elements such as decentralisation and tokenisation are radical enough to make many business leaders pause to consider implementing blockchain. More sophisticated applications will, however, have to come through experimentation and ongoing maturation of the technology and the businesses that will be implementing it.
Previewing the book to journalists at the recently held Gartner IT symposium in Cape Town, Uzureau said that a great deal of contradictory information is floating around the market. “On the one hand, many observers applaud blockchain as the solution to an impossible range of problems but on the other hand, companies that have launched Blockchain in operational deployments did not achieve cost savings nor derive value.”
Unrealistic expectations and the crash of cryptocurrencies in 2018 has moved Blockchain into the disillusionment zone or, in Gartner terminology, into a “Blockchain winter”.
Formally, blockchain is defined as a digital mechanism to create a distributed digital ledger on which two or more participants in a peer to peer network can exchange information and assets directly without the need for a trusted intermediary.” Informally, Gartner says it means that business can be done with an unknown partner located anywhere on the planet and trade assets of any transaction size without the need of a lawyer, bank or any other intermediary. Perhaps this is still a scary thought for most companies!
Blockchain authenticates the participants and validates that they own the assets they want to exchange, and that the transaction can take place. The information pertaining to the transaction is recorded in a digital ledger, a copy of which is held and updated independently by each participant in the network. Records are not changeable but time-stamped, encrypted and linked to each other in blocks. Each block is a cluster of about 2000 transactions.
The five elements of block chain
Blockchain combines exciting technologies and techniques into a novel architecture composed of five elements. Various developers and early implementers of Blockchain have ranked the five elements in a different order and also developed new terminology, but here are Gartner’s:
Blockchain participants are physically removed from each other and are connected on a network. Each participant operating a full node maintains a complete copy of the ledger, which updates with new transactions as they occur. Nodes are the machines owned or used by participants and equipped to run the consensus algorithm.
Blockchain uses technology such as public and private keys to record the data in the blocks securely and semi-anonymously (participants have pseudonyms). Participants can control their personal identity and other information and share only what they need in a transaction.
Completed transactions are cryptographically signed, time stamped and sequentially added to the ledger. Records cannot be corrupted or otherwise changed unless participants agree to do so. Such an agreement is known as a fork. According to Wikipedia, forks are related to the fact that different parties need to use common rules to maintain the history of the blockchain. When parties are not in agreement, alternative chains may emerge. While most forks are short-lived, some are permanent. Short-lived forks are due to the difficulty of reaching fast consensus in a distributed system. Whereas permanent forks (in the sense of protocol changes) have been used to add new features to a blockchain, to reverse the effects of hacking, or catastrophic bugs on a blockchain.
Transactions and other interactions involve the secure exchange of value in the form of tokens. Digital markets can function more effectively with tokens and need to create them for various reasons. Tokens might function as digital representations of physical assets, as a reward mechanism to incentivise network participants or to enable the creation and exchange forms of value. They also allow participants to control their personal data.
Both network information and rules for how the network operates are maintained by multiple computers or nodes on a distributed network. In practice decentralisation means that no single entity controls all the computers or information or dictates the rules. Every node maintains an identical encrypted copy of the network record.
A consensus-mechanism operated by each full node verifies and approves transactions. This decentralised consensus-driven structure removes the need for governance by central authority and acts as a fail-safe against fraud and bad transactions.
Uzureau says, “One has choices to make for how Blockchain will evolve in an organisation, market and society. Blockchain has been touted as a revolutionary technology to re-engineer business processes but on the other hand the real business of Blockchain is to create new markets, industries, types of consumer and shapes societal engagement with new organisational models.” Blockchain is a technology to watch!