While blockchain is widely seen as one of today’s most disruptive emerging technologies, there is still limited understanding about it, with business use cases tending to be of a high-level view with little clarity given on the core aspects and any potential tradeoffs of implementation.
This is an issue, given that there are many technological elements required to build a blockchain solution, and being early on in the life cycle, in many cases, the exact solution required does not come as an off-the-shelf answer.
Findings from a McKinsey report suggest that use cases across the government sector, applications aligned to the Internet of Things (IoT), and many other fields are apparent. Meanwhile, the South African Reserve Bank has already trialed the technology for clearing and settlement.
A big challenge for many organisations is where to start. To help make blockchain a reality, users should consider a three-step approach to help familiarise themselves with the technology.
Blockchain builds a growing list of unalterable records, called blocks that are linked together to form a chain and securely distributed among participants. It allows organisations that might not fully trust each other to agree on a single, distributed source of truth.
Blockchain minimises the cost and delays of using third-party intermediaries for financial transactions. It also eliminates manual, error-prone processes, and information redundancy. It further guarantees that identical and immutable data is being stored on all nodes on a distributed ledger.
While all blockchain technologies share this functional element of the distributed ledger, other aspects vary greatly. The method to find consensus for proposed transactions to be added as a new block can be implemented in very different ways.
Most current business-oriented blockchain use cases, where ledgers are shared privately among approved members of an enterprise-grade network, target a known group of participants. These permissioned blockchains require the approval from a certain minimum number of nodes for consensus.
Research by Accenture shows that globally, 60% of executives state that blockchain and smart contracts will be critical or very critical to their organisations over the next three years. However, in South Africa, this figure is only at 31%, suggesting that local organisations have yet to fully harness the technology.
Public or permission less blockchains on the other hand, including cryptocurrencies, have very different requirements because participants in the network are not known. Hence there is likely to be low trust and fraudulent transactions, like double spending, which needs to be prevented.
Here new blocks can enter the shared ledger only after a very resource-intensive process where the nodes compete on solving complex cryptographic problems, which are regularly adjusted to ensure that even the combined computational power of the nodes only generate (mine) a new block after a certain time.
As those two consensus methods are very different, they have huge implications on functionality and performance of the final blockchain implementation, for example the number of transactions per second that can be handled. The different models also suit different use cases.
Does the use case stack up?
To ensure success, blockchain applications need to start with a solid understanding of the problem to be solved.
Take Nigeria Customs Service (NCS) for example. It required a trusted platform for the full automation of Customs Excise Trade business processes and procedures to improve transparency. NCS piloted Oracle Blockchain-as-a-Service, which allows it to document and track products manufactured locally, right from the source of licensing and permits for manufacturing, to distribution and point of sale.
The successful completion of this proof of concept shows that the entire business environment of NCS can be migrated to blockchain, to automate as many customs processes as possible, creating transparency and predictability. This technology is not just about improving one organisation, but will help build global trust for Nigerian businesses, irrefutable data on goods manufactured in the country, thereby creating a favourable environment for investment.
For each new use case, the applicability of blockchain technology versus using a centralised database should be assessed across a number of criteria such as:
● Are there multiple parties that share or update common data?
● What is the requirement for trust and verification?
● Are there intermediaries required to execute a transaction and would there be benefits to removing them?
● Are the interactions time sensitive?
● Does the use case leverage “rich” data, and is there value-added data available beyond the immediate transaction?
● Does the use case require decision-making or information-handling that can be prescribed as rules to be executed automatically (for example, “smart contracts”)?
Additionally, the relevance of each criteria should be assessed and weighted – some criteria will be more important than others and subsequently, the characteristic value of each criterion should be defined.
Evaluating implementation options, understanding the pitfalls
Having determined a fit for a blockchain solution, the implementation needs to be considered against key variables such as the level of trust required in the network and the likely complexity. The level of trust typically determines whether a permissioned or permission less blockchain is required, and what typical consensus protocols are available for use.
Currently, most business-oriented frameworks are ‘permissioned’, but there are also implementations that use a ‘proof-of-elapsed-time’ consensus protocol. Similarly, most modern business-oriented blockchain frameworks are feature-rich, to support things like the ability to implement smart contracts, requiring automatically executing business logic based on external input and verified by all nodes.
Other considerations guiding the choice of blockchain framework are around implementation, interoperability and security. These include mistakes in smart contracts that can lead to unwanted behaviour; and little standardisation, meaning that all parties need to choose the same technology stack.
In summary, bringing blockchain ideas into practice requires a solid understanding of the technology and a thorough use case evaluation but long-term success is particularly dependent on early decisions regarding the implementation framework. The complexity needs to be understood and securing the right skills and capabilities for the team is key, especially for a secure and future-proof implementation.
By Craig Nel, Mobile & Cognitive Experience (MCX) Leader at Oracle Middle East, Africa and Turkey