In Blockchain We Trust?

Blockchain technology – the core of Bitcoin transactions – has become a bit of a viral sensation, but the realities differ a bit from the buzz and there is a long way to go before it reaches its full potential.

The promise of blockchain technology is getting more than its fair share of play in the media these days, as both software providers and enterprise businesses rally behind the #blockchain hashtag. With major tech providers publicly announcing their support for the “future value” of Blockchain, enterprises are right to be watching this space closely.

Blockchain isn’t Bitcoin

Understanding the relationship between Bitcoin and Blockchain is key to understanding the potential value proposition Blockchain offers.

Bitcoin is a crypto-currency that offers a non-mainstream alternative to existing currencies. Bitcoin’s appeal is to certain consumer communities that don’t have access to – or can’t operate within – traditional banking/currency markets (which could include everything from the sale of medical marijuana to the handling of short-term loans in emerging or underserved markets). In this way, Bitcoin isn’t a replacement for existing currencies, it’s a new form of currency that fills a market void.

Blockchain is the underlying ledger system that enables, and tracks, Bitcoin transactions, but it can be used to track and audit the transfer of any digital value between multiple parties.

Blockchain isn’t secure, it’s trusted

Blockchain’s distributed transactional ledger allows all participating parties to share operational versions of the complete ledger, ensuring the honesty, and integrity, of the system. Any attempt to manipulate a single ledger (to fake or corrupt a transaction) would be noticed by all.

Trust however does not equate to security or privacy, and there are no natural elements of encryption currently baked into Blockchain (required for mass adoption in the business community).

Where does Blockchain fit?

Blockchain has the potential to be used in any value chain that requires the frequent transfer – and auditing — of value between parties.

“Anything that has value and is routinely transferred (and tracked) between two or more parties is a potential application for Blockchain.”

Examples include the governance of smart contracts, the distribution of property titles, the recording of goods transfers throughout a supply chain, or the tracking of data value, such as IoT-based sensor data, as it flows throughout an enterprise.

Making Blockchain viable

Despite the hype, Blockchain has a long way to go before it has any significant impact beyond Bitcoin. This past December, the Linux Foundation announced the Open Ledger Project, an initiative to explore the development of Blockchain for broad-based commercial application. Founding members include IBM, Cisco, Accenture, Intel, and the London Stock Exchange.

In addition to the issue of scale (Blockchain in its present form slows as it increases in size), one of the core challenges the Open Ledger Project faces is the addition of “side ledgers” that would allow enterprises to set different types of permissions, privacy, and participant roles for use within a particular ecosystem. This will result in the creation of public/private (hybrid) Blockchains that ultimately function as a web of interconnected Blockchains – something that is years, not months, away.

HfS Position:

HfS sees tremendous long-term potential in the application of Blockchain technologies. As our global economy shifts into an As-a-Service model, the need for trusted digital transfers of value will increase significantly. But the time dimension for enterprise value is years away. We ultimately expect the value of Blockchain to go beyond the replacement (lift and shift) of existing process and ultimately enable a new wave of simplified business processes and applications that are not feasible today.  When that happens it will have a dramatic impact on the solution design of business process and IT outsourcing.

HfS will be tracking the evolution of Blockchain and provide ongoing guidance regarding developments that present transformational value. We highly recommend enterprises monitor, and perhaps participate in, the development of Blockchain standards with an eye to opening new market opportunities in the long-term.