Time Flies!
A few months ago, I was speaking at a Blockchain Meetup of over 500 attendees in Toronto. Several speakers remarked that living in the Blockchain space was like being in 1985 during the Internet’s early days. More recently another speaker noted that we are now in 1989, relative to the Internet era. “Wow,” I remarked, “we’ve grown four years in five short months, that’s 10 times (10x) growth for you!”
Blockchain technology is moving so quickly that it’s challenging to keep up even for those of us within the area. And many professionals don’t yet understand the basics let alone the many critical subtleties one must consider when assessing it. One could argue that even some of the popular narratives and explanations of Blockchain are somewhat dated and may even be misleading. So, let’s get started with the key tenets of Blockchain, and then address where the technology is headed in the near future.
What is Blockchain?
Blockchain is a distributed network of computers (“nodes”) that utilize the underlying infrastructure of the Internet to validate and process transactions of some value. These transactions are validated and added to “blocks” of data that are processed in a pre-defined interval of time (i.e., 12-seconds or 10-minutes, etc.).
Blockchain uses existing cryptography schemes to append new blocks to previous blocks. This way, blocks are never overwritten or destroyed, just appended to, forming a chain of blocks, hence “blockchain.” This chain of blocks is synchronized across all of the nodes by providing an economic incentive to the node that is able to first validate and then add the block to the chain by solving a complex mathematical task.
Each node on the blockchain network maintains the same chain of blocks, also called a “ledger” as in an accounting ledger of records. This chain of blocks or ledger of records is distributed across multiple nodes that agree to the correct state of the ledger through the process of consensus. Different consensus mechanisms exist, but the most common one is called Proof-of-Work, as described here. Once a block has been added to blockchain, it becomes an immutable record.
There are many different blockchains – public, private and consortium blockchains. In a public blockchain anyone can join and become a node, all transactions are publically available, the value of the transaction is public, and the identity of those parties who are sending/receiving the transaction is pseudo-anonymous. Private and consortium blockchains also exist where rules (governance models) can be pre-defined and roles and consensus mechanisms can be managed.
Blockchain is not new: in fact, the earliest blockchain has been functioning successfully since January 2009. Yes, Bitcoin has some negative perceptions, but don’t blame the technology or the concept for the wrong-doing of some people. And more importantly, don’t ignore it and either miss-out on the world’s biggest opportunity in our era or end up becoming irrelevant in a few years. Bitcoin is one of many different flavours of blockchain platforms in existence today, Ethereum and Hyperledger Fabric being a couple of other popular blockchain infrastructure platforms.
Blockchain has been called the 'next Internet', the 'Internet of value'. What is this new Internet of value exactly? Let me explain this through an example. The current Internet facilitates communications and the sharing of information. It is great at it: we can send each other information, we can learn, collaborate, socialize, and work using the Internet. In fact, one could argue we couldn’t function without it.
The Internet is great at sharing information. I can create this article, retain the master copy and post it online for you to read. You have a version of my article, but I retain the master. Alternatively, I can also email you a copy of my article. In either case, if I change the master article, and don’t post it online or send you an update, you now have an outdated version. To overcome this problem, solutions like Google Docs enable people to share documents and collaborate online in real time. This way, everyone shares the instance of the article.
All of the afore-mentioned scenarios work when the object (as in the case of my article) has no tangible value. Think about something of value such as money: it would not be such a great thing if I sent you a copy of a dollar and retained the original. That would be fraud. Yes, one can send and receive money online and via banks, but when you think of doing this across international boundaries or for a small fraction of money, then the existing solutions are too expensive, take too long, or just cannot handle the fractional value of the transaction.
This is where blockchain comes in. It leverages a combination of several existing technologies innovatively to address the challenges of the traditional Internet and of existing systems (in this example – financial systems), and enables the transfer of value (cryptocurrency, digital assets) almost instantly at a fraction of the cost and time. It also stores the record of such a transaction in an immutable and tamper-proof manner by distributing the record across a large distributed or decentralized network.
Trouble in Paradise?
Here is the curveball, while the narrative I have shared thus far has been widely discussed and is true for public blockchains, the recent spike in cryptocurrency values and network congestion as a result of scaling limitations of public blockchains have led to increased cost of transactions and there is a trade-off between how much you pay for your transaction to be processed quickly and how long you wait. Thus this early narrative of Bitcoin Blockchain and other public blockchain needs some refinement.
And, therefore, to really appreciate the approach to blockchain you would want to adopt for your organization or startup, you really need to learn about this in a meaningful way: the Blockchain and distributed ledger technologies and architectures, the Blockchain ecosystem, smart contracts, decentralized autonomous organizations, cryptocurrencies and tokens, business opportunities, disruptive threats, and brand new business models being creating. Understanding governance models and how to plan and implement the right Blockchain solution are critical to success.
Time Flies Faster in 'Blockchain space'
First, the rate at which blockchain activity is growing has fast outpaced what we saw at similar stages of the Internet. This is understandable, as most disruptive technologies are disrupting at a faster rate now. Of note though, is that not only is the activity accelerating exponentially in blockchain, blockchain has eclipsed most of other trending tech over the last few years (see Figure 1 below).
Figure 1 - Interest in blockchain eclipsing popular technologies and trends. Source: Google Trends, April 2017. RedMobile Consulting via Introduction to Enterprise Blockchain Training Course, TransformationWorx.com
Time Flies with Great Intensity
Second, the intensity with which new blockchain platforms, middleware, and applications are popping up is astounding. Think of a business, any business that has several parties involved in fulfilling a 'value-driven' transaction, where the end-to-end transaction is time-consuming or has costly intermediaries, or where transparency and trust are an issue ... and viola! There is a good chance that a blockchain-based solution is already out there. A solution waiting to disrupt or transform the 'old Internet'-based way of doing things.
As a side note, I am not saying there should be a blockchain-based solution or app for all of these use cases; in fact, I am pretty sure many use cases do not warrant a blockchain solution. But the fact is blockchain is a fast-evolving space and it has already evolved (some purists may argue that it has somewhat devolved) from a purely public, immutable, open, and shared ledger set up to one that has over 80 platforms offering several types of configurations and consensus mechanisms to suit the varying needs of different business applications.
Coming back to the intensity and growth rate of new blockchain disruptors in the market, figure 2 below demontrates that the disrupters of not-so-long ago, such as PayPal, Dropbox, Amazon Cloud drive, are now 'incumbents' ready to be disrupted.
Figure 2 - Blockchain disruptors are already starting to challenge those who disrupted not so long ago. Source - BTCS and updated for market cap on May 22, 2017 via introduction to Enterprise Blockchain Training Course, TransformationWorx.com
You Feel the Rush
Third, if you are in this space, you will feel the rush; it’s not like the gold-rush, it’s like the gold-rush on steroids. It doesn’t really matter how you look at it: the passion and drive of the people in this space will rub off on you like musk. The dramatic increase in cryptocurrency prices is unnerving, hitting a market cap of $60B in mid-May of 2017 growing to almost $111B in June of 2017 (see Figure 3), with some currencies going 8x to 50x over the last few months (Figure 4); The velocity at which capital is being raised through Initial Coin Offerings (ICOs) will make anyone in funding venture and capital markets take serious note (Figure 5).
Figure 3 - Total market cap of all cryptocurrencies and tokens, June 15, 2016 to June 15 2017. Source: coinmarketcap.com
Figure 4 - Ether Cryptocurrency had grown 12x from just January of 2017 to May 18, 2017, and then went on a tear over the weekend to approach US$160, resulting in 50x growth when Ether then hit is all time high of just over US$400 in June of 2017 from a starting value of $8 in January of 2017. Source: coinmarketcap.com
And I can write a book on this, but it would be out of date by the time I finished the first chapter.
Figure 5 - Raising Millions in Minutes, Source - Various via Blockchain Strategy and Applications Course, TransformationWorx.com
However, one thing that may surprise you is that while maturity of blockchain will likely take 5+ years, don’t kid yourself: many of us were saying it will take at least 10 to 15 years just a year ago.
Figure 6 - Timeline of Blockchain Adoption, Source: Accenture Research
These are exciting times, but they are also times to be very careful.
Your Business is Being Disrupted Already – Delay and be Disrupted
The reality is that most businesses operate under some form of existing regulation, are either themselves an intermediary, or are working within an eco-system of value chain partners that are intermediaries. So, when one hears of blockchain dis-intermediating the central authority or the middleman as its main goal, it raises some concerns as well as presenting new opportunities.
Organizations do realize that despite concerns, they cannot ignore blockchain, so many are starting to explore blockchain technology via a proof-of-concept. Before starting with a particular solution or selecting a vendor, however, it is critical that one assess the many considerations that come into play when selecting the best approach to exploring blockchain.
Disintermediation of parties alone provides for a limited view of the potential of blockchain. When one speaks with enterprise decision-makers, there are more questions about blockchain than answers, illustrating the challenge with blockchain when it comes to an enterprise: the fact is that there are a multitude of complex considerations:
How will implementing blockchain impact my business?
How will it impact the customer experience?
What is the impact on my partner eco-system including my supply chain?
How will I ensure privacy, security, and integrity?
What type of use cases makes sense for my business?
What platform is best suited for my needs, and does it scale?
How do I handle regulatory requirements?
Where do I start?
And the questions go on.
Figure 6 - Determining if you need Blockchain - Enterprise Blockchain Strategy Course, RedMobile Co via TransformationWorx.com
What Can You Do?
The answer, if there is one-answer, is that 'it depends'. And, as cliché as it sounds, it really is true. What this really means is that there is no one approach or secret recipe that would apply. Also, blockchain doesn’t make sense for everyone and for many use cases. One has to go through a process of understanding the business, application and user needs, and take into considerations external factors such as the regulatory environment, etc. before determining the approach.
An enterprise needs to keep multiple considerations in mind in order to assess the best technology, platform, solution, and overall approach to its blockchain implementation. These include:
- Identifying and managing risks of implementing blockchain;
- Determining the type of blockchain (i.e. permissioned, permission-less.) that best meets your application and organizational needs;
- Identifying the requirements to meet the needs of your application (i.e. scale, speed, cost, etc.);
- The skill-sets required to implement and maintain the blockchain solution;
- The strength of the particular blockchain platform and supporting vendor ecosystem for middleware and applications.
Additionally,
- Does business processes (“logic”) need to be embedded in the blockchain or not;
- The degree of desired privacy in the blockchain: this can help determine if a public blockchain is viable or another solution is better suited;
- Consensus mechanisms impact the degree of scalability, speed, finality, and impact the blockchain of choice;
- Immutability and what this means for governance in the blockchain – i.e., what happens if you need to change a rule in the future?;
- The impact of moving an existing application from a centralized to a decentralized or distributed system can be very challenging: it may in fact be better to start with a new opportunity or process that is not as disruptive to the core business.
Once all of these are determined, you can decide the platform solution that best meets your needs.
Dawood Khan is a Partner at RedMobile Consulting, and Founder of TransformationWorx Inc . RedMobile Consulting is an innovative consultancy that is a trusted advisor to the world's leading public and private sector organizations. TransformationWorx is a startup focused on organizational resource capability and professional development in high-demand areas of emerging tech. TransformationWorx has partnered with the CIO Association of Canada to offer the “CIO Certified Professional” designation training in Blockchain and Digital Transformation. The program has a leading faculty of industry experts and a cross-sector Board of Advisors representing C-level executives from leading organizations including the TMX Group (TSX, TSE), Scotiabank, P&G, and IBM.
Mr. Khan has been providing Management, Innovation and Technology consulting services and advising executives and business leaders for over 23 years. He is an Industry expert in business and digital transformation, and use of smart, emerging and legacy technologies to innovatively meet business goals. He has worked with clients on developing mainstream innovation focused strategies, plans, business cases, get funding for capital projects, and develop technology investment and ROI assessments for clients in several different sectors including municipalities, retail, financial institutions, public safety, and telecom carriers.
You can see read his insights and ongoing thought leadership pieces.