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Blockchain is probably one of the most discussed topics in the financial services arena from the integration of computers and software in the professional landscape. Whole conferences have been held on the topic, the articles are apparently written on an hourly basis and entire books are dedicated to helping readers better understand the topic. The simple truth is that no person, and no firm, has a monopoly of blockchain knowledge or knowledge. This situation creates a unique situation; while almost all organizations and the management team are interested in the blockchain, a great deal of uncertainty still hangs in space.
This article will not address any questions or ambiguities, but rather should serve as a conversation starter that can help you work through three key issues: 1) if blockchain as it is currently is worthy of your time and investment; 2) if so, what kind of blockchain solutions work best; and 3) what key considerations to keep in mind in the future.
Let's begin.
1. Is the blockchain right?
Blockchain received a great deal of discussion and investment after Bitcoin exploded on mainstream media coverage in 2017. Although these two topics are often discussed in the same conversation, they are not the same thing. In other words, blockchain is the technology and the solution that feeds the cryptocurrency space and inserts the "cryptography" in cryptocurrency. Organizations like IBM are aggressively moving to establish blockchain market leadership by offering platforms like Hyperledger for adoption, experimentation and training. But a difficult question must be asked: does the blockchain – as it is currently set up and operate – perform better or more efficient activities and processes than the current technological infrastructure?
Depending on the size, scope and available resources of your organization, that answer could be "not yet". Now, even if you're not planning to launch blockchain this year, or even next year, it's not a reason for you that your organization is not well informed on the subject. Even if your company is waiting for the blockchain to become more intuitive and scalable, your customers, partner organizations and potential customers expect there to be organizational knowledge on this subject.
2. What kind of blockchain should be implemented?
Not all blockchains are the same. Blockchain has been popularized among the media, including virtually in every accounting conference, but is often discussed as if it were a concept or an idea. This could not be further from the truth. There are literally hundreds of different blockchain options on the market, including some with industry-specific applications. There are three common blockchains that are used.
Public blockchains
These are decentralized and can be joined by any individual or organization with a computer or server capable of running the operating software. Although it is possible to install it for free, the process of approving and verifying entries can make this model less attractive for business applications, since it can take a relatively long time per transaction and each approval also requires considerable computing power. This is the model used by Bitcoin and is also associated with the work-proof approval methodology (PoW), which in turn caused a conversation about the amount of calculation and electrical power used to support the Bitcoin blockchain.
Private blockchains
These are where a large percentage of current investments and activities are taking place, such as Walmart's announcement of using blockchain for food safety issues. This is because in a private blockchain, there is an organizing company that, in addition to establishing the protocols and the underlying computer language, also acts as a mediator for any disputes and gatekeepers for those who can join the network. Although not a pure blockchain, since it is not entirely decentralized, this model seems more closely aligned to business use cases. A good way to summarize this concept would be to consider it a hybrid that combines some of the features of the blockchain with the (usually) more familiar concept of a cloud-based private network.
Blockchains of the consortium
They represent an idea in which different institutions gather resources to establish the blockchain and associated protocols and work together to outline approval and verification processes, which may make sense in the case of different organizations that have a large number of transactions between them. . For example, in a consortium setting, for all data to be added to the blockchain, a subset of nodes (members), like the larger three, must verify and approve this data. Each consortium is different, but is generally based on a certain subset of network members acting as members who approve blocks as they are created – effectively – using the entire network of network members
3. What other considerations should be taken into consideration?
After all the other aspects of the blockchain were discussed and addressed within the organization, and the decision was made to move forward with a blockchain option, the first part of the adoption is complete. The second part, which may not attract as many titles or cover, is to make sure that this decision is implemented effectively.
Clearly every organization is different, and different sectors will have different regulatory guidelines related to different aspects of customer data and information technology, but the following are points to consider, discuss and plan why the adoption of blockchain beginning:
- Who will be contracted to build the blockchain? Will it be done internally or (more likely) will an external company be used? In both cases, resources need to be allocated to ensure that, as this new technology is integrated, current controls are maintained or even strengthened.
- How will the blockchain connect to existing systems? Something that is often not discussed in the blockchain conversation is that blockchain is a technological system that will have to connect to current systems. For example, the daunting nature of this challenge could lead some companies to create a blockchain pilot program focused on a specific area of the company and organizational data at the outset.
- Who is paying for this? The simple reality is that the adoption, the implementation and the integration of blockchain is not a low cost proposal. Between developers, programmers, internal and external resources to test the system and staff needed to maintain the system, rates can increase rapidly. In addition to ensuring that funds are available, both for initial adoption and for future maintenance, it is necessary to hold a conversation to determine which functional areas of the enterprise will provide resources. Blockchain is a technological tool, but if it is piloted as a strategic experiment, should information technology be in favor of the whole project?
The blockchain space is very technical, fast and is changing on a continuous basis. That said, without having to dive too deeply into pest programming and technical jargon, there's no reason why an organization should remain uninformed. No single article is exhaustive, but I hope I have given you food for thought and questions to ask about this critical area in evolution.
To learn more, register for the next webinar, Blockchain – What You Need To Know.
