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Together with machine learning and AI, another great buzz technology today is blockchain. The idea of a distributed data chain was formed for the first time in 2009, when someone or a group of organisms using the name Satoshi Nakamoto launched bitcoins and a blockchain network at the base of cryptocurrency.
The technologies and use of blockchain have expanded since then, but even seemingly generic blockchain platforms like Ethereum are linked to the concept of passing digital tokens as a form of virtual currency. The problem with this approach is that it adds an unnecessary level of blockchain complexity to many business applications that do not need a currency.
I will go into more detail on why. But let's start with a generic description of a blockchain. The simplest definition is in the name: it is a chain of transaction blocks. In addition to the ability to deploy blocks on a peer-to-peer network, blockchains are not significantly different conceptually than old flat file systems that require sequential reads of records.
The power of a distributed blockchain system is that it is more visible to all parties than a database controlled by a party in a transaction. The challenge is that a more open network requires more stringent security measures than local databases and behind the firewall. This means that encryption and other security protections are still needed, even if transactions processed on a blockchain network do not directly involve money.
Transaction books: the heart of the blockchain
The real key, however, is that a blockchain creates a distributed ledger. It's a story of all transactions, just like an accounting ledger is for financial payments. And there are some noticeable differences in how the ledger can be configured for blockchain business applications to avoid bogging down their performance.
A part of the original version of the blockchain cryptocurrency is something called consent. Since cryptocurrency transactions are conducted in open on the Internet, there must be a way to verify that the data in a blockchain has not been corrupted. Consensus is the idea that most servers in a network approve each transaction before being executed, so a single actor is less likely to be able to damage data.
However, in a more restricted corporate blockchain setting, not all Internet users can access the distributed ledger; only trusted players in a controlled group can do it. This means that consensus on approvals that change ledgers can be ignored, or at least reduced in scope. In the business world, with limitations on those who subscribe to private networks of blockchain, the companies that set them can concentrate more on managing permissions rather than on consent, thus facilitating the complexity of the blockchain.
Another key aspect of the cryptocurrency blockchain technology is the intelligent contract, which is a program that runs on a blockchain network and defines the parameters for an agreement between the parties in a transaction. For example, a cryptocurrency payment will not be forwarded unless the default rules set out in an intelligent contract are met.
This is a useful element for many applications, in particular the trading of tokens that have monetary or other currencies. But it is another form of blockchain complexity that is often not necessary for the types of transactions processed in business applications.
Take for example supply chain management. In conventional IT infrastructures, a manufacturer uses supply chain software to track all raw materials fed into the production process. Every company in the supply chain has its own systems, following separately the same things as the manufacturer. Reconciliation of differences between data across multiple systems can take a long time and the opening of databases to business partners is complex.
Blockchain creates a system for everyone to share
All this can be done more easily in a corporate blockchain environment. The manufacturer and its suppliers in the supply chain share the same distributed ledger, which means that everyone sees the same thing. There's only one system, so there's a lot less confusion and there's no need to reconcile transactions. Furthermore, the processing overhead required by a complete consent or by smart contracts is not necessary.
An SAP pilot project based on the MultiChain open source platform provides an example. The supplier worked with 15 companies in the pharmaceutical industry to implement a blockchain network used to track and track prescription drugs as part of efforts to comply with upcoming regulations under the federal drug supply chain safety law.
"MultiChain is the one that worked best," said Gil Perez, senior vice president of products and innovations and responsible for digital customer initiatives at SAP. "Smart contracts were not necessary to provide the functionality and performance required by member companies."
Cryptocurrency can go anywhere and be exchanged by anyone; which creates performance problems for blockchain networks. On the other hand, as the SAP project shows, business users can use key technology components more efficiently to support business applications in controlled environments. It is time to break the link between blockchain and cryptocurrency in the corporate mindset and reduce the complexity of the blockchain that business users face.
