Aspire Thought Leadership! Ever wondered about blockchain for enterprise?. Find out more on what has changed with blockchain for enterprise in the cur
What is blockchain in the enterprise context, blockchain for enterprise is the technology to establish via radical openness, with no participant acting as a central authority. Enterprises must consider the meaning and impact of this radical openness. The manner in which the public blockchain operates is with relative simplicity by supporting a distributed master list of all (currency) transactions, which is a validated through a trust system supported by a consensus mechanism.
However, an enterprise cannot apply this model of the trustless system without changing the fundamental tenets of the blockchain. For one, the exchange of computing power (or electricity) to achieve transaction finality is not appealing due to cost and scaling concerns. For example, Bitcoin has an average transaction commit time of 10 minutes, which will not be acceptable for most enterprise blockchain use cases. Bitcoin’s capacity is around 200m transactions per year, but any midsize bank alone can exceed this limitation.
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| Blockchain For Enterprise |
Once blockchain tracks supply chain, provenance, data integrity, and identity, the number of transactions can explode. For example, many organizations must adhere to the Know Your Customer (KYC) process, which requires collection and verification of the identity of their clients. KYC records are updated periodically, and large organizations such as banks surpass the number of transactions to collect, verify, notarize the existence or authenticity of a record and its status. Once we factor in business logic, consumer protection, and privacy laws, the need for permission structures becomes obvious and makes public blockchains somewhat less appealing. More on blockchain for enterprise...
The blockchain for enterprises influences in several ways:
- Solves the fundamental problems of Time and Trust : These two constructs apply to inefficiencies and costs in various industries such as some financial services, supply chain, logistics, and healthcare to name a few. The Economist dubbed blockchain “the trust machine,” which allows “people who have no particular confidence in each other to collaborate without having to go through a neutral central authority.” The lack of a central source of trust impacts system integrity in three ways—the problem of double-spending, establishing the trustworthiness of other participants in a decentralized network, and establishing transaction veracity. Blockchain solves these three problems via a consensus protocol that addresses the Byzantine’s general problem, allowing all participants to possess a full copy of the ledger, and the use of cryptographic technologies for public and private keys used by participants to authenticate transactions. These three pillars of blockchain technology—decentralization, consensus, and cryptography, build the foundation for a tamper-proof ledger that enables trust without a central authority. Once trust has established, time benefits and benefits of blockchain follow. For example, IBM Global Financing is the world’s largest technology financier managing $44B in financial assets in 60 countries. With blockchain, they reduced the average dispute resolution time from 40+ days to less than 10 days, with a target of a few hours. Systemic trust binds the interaction between parties because the transactional record is stored as an immutable history on the blockchain it is this characteristic that lends itself to non-repudiation and incentivizes fair play. This trust system leads to reduced risks and the applied technology constructs such as cryptography, encryption, smart contract, and consensus create quality gates that reduce risk and add security to the transaction system. [IoT and Blockchain]
- Reduce friction : For centuries, global trade has been the single greatest creator of wealth in human history, and market friction is the most significant obstacle to wealth. Anything that adds inefficiencies or increases risk in business transactions is friction. Businesses have overcome many such frictions either by introducing institutions, instruments or technologies to reduce risk and achieve efficiencies. For example, digital signature technology solves the problem of impersonation and tampering in digital transactions. However, three frictions dominate—information, interaction, and innovation Blockchain as the distributed ledger technology has the promise to eliminate all three. Blockchain eliminates information frictions caused by imperfect data, inaccessibility of data, and risks to data, since all participants have access to the same information, and use of encryption technologies provide safeguards against nefarious access. Smart contracts in blockchain and distributed consensus eliminate interaction frictions of the cost of transaction verification or reliance on intermediaries. Blockchain promises to unlock innovation frictions by equipping enterprises to respond to digital disruption, provide a complete audit trail of transactions for regulatory purposes, and enabling established enterprises to be agile. According to CITI analysts, “Blockchain’s main benefit is reducing friction. There are many third-party services that ‘sell efficiency,’ and we believe these businesses are the most at risk if Blockchain takes off and removes the friction these companies profit from.” Another example is the use of digital money in developing markets as it removes customer friction and increases financial inclusion, such as the demonetization drive in India which has seen the rise of digital wallet providers.
- Increase privacy : In some blockchain implementations each item posted in the ledger is encrypted and permissions limit who can view the item. Members of a business network can only join upon granting of access by a Certificate Authority that provides both enrollment and transaction certificates. The network members can also sign each item put on to the ledger to identify who put the item on the ledger, creating greater visibility yet protecting privacy through the use of per-transaction certificates. Blockchains like Hyperledger may also provide encryption certificates to secure communication channels to off-chain systems.
- Fuel disruptive innovation : In the purest form, disruption is when a smaller company, focused on the lower and least profitable end of the market, rises towards a challenging competitor of incumbents in the profitable customer segments. For established enterprises, disruptive innovation occurs when it becomes necessary for companies to elaborate a strategy to manage a radical change in value creation. The business models for digital transformation have four dimensions to their strategy—use of technologies, changes in value creation, structural changes, and financial aspects. Blockchain affects the first two dimensions—since it is used to bypass intermediaries and reduce friction within systems. Thus, it has the potential to be disruptive. The World Economic Forum acknowledged blockchain as one of the top 10 emerging technologies in 2016. A 2016 Moody’s report found that many companies are assessing how the blockchain technology could affect their business and found that the technology had application of blockchain in sectors ranging from capital markets and trade finance, healthcare, and energy, to government taxation. [examples of disruptive technology]
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