Why Do I Need Blockchain If I Have A Database?
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Because there’s so much excitement about the potential of blockchain, there’s a risk that project planners will start throwing this emerging technology at problems that don’t fit. This article is meant to help you sort out the right business use cases for blockchain, from those for which your trusty database will do just fine.
First and foremost when considering blockchain, pick a project that needs “distributed” instead of centralized control of data, said Michael Onders, chief data officer of KeyBank, speaking at a panel discussion at the Blockland Cleveland event in December. “If you can solve the problem centrally, using a central database, you’re probably looking at the wrong problem,” Onders said.
For example, KeyBank would like to see the state of Ohio create a blockchain with so-called smart contracts to manage auto titles, to track and record vehicle-ownership changes more efficiently.
Doing so would require the state, banks, insurance companies, dealers, and other parties to take part in the blockchain, accessing, and providing data about vehicle ownership and insurance status changes. That’s the kind of distributed data control that makes a strong case for blockchain—and it’s a chance for Ohio to show its leadership in an emerging tech realm, showing the country this can be done. “We would be happy to participate in that,” said, Onders, speaking at the Blockland Cleveland conference late last year.
Sarabjeet (Jay) Chugh, a senior director of emerging technology products at Oracle, likewise cautions enterprises against starting with the goal of finding a use case for blockchain.
“Let’s not start with ‘I want to use blockchain,’” Chugh says. “That may lead you to the wrong answer. You should have a problem to solve and then you should say, ‘What is the right mechanism to solve it?’ It could be a relational database, it could be a distributed database, or it could be blockchain.”
3 Questions to Vet Your Blockchain Project
How do you decide if blockchain fits your project? Generally, blockchain can help in situations where multiple parties need to maintain shared information, and where those parties may not completely trust each other. Or, to put this in a gentler way, those parties work together but don’t have completely aligned interests—for example, manufacturers, shippers, and buyers tracking goods along a supply chain, where some parties might have an incentive to fudge on when things were delivered—or, worst case, swap in counterfeit goods.
Blockchain may fit when you also don’t want to rely on one central party to store and validate transaction data, and you want a shared data source that can’t be easily altered or written over by any one participant without detection—an immutable ledger, in blockchain parlance. Multiple parties join to form a blockchain network that allows them to share blockchain information among themselves. When data is updated—say, a delivery or change to an auto title is made—that change is added to the ledger as a new block and verified by parties involved through a consensus mechanism. Everyone on the network can see the changes. Think of an enterprise blockchain as executing transactions that track assets as they change hands among organizations—assets that can be tangible, such as physical goods or a contract document, or intangible, such as digital use rights.
Once you have a broad idea of the problem you think might benefit from blockchain, Chugh recommends asking these three questions to decide if a blockchain or database makes the most sense. The “yes” answers point you to a blockchain:
Do multiple parties need to access and make changes to the shared, single source of truth data? For instance, do multiple people need to update a shipment log or make changes to a contract document? Yes? This speaks to the “distributed” idea noted earlier, though it could point you to blockchain or a distributed database.
Do you lack a single, always-on trusted third party who can mediate information disputes? Yes? Now blockchain could be the best answer. Unlike a distributed database, in which a central administrator manages the data and has ultimate control of what data gets posted, blockchain data is held by many parties, and new information is verified through an agreed-upon consensus mechanism, rather than through a central administrator. There are many reasons you might not want to rely on a single, centralized party to handle data: concerns about delays, high fees, or that a single point of control is at risk of hacking or manipulation.
Are there parties on the blockchain who aren’t completely trusted? Perhaps there are people whose interests might not be aligned with each other’s—or who might not even be known to each other. Yes? Then again blockchain could be your answer. Blockchain doesn’t depend on trust, of either a central administrator to safeguard data or the people writing to the data source.
Once you’ve decided a blockchain is the right option, there’s a fourth question:
- Do you want to limit who can access the blockchain? Yes? Then you probably want a permissioned blockchain, whereby multiple organizations join to form a consortium with a founding organization that initially sets up the process of joining the blockchain platform. Unlike a centralized database, though, the leader doesn’t control the data source. In fact, each member can create its own blockchain instance, and the leader just establishes the process for joining them. Parties can add data—subject to verification via the consensus rules—but they can’t remove data, not even the founding organization.
Is the Problem Worth the Effort?
One final, more commercially driven question to consider before deciding whether to use blockchain: Is the problem significant enough that a fix will result in a better bottom line?
“If it’s only going to increase your results 2%, let’s go to the next department in your organization that might be in need of blockchain,” said Kelly LeValley Hunt, an advisor and investor in blockchain companies, on that same panel at Blockland Cleveland. Sure, you’re probably doing a proof of concept for your first blockchain effort, but if the technology does what you hope, you want to apply it to a problem that your company really wants to address, where it’s worth investing in and scaling up an emerging technology.
Among those vital potential use cases:
Pharmaceutical supply chains: There, blockchain could help multiple parties to better verify precisely which drug lots were transferred, at what time at each point of handoff, in an effort to combat counterfeit drugs entering the market. The same concept can be applied to a host of supply chain tracking, from assuring organic ingredients are going into food products to tracking conflict minerals from mining through processing.
Franchise businesses: When franchisees and franchisors share documents related to orders and invoices, having the transparency of a blockchain can improve efficiency and trust.
Peer-to-peer mortgage lending: One challenge that keeps peer-to-peer lending from being used for mortgages is sharing all the personal financial information lenders would want to make a mortgage decision. Blockchain could let a borrower share that information with a peer-lending group.
Know your vendors: Your vendors could be required to show that they’re in compliance with industry regulations and credentials, verified via blockchain by their issuers.
Tokenization: A number of loyalty programs are exploring blockchain to provide a common standard of exchange—a token—that could let individuals pool airline miles, hotel points, grocery store rewards, and so on, in order to cash in benefits on other goods. Smart contracts on a blockchain could provide that standard of exchange to say how many miles, for example, make a token. Tokenization can be applied to a wide range of use cases, from securities to digital asset trading.
This range of use cases points to why, as leaders think about where blockchain might help their businesses, they need to think beyond projects with short-term returns, said Alex Tapscott, an author and founder of the Blockchain Research Institute, during his keynote at Blockland Cleveland.
“If you think only about how you can save costs in your business today,” Tapscott said, “you’re going to miss out on how the technology might change your business in the future.”
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