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The Enterprise Leader’s Guide to Blockchain
If you’re a business or IT executive, however, I believe there’s a need to step back and look at this emerging and potentially disruptive technology both more holistically and strategically, with the goal of answering a single, essential question when
This article was originally published on Intellyx.com
Are you a blockchain true-believer or skeptic? Do you believe that it will be the next great disruptive technology — changing almost everything about, well, everything — or do you see it as just a bunch of hyped-up, scam-infested gobbledygook?
Blockchain has now entered the public consciousness. You will find journalists and pundits writing about it in major (and not so major) business and news publications everywhere. Everyone from business people to students is discussing it in bars and coffee houses in every corner of the world.
Those engaged in animated conversations about it range from crazy fanatics (this mostly applies to adherents of Bitcoin and the various alternate cryptocurrencies) to outspoken skeptics (you can mostly put our own Jason Bloomberg in this camp).
But most of us fall into the larger category spread over the broad middle between these two ends of the spectrum. For us, we’re just trying to cut through all of the static to understand what all the hubbub is about and, more importantly, the impact it may — or may not — have on our businesses and in our lives.
While Jason has covered blockchain extensively, both for Intellyx as well as in several Forbes articles, he has done so primarily in the context of the cryptocurrency craziness or the emerging blockchain startup sector.
If you’re a business or IT executive, however, I believe there’s a need to step back and look at this emerging and potentially disruptive technology both more holistically and strategically, with the goal of answering a single, essential question when it comes to blockchain in the enterprise context: so what?
What is ‘Blockchain’ Anyway? It’s Not as Clear as You Might Think.
The first challenge to understanding blockchain and its potential impact is that there isn’t even an agreed upon definition of what is or isn’t a blockchain. Adrianne Jeffries, in fact, recently devoted an entire article in The Verge, entitled Blockchain is Meaningless, to this problem.
She writes, “The idea of a blockchain, the cryptographically enhanced digital ledger that underpins Bitcoin and most cryptocurrencies, is now being used to describe everything from a system for inter-bank transactions to a new supply chain database for Walmart. The term has become so widespread that it’s quickly losing meaning.”
The biggest challenge, of course, is that savvy marketers are seizing on the buzziness of the term to market older technologies as blockchain to an eager and unsuspecting market. For enterprise strategists and buyers, it will be critical to look past the buzz to get to the heart of when and where blockchain may be useful in driving some form of competitive business value for the organization.
While I won’t attempt to choose the ‘right’ blockchain definition here, it may be helpful to ditch the blockchain term altogether and instead use the more generic and accurate, distributed ledger technology (DLT), as a way to center your thinking.
The essence of blockchain, after all, is that organizations can write data immutably and transparently to a shared and distributed ledger (although more on these characteristics in a bit), thereby enabling parties to create a decentralized, yet trusted exchange. (For the sake of continuity, I’m going to stick with blockchain in this article.)
However you decide to define blockchain or DLT, there is a broader mental shift that will be even more helpful.
You should separate the conceptualization of blockchain technology and the characteristics it imbues, from how startups may use blockchain to disrupt industries or create all-new business models. (Although if you want help evaluating these types of blockchain start-ups, check out Jason’s article, Seven Criteria for Evaluating a Blockchain Business.)
In the enterprise context, these startups and their hopeful ambitions are interesting, but only mildly instructive. Instead, you should be looking at the characteristics that are at the conceptual core of blockchain and examine how your organization might use them as a disruptive tool or how a competitor (or startup) may wield them as a disruptive weapon against you.
In this context, however, it is less about picking winners or losers, and more about seeing the big picture of possibilities, their underlying strengths and vulnerabilities, and the impact they may have on the nature of how enterprises function and go-to-market.
As the last wave of potentially disruptive technologies emerged, it was a failure of enterprise imagination that enabled, at least in part, the current wave of so-called digital disruption. This is your chance to avoid making the same mistake twice.
The Immutability and Permanence Fallacy
Before we go any further, however, I need to address a fallacy when it comes to blockchain: its immutability and permanence.
One of the reasons that Bitcoin fired up all of the crazy fanatics is that it promised an end to centralized control of currencies (and, in theory, everything). Two of the primary reasons that this decentralization could work is because of blockchain’s purported immutability and permanence — two of the very things that society needs to engender enough confidence and trust in a decentralized model.
The problem is that blockchain may not be quite as immutable or as permanent as its adherents claim.
Angela Walch, associate professor at St. Mary’s University School of Law and research fellow at the Centre for Blockchain Technologies at University College London, discussed the issue of immutability in a recent report published in the Review of Banking & Financial Law.
In this report, she states, “The first conceptual problem is that it is misleading to continue to state that ‘immutability is a characteristic of blockchain technology’ when the records created by both Bitcoin and Ethereum have each been changed at various times, and when they remain subject to 51 percent attacks.” (More on 51 percent attacks in a moment.)
She goes on to explain that there is nothing magical about the technology, and that real-world examples in public blockchains prove “at a minimum that it is problematic to describe blockchain technology as a whole as immutable, when at least some (and perhaps all?) blockchain records may be changed if the people operating the blockchain so choose.”
The net-net? While blockchain’s purported immutability is a powerful feature, business and IT leaders must approach it with eyes wide-open. Data in a blockchain is not somehow written onto a blockchain stone in the sky. It is just an architectural approach and algorithm based on consensus between ledgers that node operators can, under certain circumstances, overwrite or manipulate.
The Problem with Consensus
It is, in fact, blockchain’s consensus model that is both its greatest strength and weakness.
In a recent article in MIT’s Technology Review entitled, In blockchain we trust, authors Michael J. Casey and Paul Vigna, authors of The Truth Machine: The Blockchain and the Future of Everything, explain, “No single entity controls the ledger. Any of the computers on the network can make a change to the ledger, but only by following rules dictated by a ‘consensus protocol,’ a mathematical algorithm that requires a majority of the other computers on the network to agree with the change.”
It is these consensus protocols that provide blockchain’s purported immutability. But it also makes a network subject to the so-called 51% attack, in which a bad actor takes control of 51% of the nodes, ensuring automatic consensus for whatever change he or she may like.
Finally, the permanence attribute of DLT’s is also a bit of a misnomer. The permanence of the record is akin to the permanence of records written to a CD — they may be uneditable, but they are only as permanent as your ability to continually store and access them. With these burgeoning blockchain networks, their permanence is anything but guaranteed.
None of this discussion diminishes the underlying promise of blockchain. Its distributed nature and (mostly) immutable and permanent characteristics offer tremendous opportunities for organizations to reimagine entire business models and supply chains. But enterprise leaders should evaluate these applications of the technology with a cautious eye and not allow grandiose promises to seduce them into forgetting the truths about how technology works.
The Intellyx Take
The foundational transformation that will occur with blockchain is the transformation of trust. Or, more specifically, the nature of how trust is created and sustained.
It is the conveyance of trust that intermediaries have provided in the economy. Absent intermediaries, it is the verification of transactions, absent trust, that has consumed vast amounts of enterprise resources. This paradigm is what blockchain may change.
As an enterprise leader, therefore, you must look at the application of blockchain technology through this lens, and with its characteristics of immutability, permanence, security, and decentralization in mind.
With that perspective, it will be easy to skip over most of the muck about blockchain in the press and get down to the nitty-gritty of examining where the risks and opportunities will lie in the future. Moreover, you will be prepared to seize the opportunities and protect against the risks — if and when this foundational technology finally changes everything.
Copyright © Intellyx LLC. Intellyx publishes the Agile Digital Transformation Roadmap poster, advises companies on their digital transformation initiatives, and helps vendors communicate their agility stories. As of the time of writing, none of the organizations mentioned in this article are Intellyx customers. Image credit: Tobias Begemann.