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Blockchain(s) are loosing sight of their initial purpose

There are several type of blockchain usage. Smart contracts are getting more and more attention, but they are against the blockchain philosophy itself...

Blockchain is not just a  technology. It is a vision of  relationship between  organizations and individuals. Are smart contracts jeopardizing this?

Concepts

Blockchain has been created to match a simple but impactful paradigm change. It is both a revolution, trying to get rid of trusted  third parties, and continuity with past peer-to-peer logic widely spread for multimedia content.

There are several types of blockchains and as with every innovation, the concept is becoming fuzzy, trying to expend its scope,  Foundation philosophy progressively get lost, reintroducing past challenges of trust and reliability.

Shared ledgers

A shared ledger is a repository of  information and corresponding audit trail,  not consolidated within one place but  secured by distributing it between  parties.

Based on a predefined harmonized  standard, it is potentially accessible by a  wide range of individuals or institutions.  Everybody following this standard can  participate and every single user is  uniquely identified.

Shared ledger illustration : stacking legos

Disruption example have rapidly spread.  Paradoxical questions have raised : 

  • investing in public blockchains, and possible associated novelty trust risk
  • or on private/consortium ones, with still risk and complexity of implementation. Defining a marketplace standard is as complex using blockchain than with any other technology.

However, it partly solves the problem of responsibility and trust in case of consortium.

Blockchain type 1 - Shared ledgers

Apart from crypto currencies and their derivatives, most common use cases linked to this type of approach are related sharing information. Trying to replace reference data systems (Master Data Management systems or distributed databases) is an example.

If distribution or consensus mechanisms are interesting, this raises a lot of currently open questions, for which a global strategy has to be defined at company and regulator level:

  • What about data privacy?
  • Who is proprietary of this information?
  • How to guarantee right to oblivion? Specifically with laws like GDPR)

For ease of implementation, this kind of services becomes easily available on cloud. One can, as an example, instantiate an hyperledger cluster on Azure. In this case, are we really close to the initial philosophy? Is it worth implementing a PBFT (Practical Byzantine Fault Tolerance, based on consensus between several nodes) knowing that everything sits in the same place?

Decentralized Autonomous Organization

Decentralized, several legos put together

Similar to previous use case except that every player has a limited number of actions and users can be strictly controlled.

DAO table explaining examples and phylosophy
Blockchain type 2 - DAO

Associated use cases are easy to implement. They do not require complex mining options and can easily rely on simple networks. They are limited to low business value though. Balance between pros and cons (end user understanding, ease of use…) is challenged.

Smart contracts

This use of blockchain is triggering a lot of expectations and enthusiasm on the market. Indeed, going beyond pure counters, it is a first step towards distributed and decentralized computing.

Smart contract tab explaining the philosophy
Blockchain type 3 - Smart contract

Every contract is fixed from start, rules are auto triggered if an initial condition met. This condition can be external. It must be external for greater value. And this is where the issue stands.

Indeed trust in blockchain can be achieved because of absence of any single point of failure. Having one external trigger is then reintroducing questions of integration and trust. Several models are emerging to solve this problem :

Solution 1 : Certification authority

Technically proving non alteration of data (trigger) between source and blockchain, it does not remove the need to define the trusted source of data. One example of this is Oraclize solution.

certification authority process to validate inputs to blockchain
Certification authority trust source, not content

Solution 2 : Trusting majority

Consensus based platforms are a first step towards distributed triggering. We do not talk here about PBFT consensus (another mechanism than mining to validate transactions) but about reaching consensus on data value.

Result of such platforms is highly conditioned by incentives given to participants to be honest. We can wonder to what extent critical business value use cases with huge amounts of money at stake could rely on such platforms.

Majority decides valid
Majority decides invalid

Integrating blockchains

In addition, except for completely autonomous organizations, integrating blockchain within a company’s value proposition of course means at some point integration with existing business processes and IT tools. At the very least it is required from reporting and compliance standpoints.

Integration with blockchains will then reinforce the need for extensible IT :  

  • identifying and managing secured peers to access them,
  • building new types of reference data management systems (to store keys and blocks indexes)
  • and eventually rethink processes, workflows and associated tools (e.g; : ChromaWay Esplix).

Blockchain concept is to keep track of all data, all transactions. Perfectly fit in theory for audit trail, new exploration tools and approaches will need to be put in place to make this technical opportunity a business reality. Using emerging blockchain exploration tools (e.g. Blockchain explorer) is a first but not complete answer.

Where to invest?

Competition for disruption in enterprises and within core business processes is launched but strategies and resulting solutions can be drastically opposed.

Taking the example of insurance distribution: on one hand, we standardize and simplify contracts and make them as much as possible automated. This is the purpose of smart contracts. On the other hand, we refine the contract, switch to hyper personalization with clauses assembled in unique contracts thanks to Artificial Intelligence.

Are these opposite? Defining the overall target value proposition is key to understand and build their complementarity.

Keep reading

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