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Executive’s guide to implementing blockchain technology

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Video: Blockchain in 60 seconds

Blockchains are one of the most important technologies to emerge in recent years, with many experts believing they will change our world in the next two decades as much as the internet has over the last two.

Why it matters

“The key differentiator between a database and blockchain is that a database is managed and controlled by someone,” says Eric Piscini, principal of financial services technology at Deloitte. “A blockchain doesn’t need to be managed by someone, so you don’t have to trust someone to run the platform. It’s run by everyone at the same time. That’s a shift in business models.”

Eventually, blockchains could give rise to a number of peer-to-peer networks not run by any centralized parties that enable the creation and transfer of money or other assets. For instance, the technology could be used to create an Airbnb-like network without the company Airbnb. When combined with the Internet of Things (IoT), it could create an Uber-like program without Uber. Such peer-to-peer networks are often referred to as distributed autonomous organizations (DAOs), and someday, they could transform our whole conception of companies.

Gartner projects that blockchain will result in $176 billion in added business value by 2025, and $3.1 trillion by 2030.

Additional resources

IT leader’s guide to the blockchain (TechProResearch)Video: What blockchain means to the enterprise (TechRepublic)Five big myths about the Bitcoin blockchain (TechRepublic)

How it works

Not every blockchain works the same way. For example, they can differ in their consensus mechanisms, which are the rules by which the technology will update the ledger. But broadly, a blockchain is a ledger on which new transactions are recorded in blocks, with each block identified by a cryptographic hash of that data. The same hash will always result from that data, but it is impossible to re-create the data from the hash. Similarly, if even the smallest detail of that transaction data is changed, it will create a wildly different hash, and since the hash of each block is included as a data point in the next block, subsequent blocks would also end up with different hashes. This is what makes the ledger tamper-proof. Finally, security also comes from the fact that multiple computers called nodes store the blockchain, and so to change the ledger, one would need to gain control of at least 50 percent of the computing power in order to change the record — a difficult feat especially for a public blockchain such as bitcoin’s.

Additional resources

How it works: Blockchain explained in 500 words (ZDNet)Video: Blockchain … in less than two minutes (TechRepublic)Accenture announces creation of an editable blockchain but Bitcoin users need not worry (TechRepublic)

Why it’s disruptive

A common saying is that blockchain technology will do what the internet did to media — disrupt — but to sectors such as financial services, law, and other industries offering trust as a service.

Business opportunities

Though some executives might fear software replacing their role or their company’s, even email hasn’t killed snail mail. Though the technology does promise to change existing marketshare, Piscini says companies can avoid becoming obsolete by seizing upon new opportunities. “If companies provide incremental services, if they provide you the ability to dispute transactions, to do some analytics on top of that platform — incremental value that you don’t have today — that’s how they’re going to survive.” In fact, blockchain technology will enable companies to offer services that previously were impossible without it. Gartner predicts that by 2022, at least one new business based on blockchain technology will be worth $10 billion.

Blockchain technology makes possible new offerings in industries as diverse as financial services, health care, supply chain, oil and gas, retail, music, advertising, publishing, media, energy, government, and many others. In finance alone, it can be used for making international payments, trading stocks, bonds, and commodities, and providing an audit trail for regulators. It can create new forms of assets and make it possible to trade existing illiquid ones, such as mobile minutes, energy credits and frequent flyer miles. It can be used to track provenance, stamping out fraud and counterfeiting in areas such as luxury goods, fine art, pharmaceuticals, food, and government documents. It makes it possible for musicians, writers, and other artists to embed royalty payments into their MP3s, ebooks, and other creations to pay themselves every time their work is bought or resold. It can be used by publishers to run publications funded not by ads but by micropayments issued by readers’ browsers. It can enable people to manage their identity and the privacy of their data instead of having to rely on centralized entities such as Google, Facebook, or Twitter. It can show an individual voter that their vote was counted correctly and the entire electorate that no votes were fraudulent or counted more than once. And those are just some examples.

Gartner projects that devices or things using blockchains to transact will comprise 30 percent of the global customer base by 2030. One of the more popular futuristic scenarios is that we may someday tell our self-driving car that we’re in a rush and to send a micropayment to any car that is willing to be passed on the highway. The money will be transmitted via a combination of blockchain and IoT technologies.

Additional resources

Webcast: Revolutionizing IT with blockchain and cloud computing (TechRepublic)IBM, Northern Trust partner on financial security blockchain tech (ZDNet)IBM Watson, FDA to use blockchain tech to build secure exchange for health data (TechRepublic)Chronicled releases open registry for IoT built on blockchain (TechRepublic)Commonwealth Bank and Wells Fargo claim first interbank blockchain trade (ZDNet)Microsoft collaborates on blockchain-based ID system (ZDNet)

Vendors

A host of platform vendors to enterprise have already cropped up. Although the space has more than a dozen players, the most active groups (two are not companies), in alphabetical order, are:

Chain, which, together with Nasdaq, created the first private blockchain in production (though on a small scale) — Nasdaq Linq, which is used in managing shares in private companies. It also has partnerships with Visa, Citi, and Capital One.Ethereum, a P2P network that’s public like bitcoin but focused on smart contracts, not payments, and that has an enterprise initiative, the Enterprise Ethereum Alliance (EEA).Hyperledger, the open-source effort run by the Linux Foundation and closely affiliated with IBM which counts companies as diverse as Airbus, American Express, Daimler, and Intel as members.R3, a consortium of financial institutions whose distributed ledger offering, Corda, is not structured as a blockchain, meaning that transaction data is not published to the ledger of every participant in the network. Instead transactions are published only on the ledgers of the relevant parties.

Others include Axoni, Digital Asset Holdings, Monax, Ripple, SETL, Symbiont, and T0 (T-zero, as in settlement in zero days).

Businesses helping firms implement blockchain solutions include Accenture, CapGemini, Chainsmiths, Deloitte, Ernst and Young, IBM Global Services, Infosys, KMPG, PwC, Polaris, Tata Consultancy Services, Wipro, and others. IBM and Microsoft are leaders in cloud blockchain services.

Additional Resources

The Hyperledger Project is growing like gangbusters (ZDNet)Photos: 10 innovative blockchain startups poised to revolutionize business (TechRepublic)Microsoft delivers version 1 of ‘Bletchley’ Azure blockchain as a service middleware (ZDNet)Microsoft blockchain-as-a-service gains more momentum with banking partnership (TechRepublic)

Career options

Numerous executives have noted a talent shortage, and because financial services firms are hiring in the space, blockchain developers command high salaries. Venture capitalist William Mougayar, author of “The Business Blockchain: Promise, Practice and Application of the Next Internet Technology,” estimates blockchain developers to number 30,000 to 35,000 among an estimated 18 million worldwide in 2014.

The roles needed in the space include blockchain developers, technology architects and business architects, and specialties should include risk management, security, cryptography, business process management, product strategy, and analytics. Technology architects construct the blockchain so that it’s appropriate for the business needs, secure, and does what it intends to do. As the technology develops further and smart contracts become a reality, staff will also be needed to combine IoT and artificial intelligence with blockchain. Less blockchain-focused roles are also necessary to ensure the solution can be integrated with, say, accounting.

“People underestimate the complexity of replacing a transaction platform with a blockchain solution,” Piscini says. “It may be working in the lab, but when you work from the lab into production, you have a lot of challenges.”