January 31, 2020
Table of contents
Head of Blockchain Competency Center
Blockchain adoption is finally shifting from mere curiosity and countless R&D efforts toward creating practical business opportunities. Although fintech indisputably remains the global blockchain leader, more use cases across a variety of industries continue to appear. According to Deloitte’s 2019 Global Blockchain Survey, 53% of companies considered blockchain their top priority in 2019.
However, despite this widespread enthusiasm, the technology is still on its thorny path to maturity. Too many blockchain projects are unable to move beyond the ‘proof of concept’ phase or fail shortly after the start. According to the same Deloitte study, there is an 11% decline in the number of projects that reached deployment compared to the previous year. These conflicting statistics show that the topic of blockchain technology implementation is relevant as never before.
Although a clearly defined strategy is an obvious requirement for the success of any business project, blockchain is a completely different beast that requires an unconventional approach. Underlying this approach is a thorough understanding of the technology by everyone involved in blockchain development.
To proceed further, it’s important to understand the differences between these three blockchain types:
is a large distributed network, the main attribute of which is decentralization. There is no central authority controlling the membership, which means that anyone can join the network at any time. Examples include Bitcoin and Ethereum.
is a large network where one central authority (a single entity or a group of them) has the right to authorize a limited number of readers* and writers*. This type is useful when sharing sensitive information within a group of entities is required.
*Writer is the entity that extends the blockchain by adding a state to the database.
*Reader is the entity that doesn’t extend the blockchain but can participate in transaction creation, analyze and audit the network.
allows access to a small group of trusted entities that need a shared database. This blockchain type is often used within one large organization where only selected entities can participate. Everything from authorization to accessibility is controlled by one company.
Before diving into the nuances of blockchain implementation, organizations need to be sure if blockchain is the only rational solution to their current issues. The time when enterprises need to look beyond the blockchain hype and consider the technology from a business standpoint has finally come.
Enterprises need to answer these five questions to see if blockchain is applicable:
1. Do we need to store data?
In essence, blockchain is a data storage method. If an organization can operate without a database, then blockchain will be of no value.
2. Are there multiple writers?
If there is only one entity that can provide access to the network, blockchain will be useless. In this case, a simple database would allow for better throughput while providing the same level of security.
3. Is there a dependence on a trusted third party?
If all the network participants agree on one trusted third party and this party is available at all times, then there is no need in deploying a blockchain.
4. Are all writers known?
If all writers are known and trusted, then it’s better to use a traditional shared database, as there are no internal security threats. On the contrary, Bitcoin uses a permissionless blockchain because writers don’t know each other.
5. Are all writers trusted?
If writers don’t trust each other, there is a potential value in implementing either public or private permissioned blockchain, depending on the use case.
To summarize, blockchain might be a viable solution if:
However, the aforementioned points cover only the very basics. Below are some additional issues to consider.
Currently, public blockchains can’t handle more than 14 transactions per second (TPS). For example, the Bitcoin network achieves the speed of only 7 TPS. In some cases, for example in the banking industry, a much higher TPS rate is required. At the same time, permissioned blockchains like IBM’s Hyperledger Fabric are capable of achieving 20,000 TPS.
In some cases, implementation becomes difficult due to blockchain limitations in terms of industry-specific legislation. For example, blockchain implementation in banking often implies autonomous clearance of assets, which may not comply with regulatory requirements.
When it comes to blockchain implementation in the European Union, the General Data Protection Regulation (GDPR) must also be considered, among other regulations. One of the GDPR’s recently enacted provisions called “the right to be forgotten” presents a significant challenge for blockchain adoption in the EU since it contradicts the key blockchain principle of data immutability.
When the applicability of blockchain is ensured and the general strategy is defined, it’s time to design the architecture. There are two ways to go about the selection of the blockchain platform:
To put it short, there is a 99% likelihood that the company would need to do it only if it wants to issue cryptocurrency along with wallets implementation using blockchain technology. Developing a new blockchain platform means taking full control over its every function and tailoring the framework exactly to one’s business needs. However, in the absolute majority of cases the ROI won’t be sufficient.
This is a more common and efficient way to leverage blockchain advantages. Most notable examples of such platforms are Ethereum, Hyperledger Fabric, R3 Corda, Quorum, OpenChain, and Stellar. Choosing the right platform could be the subject of a whole another article, but to pick one that is tailored to blockchain use cases of their liking, organizations need to be prepared to answer at least these four questions:
After the decision on the use case and the platform, the real journey of blockchain implementation starts with developing the Proof of Concept (PoC). The main goal is to design a qualified solution to prove its feasibility under conditions that are similar to the real environment. In many cases, turning to a BaaS provider with a significant experience for PoC development is an effective way to cut costs and accelerate time-to-market. This is an essential phase where the idea behind your blockchain needs to prove both viable and sustainable.
The PoC development starts with identifying a minimum viable product (MVP) and a minimum viable ecosystem (MVE).
When it comes to the MVP, the general mindset should be ‘fail fast and learn’. At this point of development, failure is as valuable as success. In general, the MVP should identify if the solution provides sufficient value to its users and help gather feedback to readjust further development.
Many industry experts argue that the MVE is what defines project success. Considering that blockchain is a ‘team sport’, there is every reason to think in this way. In many cases, the level of trust and collaboration between different organizations working in the same industry directly corresponds to the proliferation of blockchain. Blockchain consortiums help reduce the risks and find collective solutions to the challenges in their industries.
However, it’s important to thoroughly weigh the pros and cons of any such alliance, since competing organizations may have non-aligned goals and priorities. To mitigate these risks, prior to establishing any sort of collaboration, organizations should openly discuss all the core issues concerning common goals and the role of each member, as well as agree on a common approach to blockchain deployment.
In most cases, it is advisable to proceed by involving an independent third party to foster understanding between the blockchain consortium members.
There is another significant reason why an independent third party can make a positive impact. According to the Accelerating Blockchain study by PwC, 53% of blockchain projects are being developed by in-house teams. While this development vector is easily justifiable, internal teams tend to chase smaller innovation-driven objectives rather than focusing on larger business goals. Assistance coming from independent providers could help decision makers to have confidence in the end solution and move to production with fewer risks.
To put things in perspective, let the following statistic sink in: research by Gartner called Blockchain Trials Across Industries Show a Market in Transition reveals that less than 4% of companies are able to move from PoC to production deployment. While there is a multitude of reasons leading to such a devastating statistic, a clearly defined strategy is what often stands between failure and success.
Organizations should consider these four steps to avoid failure in blockchain implementation:
First of all, organizations need to evaluate their blockchain PoCs. Consortium members and stakeholders should be the ones to review the PoC results and propose a well-measured and improved solution. Although it seems obvious, this is an essential point that will influence the end-product quality. For better results, the involvement of third-party consultants is highly advisable.
One of the most overlooked challenges of moving from PoC to production is stakeholder buy-in. Due to the blockchain’s novelty and complexity, stakeholders often have a poor understanding of the technology, which makes them miss out on its potential benefits. Therefore, a close collaboration between project leads, developers and stakeholders is vital for successful blockchain implementation. Moreover, coming from diverse disciplines, stakeholders can usually look at the project from the business perspective and see a bigger picture, the quality which ambitious blockchain implementors often lack.
Once everyone including stakeholders and consortium members are reassured in the viability of the technology, it’s time to move from the MVP to the enterprise solution. The outcome of this phase should be a detailed scalability plan that addresses everything from financing to marketing to legal issues. It’s also essential to define the list of technical and legal requirements for new participants entering the consortium.
This is a never-ending phase of continuous improvement and support. In most cases, the main focus is on updating legal requirements for onboarding new members, ensuring compliance with the policies, and working on minor technical improvements. Ideally, a consortium should have a dedicated team responsible for continuous improvement cycles.
First and foremost, organizations need to start treating blockchain like any other business opportunity. Most companies can’t move past the PoC stage because blockchain can’t bring any tangible business benefits in their particular case. At the same time, although we have finally moved beyond the hype, some companies still have a vague understanding of the technology. This leads to unrealistic expectations and, ultimately, to a project failure.
While the promise of the first-mover advantage keeps sparking up new blockchain use cases across industries, the Building Value with Blockchain Technology paper by the World Economic Forum and Accenture reveals that companies realize only a 10% ROI versus their expected average return of 24%. This shows that thorough business analysis still remains one of the most important pillars of successful technology adoption.
Another hurdle on the way to fail-safe blockchain implementation is companies’ struggle to agree on the same governance body and vision as their missions, goals and values may substantially differ. To overcome these challenges, organizations need to openly discuss these questions at the outset and be transparent about their goals and intentions.
What needs to be understood is that blockchain implies collaboration and cooperation. In many cases, direct competitors may reap exceptional benefits from participating in the same blockchain consortium. Blockchain is transformational because it requires a change in our mindset about sharing information. Paradoxically, this is simultaneously blockchain’s biggest value and barrier.
On the technical level, blockchain interoperability and scalability still present great challenges for the technology's widespread adoption. However, this is just a matter of time as the world’s brightest minds are actively working to solve these issues and possible solutions continue to appear.
Despite all the challenges of blockchain implementation, this technology is capable of bringing unparalleled business benefits. The era of blockchain hype is over, and it’s time for business leaders to take a more pragmatic approach. Its cornerstones are thorough research, technical proficiency, and collaboration.
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