Blockchain – When do you really need it?
Blockchain technology has been hyped for quite a while now. Don’t get us wrong — the technology definitely deserves a lot of attention and really makes life easier for some use-cases and industries. But sometimes, we have the impression that people just try to throw a blockchain on any problem and hope that magic will happen. This hype seems to be trending throughout all of the industries. So let’s clear things up here — what are the actual benefits of blockchain?
Experts on Blockchain in the Bundestag
In November, the German government held a public hearing regarding blockchain. Six industry experts were there to answer 30 detailed questions about the issue. With that structure in place, we felt sure that the result of this hearing would bring fascinating insights into what the German government thinks of this technology, as well as recommendations on how to help push Germany towards a more digital future.
Well, the result was a bit of a mixed bag.
Most of the experts emphasized the immense potential of blockchain technologies and how it presents a chance for Germany to catch up in the international digitalization race. They even predicted it may replace the internet as we know it. But one expert voiced a somewhat different opinion.
Blogger and author Jürgen Geuter pointed to continuing instability issues of the biggest blockchain application to date (Bitcoin) and how Forrester Research had declared an end to the hype around the technology. He also quoted the official statement from the Australian government, which said for every potential application of blockchain technologies a better option exists.
In his eyes, blockchain is a niche technology that has become a “magic word” for a digitalized Germany, and as such is slapped on everything even if there are better alternatives. He did state that blockchain does present some opportunities, but only if it improves in terms of stability, scalability and economic competitiveness.
The requests for further funding for blockchain research and the need for proper regulation and clear legislative frameworks were shared by almost all the experts in attendance. But a request for “sandboxes” (a place free of legal prosecution) for blockchain prototypes and development was also raised but criticized by Mr. Geuter.
Between these extreme positive and negative views… what is the real future for blockchain?
Honestly, we have faced similar experiences as Mr. Geuter.
We have seen people, who fall in love with the buzzword and are convinced that blockchain must be used in their project. In some cases, this could actually be the worst thing you could do.
So, we want to clear things up by answering the following questions
- What is a blockchain?
- What does it do well?
- Where does it fail or simply overcomplicate the task?
Understanding the Blockchain — What Does the Technology Offer?
In short, you can define blockchain technologies at their core as highly secured, decentralized databases.
Information in the database is secured by encryption, digital signatures, and consensus protocols that are distributed to and stored in every node of the network.
The benefits blockchain offers (or at least promises) are added transparency to data flows since the information history on the chain cannot be edited later on. Added security is provided thanks to sophisticated cryptographic measures. And eliminating a central authority allows autonomy of a system, while trust among participants is ensured with peer-to-peer mechanisms and ingrained authentication processes.
If you want a detailed overview of the definition and terms of blockchain technology, check out our Blockchain 101 Infosheet — it’s free.
When Do You Need a Blockchain?
To justify the use of a blockchain the following criteria for your project must be considered:
- You need a shared database.
- You need shared write access among participants.
- Users aren’t known or not trusted.
- You don’t want, or can’t have, a centralized 3rd party intermediary to regulate the system.
For example, if a network of like-minded individuals wanted to eliminate the central middleman of a platform like eBay, a blockchain could work. The scenario combines the criteria of multiple participants which don’t inherently build a community with shared interests but are all able to initiate transactions like buying or selling goods (write access). This is why they also need security; so that individual members cannot manipulate the system to gain unfair benefits.
But a hospital looking to digitize its patient data to reduce the number of physical documents is a whole different story. If they only want internal staff to have access to the information, they can ensure a level of trust among participants through contractual agreements. And since the hospital in itself is a centralized authority, a blockchain solution would be overkill or at least complicate maintenance and system modifications.
Was that too complex? Don’t worry, the following chart will guide you through the decision process:
Situations Where Blockchain Would Be Overkill (in Terms of Complexity)
Beyond the already-mentioned base criteria for a blockchain solution, the fact that data history stored within the system on the chain is inherently unchangeable — and cannot be deleted at a later stage — complicates the use of the technology for situations involving private or personal information. While there are solutions for this, they add to the complexity of the already complex blockchain technology.
Compared to a traditional database, many additional components like certification processes and consensus protocols must be configured for a blockchain-based solution. The additional setup and maintenance of the network structure may pose the additional challenge of complex distribution issues.
While these added layers do promise added security and integrity of the data, they only provide it if everything is configured correctly. A badly configured blockchain may be less safe than a regular database.
Lastly, the fact that no standardized legislation exists is not only relevant to the experts questioned by the German government but should also obviously be remembered when considering if a blockchain should solve your database problem.
The basic technology of a decentralized database with shared access is not the issue and can, therefore, be treated as any other database commonly used — just with enhanced security. The element of new contract types or business models, made possible through blockchains, is lacking clear legal grounds.
A Blockchain for Your Problem or Just Problems With Your Blockchain?
A well-executed blockchain isn’t super easy to set up properly and makes sense only for specific scenarios. However, it provides significant security benefits and transparent traceability and can enable autonomous systems which may be highly relevant for the growth of the Internet of Things (IoT). So for specific use-cases, it’s definitely the right technology to choose.
If your problem can be solved with a regular database, it may be more efficient to do so. But if the benefits of blockchain technology are relevant to your problem, understanding blockchain overall, as well as the different blockchain frameworks and their respective benefits would be a smart move. This is especially true if you want a faster implementation of approved legal frameworks, additional funding, and further improvements to blockchain technologies.
Which after the public hearing in the Bundestag will surely be soonish…Fingers crossed…
At this point, you might have come to the conclusion that a blockchain is the way to go for your use-case.
Don’t know where to start? Just talk to our experts to start now.