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What's Blockchain Good For?What's Blockchain Good For?

Sure, blockchain is over-hyped. But don't let that distract you from its practical value.

Mitch Wagner

October 13, 2017

7 Min Read
What's Blockchain Good For?

Blockchain is literally a technology in search of a problem to solve.

Don't believe me? Just ask Gartner Inc. analyst Ray Valdes. At a recent presentation at Gartner Symposium, Valdes noted that "blockchain" is the number one search term on Gartner.com.

Common question: "What are use cases for a blockchain?"

People are fascinated by blockchain. They just don't know what to do with it.

My colleague Curt Franklin, who heads up our sister site, Security Now, shared Valdes's information with me, and it contains some fascinating insights into much-discussed and little-understood technology.

Blockchain today doesn't solve a business problem for enterprises, Valdes says. Instead, it's a public relations problem -- the CEO or board of directors wants the company to look cool, and the CIO gets his bosses off his back by conducting a "pointless POC" using blockchain.

The CIO then gets to say, "See, we did something cool? Let's put out a press release! Can you leave me alone now and let me get back to work?"

Figure 1: Photo by Toni Lozano [CC BY 2.0], via Wikimedia Commons Photo by Toni Lozano [CC BY 2.0], via Wikimedia Commons

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Some 90% of enterprise blockchain projects are centralized designs. They don't need blockchain technology to meet requirements. Indeed, enterprises can move more quickly, at lower cost, and with better quality by avoiding blockchain, Valdes says.

However, blockchain can in fact solve real business problems, Valdes says, such as supply chain integrity, fragmented and slow business processes, and data integrity of the system of record.

Blockchain is a distributed ledger, a database that records transactions. Copies of the whole blockchain -- every transaction on the network -- are stored on every node of the network, rather than in some centralized bank or government institution. Blockchain operates best in recording transactions among untrusted actors.

What's blockchain good for? Johannes Ernst, an indy software developer and technology consultant, tackles the question in a blog post this week. Ernst notes the tendency for "applying blockchain to a problem where using it has no advantage whatsoever," but concludes that blockchain nonetheless has value.

"Blockchain is for weakly connected communities preventing someone from cooking the books," he says.

That's close. But I think blockchain is more useful than that.

Blockchain isn't just valuable when someone might be "cooking the books" -- when someone might be a willfully dishonest actor attempting to perpetrate fraud. It could also be valuable in situations where it's difficult or expensive to keep an accurate record of transactions.

And that covers a lot of ground. It may well cover the majority of transactions, now handled by expensive, hierarchical database systems backed by even-more-expensive public institutions such as banks and governments.

It seems likely that blockchain will become the standard ledger system, a general-purpose database for many purposes, and a platform for running many applications (known in blockchain jargon as "smart contracts"). It could prove to have similar revolutionary value as the web did.

Consider some recent examples of blockchain activity.

Cisco Systems Inc. (Nasdaq: CSCO) and a group of big enterprises and small software developers announced an alliance last month to promote blockchain standards for the Internet of Things last month. One possible use case described by Cisco's Anoop Nannra: Autonomous vehicles might be able to pay for electricity on their own, using blockchain to store funds in a cryptocurrency wallet and to identify themselves as a noncompromised participant in an IoT network. (See Cisco & Partners See Blockchain Opportunities in IoT.)

Likewise, as network functions move from the cloud to the edge and back again, blockchains can help vouch for the integrity of environments where applications are running, he says.

Similarly, blockchain could be used to certify networks for distributed electrical transmission, and to sort out failed Wall Street transactions, Nannra says.

Next page: Loss of faith

Oracle Corp. (Nasdaq: ORCL) and SAP AG (NYSE/Frankfurt: SAP) launched separate and competing blockchain initiatives this month. SAP cited the example of defense contractor Moog, which is using blockchain to certify the quality of a part at each step of the manufacturing process. Oracle cited the finance industry as ripe for blockchain exploitation, while SAP is working with automotive, aerospace and defense, discrete manufacturing, utilities, and logistics networks providers, as well as other industries. (See Oracle, SAP Clash on Blockchain.)

IBM Corp. (NYSE: IBM), meanwhile, is using blockchain with partners to help secure the food supply chain and students' educational records. (See IBM, Partners Using Blockchain to Protect Food Supply and Sony, IBM Bringing Blockchain to Education.)

One vendor described to me a case where a manufacturing company was testing blockchain within its own business units. The company grew by acquisitions, and saw blockchain as a possible means of getting newly acquired companies talking to each other quickly.

What do all these examples have in common? You have large numbers of actors joining and dropping off of business networks on the fly. They all need to exchange information about transactions rapidly, and keep a trusted record. An expensive, slow-moving central authority just slows things down.

This describes many transaction networks we now think of as most appropriate for conventional databases backed by major institutions such as government agencies or banks. (Indeed, the food supply chain is thousands of years old...) Blockchain has the potential to disrupt all those business networks.

Two more things to keep in mind about blockchain:

First: Revolutionary technologies go through a cycle where evangelists see the tool as revolutionizing every aspect of society, wiping out evil, and almost literally turning human beings into angels.

We saw that with personal computing and the Internet in the 1980s through the early 2000s. Advocates predicted PCs and technology would put an end to dictatorship, and allow small businesses to take down billion-dollar incumbents. The Internet was going to end war, too, because once we all got to know one another, we'd get along better.

The reality we're seeing today is that dictatorships find the Internet to be a valuable tool for controlling speech and keeping an eye on citizens. Small businesses did indeed take down billion-dollar incumbents -- but then the small businesses become billion-dollar incumbents themselves, just as predatory as their predecessors. And rather than getting to know one another and living in peace, social media has proven a valuable tool for terrorists to coordinate activity and bring in recruits.

Now we're seeing the same hype cycle with blockchain. Some advocates say blockchain, and the cryptocurrencies enabled by blockchain, are going to make central banks and governments unnecessary, and enable us all to get along as equals in Atlas Shrugged utopia.

In reality, as with PCs and the Internet, we're not going to see blockchain changing human nature. It's going to amplify human nature.

Finally, author and analyst John Robb sees blockchain and cryptocurrencies as important as symptoms of something deeply wrong in society.

Robb's expertise is wide-ranging -- he's a former Forrester analyst, an author, and expert on Internet business, warfare and terrorism.

Robb sees blockchain and cryptocurrency as symptomatic of the fact that people have lost faith in pubic institutions. It's not just that blockchain can do some things better than governments and banks. It's that people just don't trust governments and banks anymore. These people don't see blockchain and cryptocurrency as better alternatives. They see those things as the only alternatives left.

— Mitch Wagner Follow me on Twitter Visit my LinkedIn profile Visit my blog Follow me on Facebook Editor, Enterprise Cloud News

About the Author(s)

Mitch Wagner

Executive Editor, Light Reading

San Diego-based Mitch Wagner is many things. As well as being "our guy" on the West Coast (of the US, not Scotland, or anywhere else with indifferent meteorological conditions), he's a husband (to his wife), dissatisfied Democrat, American (so he could be President some day), nonobservant Jew, and science fiction fan. Not necessarily in that order.

He's also one half of a special duo, along with Minnie, who is the co-habitor of the West Coast Bureau and Light Reading's primary chewer of sticks, though she is not the only one on the team who regularly munches on bark.

Wagner, whose previous positions include Editor-in-Chief at Internet Evolution and Executive Editor at InformationWeek, will be responsible for tracking and reporting on developments in Silicon Valley and other US West Coast hotspots of communications technology innovation.

Beats: Software-defined networking (SDN), network functions virtualization (NFV), IP networking, and colored foods (such as 'green rice').

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