Blockchain Expert Lays Out its Tech & Business Implications for the Channel
As a whole, the IT the channel has had a tempestuous relationship with emerging technologies: on one hand they hold the promise of rich margins and quick sales opportunities, but they also come with unexpected complexities and skeptical buyers.
And in many instances, the clients that make up the bulk of the channel’s customer base aren’t necessarily looking to be on the cutting edge. They want their office and business functions covered and aren’t looking to invest in tech that may or may not pay off in the long run.
But as the nature of business IT changes to adjust to the new line of business (LOB) buyer paradigm, partners may need to think ahead to practical applications emerging tech may offer in the (not too distant) future.
So says Cody Marx Bailey, a programmer who’s betting big on blockchain technology. Bailey leads a fledgling hedge fund that deals exclusively in crypto-assets and devotes himself to educating programmers, investors and other interested parties on the nuances and use cases of blockchain.
Though much of the world sees blockchain technology as a synonym for cryptocurrency, Bailey says focusing solely on the fintech aspect of the technology is a big mistake. If you aren’t thinking of ways to apply blockchain to business functions and operations, you’re missing a big opportunity.
The implications for IT professionals can broadly fall into two categories, which are right up the channel’s alley: technology and business outcomes.
Technological implications of blockchain
While the minutiae of blockchain technology lie in incredibly complex algorithms, the concept is easy to grasp. In essence, blockchain is a global ‘distributed ledger’ that resides in a database running on thousands of computing devices. This ledger provides an immutable record of transactions that is kept in check by code running on devices around the world.
From a tech perspective, it’s helpful to look at the blockchain as essentially a vast database that is duplicated, shared and continually reconciled across a network of potentially millions of nodes. No one entity ‘owns’ the blockchain. Because the database isn’t centralized, all of the information on it is accessible to anyone tapped into it.
At its core, blockchain may best be compared to the internet, says Bailey.
“While individual servers and sites are managed by individual entities, no one ‘owns’ the web as a whole. It’s decentralized information residing on blocks of information across the entire network. Because it’s distributed across all devices tapped into the network, there’s no single point of failure for the net.”
So it is with blockchain. When a computing device joins the blockchain network, a copy of the code is automatically downloaded. Every client on the network shares administrative power, so the database is decentralized and distributed among each node.
“Using some clever game theory and cryptographic principles, this works wonderfully.”
One of the biggest IT implications of a decentralized network lies in its innate higher level of security. There’s no centralized point of vulnerability for hackers to exploit, and encryption technology is built into the code. Each node connected to the blockchain generates a public and private key pair that’s akin to an IP address and publicly associates users with their blockchain activity.
While the blockchain database itself is incorruptible, each user still maintains control of their personal account that contains the data they wish stored on the network. As long as your private key is responsibly safeguarded (i.e. exists on paper or HSM not stored someplace accessible to hackers), digital assets are protected.
No magic bullet
For all its potential, there are still serious roadblocks for widespread enterprise adoption of blockchain. The database itself may be immutable, but cyberattacks are growing more sophisticated every day. If scientists can embed malware into human DNA, we should expect hackers to soon figure out a way to use the blockchain encryption itself to deny users access to their assets, creating a perfect storm for ransomware.
And while large file transfers or streaming services may be speedier due to the distributed compute process, there’s a flip side to that potentiality for enterprise users. Because all nodes are created equal, each one performs the same compute processes as all the rest. The cost implications to the sheer amount of hardware and power it would take to operate blockchain for large-scale IT functions are today prohibitive.
There are clear problems for system integrators, too. While the data on the blockchain is highly secure, each organization has to integrate its internal IT infrastructure so that each individual process finds its natural place within the blockchain network. The headaches associated with such complexity are mind-boggling, though Bailey points out the same can be said for any new disruptive paradigm shift.
Channel partners and IT administrators should also take caution not to confuse the blockchain network with cloud computing infrastructure, he says.
“Blockchain should be considered another layer to add onto a pre-existing cloud computing stack. The blockchain still exists on physical servers, albeit via a crowdsourced, peer-to-peer distributed model.”
However, we all know that technology is advancing at never-before-seen speed. There are already companies out there tackling the challenges of enterprise use of the blockchain. A company called Storj Labs, for instance, claims to have devised a way to make large-scale file storage fast enough and cheap enough to replace traditional cloud storage by replicating data in triplicate, “shredding” files, encrypting the pieces and storing them on spare disk space found in the systems of its users. There’s no need for physical servers; their clients’ spare storage space replaces on-prem storage.
Still, these solutions are only in the concept stage, and widespread adoption remains prohibitively expensive. But if there’s one thing we’ve learned in the 21st century so far, it’s that new tech can come along before you can say, “That’s impossible.”
Business implications of blockchain
While we typically think of blockchain being used to secure currency, its use cases are expansive. Any transaction of value can be moved between networks, in most cases with a much higher degree of security than current best practices. While Bitcoin is probably the first blockchain project that comes to mind, it’s an open source blockchain code called Ethereum that’s really shaking things up.
With Ethereum, users can establish an “if this then that” function within the terms of any given transactional agreement. If a warehouse manager inputs data about low stock, for instance, blockchain can automate the ordering and shipping process. If a customer is late on an invoice, blockchain can automatically initiate a collection process. The rules of commerce can now be modeled and enforced with code instead of judicial systems and litigators.
These types of automated blockchain transactions coupled with embedded logic are referred to as ‘smart contracts,’ and the business implications are huge.
“Third-party intermediaries can be replaced with open-source code,” Bailey explains. “The days of having to have a trusted third party validate a transaction are over. You now pay the network to resolve the logic both parties have agreed to.”
Therefore, these smart contracts have the potential to drastically reduce the costs associated with engaging contractors, enforcing contracts and making payments. What’s more, smart contracts can be bundled together to act like robust applications, essentially creating autonomous agents that have the potential to eliminate the costly complexities that come with having independent entities arbitrate, administer and/or manage certain enterprise functions.
When you really start to think about what the elimination of third-party intermediaries means in practical terms, the business use cases are staggering–and the opportunities for IT consultants are vast. If a client doesn’t need a bank or credit card company to process financial transactions, but can instead run its own native payment system that eliminates processing fees, service charges and other ‘gotcha’ financial fees, the cost savings should far outweigh the cost of a ‘rip and replace’ conducted by a channel firm, for instance.
Bailey says the possibilities are extensive, and several are already beginning to show promise. Adoption, he says, will go quickly once it starts.
“I think over the next 12-18 months we’ll see smart contracts really put pressure on some of the intermediaries in supply chain and financial sector. Once we see the first few proofs of concept arrive, it will bring in a rapid adoption based on the amount of friction that currently exists in every vertical.”
Among the use cases he’s most excited about:
- eCommerce & IP: Today, businesses need a centralized platform to sell services or products. Blockchain allows the storage of metadata for any kind of ware, which eliminates intermediary steps between buyer and seller. Further, since all information on the blockchain is immutable, it provides a path to protecting intellectual property.
- Internet of Things: Here’s a big one for the channel. In a world where devices and sensors are continually processing trillions of transactions on a minute level, blockchain provides what the Harvard Business Review calls a “Ledger of Everything” to manage micropayments or ‘pay as you go’ transactions. Any IoT process, which by nature is automated through a series of sensors, can now be managed automatically through blockchain smart contracts, from package delivery to cloud services.
- Insurance: By making line-of-sight into Insurance policies crystal clear, blockchain can reduce corruption and increase transparency on both sides of the insurance relationship.
- Supply chain: Each step in the supply chain has any number of requirements that need to take place. A dock worker has to sign off on receiving the widget, a form has to be drawn up, signatures need to be in place, invoicing must be processed, insurance regulations have to be checked off, and on and on. With smart contracts, we can remove most of the third-party inefficiencies. Everything that happens in the long supply chain process is recorded in real time, and funds are released the moment the qualifications are met.
- Customer privacy: The only pieces of information about an individual that go on the blockchain are those that they explicitly choose to share as part of a public transaction. This holds big implications for highly-regulated industries such as finance, legal and healthcare, where customer data must be highly secure comply with stringent privacy regulations. When compliance is hard-coded into the transaction, as is the case with smart contracts, much of the burden of governance is taken off of the service provider and shouldered instead by the blockchain.
No “Google Killer”
While the potential for blockchain in the enterprise seems sky-high, it’s important to remember that the essence of the technology is that it’s a consensus-based system. As such, it has limitations, and each use case has multitudes of contingencies and variables to consider. For example, even if your ecommerce platform is run on the blockchain, the monetary value that’s exchanged still has to come from a financial institution through an API. Since blockchain is a distributed, decentralized platform in which every node independently executes the code, how does it interact with that API? Does every node in the chain have to tap into the API using login credentials? What are the security implications there? Will that overload the financial institution’s systems? And who is responsible in the event of a critical failure?
Privacy may be the biggest hesitation from many would-be enterprise users. After all, if all of the data on the blockchain is public, how much business activity can really be housed there? Customer data, financial information, internal directives, confidential transactions–what’s the point of spending money overhauling a system in order to house some transactions on the blockchain if it can’t house every transaction?
“Blockchain’s not going to change the way each of us go about our day,” says Bailey. “This isn’t the next iPhone or a ‘Google Killer.’” Instead, it will happen quietly in the background and, he asserts, make nearly every process more efficient, faster and cheaper.
Whether or not blockchain is the next gamechanger for business is yet to be seen, but it’s becoming abundantly clear that real world enterprise use cases are in our very near future. Partners who want to be ahead of the curve and garner all of those early ‘rip and replace’ bids should put their blockchain thinking caps on now.