Are Blockchains ready for Industrial Applications?

Are Blockchains ready for Industrial Applications?
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by Sanjeev Kapoor 19 Nov 2019

During the last five years, the term “blockchain” has been one of the most prominent IT buzzwords. This was largely due to the emergence and the rise of blockbuster cryptocurrencies, such as BitCoin and Ethereum. Nowadays, at the dawn of year 2020, there is much less hype regarding blockchains’ and cryptocurrencies’ potential to completely disrupt the global banking and finance ecosystem. Cryptocurrencies are gradually finding their place in the digital finance landscape, while trading of BitCoins and Ethers is no longer the most trending topic. Nevertheless, blockchain technology has already left a significant footprint on the IT ecosystem, as it is already considered in a variety of applications in different of industrial sectors such as healthcare, real estate and industry. These applications are in most cases exploiting blockchain technology as a distributed shared database (i.e. a distributed ledger of transactions), that provides secure data storage and anti-tampering capabilities.

 

Industrial Applications: When to Use Blockchain

There are certain conditions that drive organizations to make use of blockchain technology as a preferred alternative over centralized databases. Specifically, enterprises tend to consider using blockchains when the following conditions are met:

  • There is a need for sharing data across multiple parties, which reside in different administrative domains (e.g., are part of different organizations).
  • Multiple parties need to write on the shared database. In cases where data are shared only in order to be read and not modified by the participants, centralized databases are still advantageous over blockchains.
  • The writers do not necessarily trust each other, which means that they need some mechanism that establishes trustworthiness and guarantees the correctness of the transactions and the database.
  • There are good technical, organizational or even economic reasons against having a trusted third party destined to guarantee the integrity and correctness of the transactions of the distributed parties.
  • There is a need for interaction between the various transactions of the database, which makes robustness and trust more challenging.

In such cases, state-of-the-art centralized databases fall short, as they cannot provide the trust and reliability required. In particular, the absence of a trusted third party makes it impossible to ensure the consistency and integrity of the shared data in a robust way. On the other hand, a blockchain infrastructure can provide decentralized trust, as new transactions must be accepted by most of the participants, as part of distributed consensus mechanisms.  Based on this rationale, various innovative enterprises (including many high-tech startups) have created blockchain systems. Prominent examples can be found in the following areas:

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  • Supply Chain Management: There are many supply chain management applications that leverage blockchain infrastructures in order to provide end-to-end traceability of products and services. Blockchains are used in order to ensure trustful exchanging and processing of data from multiple stakeholders, which do not typically trust each other when recording and accessing information about some product. Typical examples are found in the manufacturing, retail and pharmaceuticals chains, in applications for monitoring products’ conditions or tracing a product’s location.
  • Healthcare: Blockchains have been also proposed and prototyped in the case of healthcare applications. The latter involve exchange and processing of data from multiple stakeholders (e.g., patients, hospitals, health professionals, providers of care services and more), including sensitive information such as patient’s personal data. In this context, blockchain technologies have been used to record authorizations for accessing data from different owners in transparent and secure ways, including management of consent for access to datasets. This enables participants to the blockchain (including patients) to have full control over their own data, as access to the data cannot be unlocked unless they give their consent.
  • Finance: Financial institutions take advantage of blockchain technology beyond cryptocurrencies. They use distributed ledger technologies when it comes to sharing data in reliable ways, in their effort to improve the efficiency of processes like credit risk assessment and KYC (Know Your Customer). Blockchains enable the sharing of such data in a trustful and consistent ways, thanks to distributed consensus and validation mechanisms.

 

The Shift from Public to Permissioned Blockchains

Despite the benefits of blockchain technology in the above listed applications, the use of blockchains for enterprise applications is still in its infancy. One of the main reasons for this is that blockchain performance lags behind conventional centralized databases. The latter are optimized, robust and able to accommodate many thousands of transactions per second. On the contrary, BitCoin transactions are concluded in a timescale of minutes, given that the final validation of a new block of transaction takes place following computationally expensive consensus mechanisms. This makes the BitCoin blockchain and other public blockchains inappropriate for enterprise applications.

In order to alleviate these performance limitations, the blockchain community has introduced a modified version of blockchain infrastructures, namely permissioned blockchains. The latter are sort of private blockchains that require their participants to be authenticated prior to joining them, which limits participation and improves performance. Most important permissioned blockchains do not require participants to solve computationally complex (i.e. Proof-of-Work (PoW)) problems prior to creating new blocks in the distributed ledger. Rather, they can use the blockchain as a shared ledger which increases its performance in terms of the number of transactions that can be accommodated per second. Benchmarks on state of the art permissioned blockchains report performances of many hundreds or thousands of transactions per second, which represents a significant improvement over public blockchains. This makes permissioned blockchains more suitable for enterprise applications, yet their performance is still far from that provided by centralized databases. Furthermore, permissioned blockchains are usually criticized of missing the decentralization benefits of blockchain technology as they must be operated by an organization or a consortium of organizations that acts as a trusted third party. Despite this criticism, private blockchains seem to be more appropriate for industrial applications and are gradually gaining momentum.

 

By and large, following a period of hype, blockchain technology is finding its position in the rapidly evolving IT ecosystem. Several pilot implementations and products have already demonstrated the benefits of blockchain infrastructures for certain applications. Moreover, they have proven that blockchain applications can be operated at scale. Nevertheless, there is still a lack of large-scale applications beyond the popular cryptocurrencies, which raises concerns about the scalability of the technology in enterprise contexts. Our prediction is that blockchain will be certainly used in commercial applications, in cases where decentralized trust is providing merit to the participants. Moreover, it’s likely to support data marketplace applications, where data can be traded as soon as data owners provide their consent to potential buyers. However, we also believe that one should remain skeptical and conservative about the disruptive power of blockchain technology and its ability to completely replace existing centralized models and platforms for on-line trust. One way or another, it’s important to keep an eye on this technology and its adoption rate in the years to come.

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