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:

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:

 

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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