“The distributed-ledger technology that undergirds bitcoin… could change the financial system; think the Internet before browsers.” – THE BROOKINGS INSTITUTE
I think this is an understatement, as blockchain technology will disrupt many industries, not just the financial industry. Before we look at the impact this technology will have, let’s review the basics of blockchain technology. The individual pieces of technology have been around for a long time, but combined they came together under Bitcoin that is today a multi-billion-dollar industry.
Blockchain is used in two major categories of solutions, namely public and private or enterprise blockchains. Let’s review the similarities and differences.
Many similarities exist, but the major ones worth mentioning are:
- Both aim to be a decentralized peer-to-peer network where each node has replica of shared data that is digitally signed.
- The replicated ledger is kept in sync through protocol called consensus. Different forms of consensus are used by different blockchain solutions.
- Both provide certain guarantees on immutability of ledger.
There are also very important differences worth noting:
- Who is allowed to participate?
- Who executes consensus protocol, and what protocols are used?
- Who maintains shared ledger?
- How much data storage is available?
- How do we Integrate the blockchain into the existing organization architecture?
When it comes to public blockchain implementations, Bitcoin was the first and is the largest followed by Ethereum based on market cap. What is Bitcoin you may ask? It is a “digital dollar”. That’s really all it is—minus all the formal regulations that come with a bank (which is what makes it such a disruptive concept). It’s not a technology. It’s not a company. It’s your money, held in a digital form. You can buy Bitcoin through sites like Coinbase to mention just one.
Ethereum’s coin value is called “Ether” and is used by investors to buy into initial coin offerings (ICO) opportunities. The big difference to Bitcoin is that it can be used to build new programs. Enterprise Ethereum is a lot more robust, allowing the building of decentralized apps on top of it.
In public blockchains, storage is limited. For a long time, Bitcoin only had 1mb per block of transactions and it recently changed to 8mb with segwit2. As you can imagine, this is not nearly enough to run any notable transactions that the enterprise requires.
Today, bitcoin only executes about 280K transactions per day and the reason for this is that it takes about 10 minutes to confirm a block of transactions. Again, this is definitely not enough transactions for any enterprise use case. Organizations requires multiple millions of transactions per day throughput before it will consider blockchain and their processing platform.
As you can see, public blockchains are definitely not designed for use in the enterprise. A completely new set of requirements requires a solution that delivers for the enterprise.
When should we use a blockchain, you may ask, we could apply blockchain to many different scenarios, but every scenario does not require blockchain. There are, however, scenarios where blockchain could add major advantages compared to the traditional system architectures. One of the use cases are when we have shared business processes with organizations in different industries like financial services, manufacturing, and retail.
Where public blockchains provided cryptocurrencies to incentivize miners to do their job and not corrupt the system, private blockchain participants have different reasons for doing their job and not to corrupt the system, and digital tokens are not required. In some cases, however, digital tokens are used by a specific user to represent an asset on a blockchain. Compare this to the old days, you could store physical gold with a goldsmith and he will give you an IOU in return. These IOU’s could be transferred to other users, or you could give the IOU to the goldsmith and get your gold back. A token is a claim to an asset. These tokens that represent value can also be transferred from one user to another. One example of a token that represent value is the Gene-Chain Project that allows researchers to exchange tokens that represents DNA that contains ethnic background for research reasons.
Imagine a claim for a medical procedure done by a medical provider. These claims contain huge amounts of data and the 1mb or even the 8mb block size on Bitcoin is not nearly enough to store this data, especially if you think how many claims are processed by healthcare payers and providers. Data Storage is a very important consideration when it comes to blockchain solutions. Companies like Swarm, BigchainDB, and Storj claim to provide scalable blockchain databases with low latency and powerful functionality to automate business processes. From an economic point of view, Swarm allows participants to efficiently pool their storage and bandwidth resources in order to provide the aforementioned services to all participants. These storage solutions act and feels like databases but they provide some blockchain characteristics.
Three distinct aspects of integration exist when it comes to blockchain integration: technical, transactional and organizational. Technical integration is the one aspect where TIBCO can help differentiate. A blockchain solution does not live in isolation. Like a BPM process that requires external data to function effectively, blockchain solutions requires information in the correct format and interaction from other systems to provide a complete solution. This is where TIBCO can play a huge role. TIBCO integration components are uniquely created to allow enterprise blockchain solutions to communicate to the other systems in any enterprise implementation. With the recent launch of TIBCO Cloud Integration, the TIBCO integration stack has become even more powerful.
One of the biggest barriers for mainstream adoption of blockchain today is scalability. Private blockchains provide much greater scale, but it is not yet enough. Currently, all blockchain protocols like Bitcoin, Ethereum, Ripple etc. have a limitation in that every node in the network needs to process and maintains a copy of every transaction. That means that the processing can never exceed the processing power of one single node. Thus, to increase processing throughput you need to increase the performance of every node in the network and this is impossible in public blockchains. In order to fix this problem, you need to limit the number of nodes in the network without losing the trust of the network. There are multiple possible solutions being worked on to fix this problem namely sharding, off-chain state channels, segwit2 to name just a few.
It is worth mentioning that blockchain technology is in its infancy and there are a lot of work being done to improve all these aspects of blockchain technology.
Public vs. enterprise blockchains
In conclusion, Public blockchains (Bitcoin and Ethereum) is an internet protocol that manages the distribution of unique transactions/data with characteristics like, Anonymous participants, Open data for reading existing transactions and writing new transactions, Consensus algorithm, usually proof of work and Cryptocurrency.
What do we mean by enterprise blockchains? Like we explained earlier, blockchains like Ethereum Enterprise, Hyperledger fabric and R3 Corda is a distributed ledger with the following characteristics:
- All participants are known, whether from one or more organizations
- Read and writing of data are role based determined by consensus in the network
- Multiple consensus algorithms could be used
- Tokens instead of currency
- Off-chain data storage
- Integration to organizational systems
Also, enterprise blockchains can be categorized in two types
- Private: This type is managed by a single organization and the participants are normally internal users.
- Consortium: This type of blockchain is managed by multiple trusted organizations and to get access, there needs to be consensus by multiple participants in the consortium.
Ultimately, we will benefit if we can have a decentralized system where everybody can have a copy of the data and only append new data validated by the rest of the members of the network. Digital identity in particular, is fundamental for most industry use cases, be it handling supply chain challenges, disrupting the financial industry, or facilitating security-rich patient/provider data exchanges in healthcare. Only the entities participating in a particular transaction will have knowledge and access to it—other entities will have no access to it.
Finally, as stated before, blockchain can only provide a part of the solution, there are still other questions that need to be answered, like:
- How do I get data in and out of the blockchain?
- How do I extend smart contract logic to my enterprise?
- How do I respond to event from my ledger?
- How do I analyze data within my ledger?
And this is where TIBCO can be leveraged to provide the complete stack.