How to approach a blockchain Pilot and challenges (2 of 2)
This paper is about how to take the first steps through a blockchain Pilot, the challenges you will face, and the errors you will probably make.
Part #2: list of critical aspects to take into account when dealing with blockchain, and common errors while implementing a pilot
From 2016/2017 enterprises have begun conducting pilot projects using blockchain, and more of them are expected in 2019. At the same time, also medium and small organizations are following the trend with less complex projects, but experiencing similar challenges when they try to approach a blockchain pilot. Pilots are used to mapping the possibilities and implications of blockchain, test the assumptions done in a PoC (Proof of Concept), find sponsorship for the implementation of the project.
The aim of this paper is to suggest how to approach blockchain technology and how to do it concretely in order to evaluate whether blockchain is the right choice for your business.
The paper is divided into 2 parts:
· Part #1 — First steps to implementing a pilot
· Part #2 — List of critical aspects to take into account when dealing with blockchain, and common errors while implementing a pilot
Who is wondering whether blockchain is the right decision, need a guide on how to start a pilot and wants to be updated about the challenges will face.
Challenges to take into account before starting a Pilot
Blockchain is a complex technology in its early adopter’s stage, so shouldn’t surprise that introducing it as the infrastructure of a new ecosystem, it will bring new risks. Blockchain is a tool and, like any other tool, must be evaluated through an “integration project assessment”. The process to embrace this technology should not be different compared to any other new technology that brings a design change in the architecture (hardware and software), with the consequent definition of new processes in line with the design.
Technical changes have always been guided by business needs and never the contrary.
Effort, time and budget won’t be effectively managed if the assessment starts with the review of solutions available in the market, rather than collecting business requirements, use cases, and goals. A cost-benefit analysis upfront is needed by default, always, not only for blockchain projects. This common sense way of approaching new technical and business capabilities is designed to assist executives in understanding whether blockchain is an appropriate and helpful tool for their business needs. For companies that have already in place an operation structure that relays on well-established legacy systems, it is always a matter of change management, economics, and checking the business models of industries and organizations that have already taken the first steps into the new technology.
Following below are listed a set of common challenges that usually go with blockchain:
- Blockchain — brings technical complexity and risk and it requires specialist resources: consultancy, implementation, auditing.
- Development stage — Blockchain technology is still in its early adopter’s stage. There are many different types of blockchains right now, but the majority of them are still ‘experimental’. If we compare the total number of internet user, 5b with the number of smartphones 3.5b, against the number of wallets, 400m, it easy to understand that we have still some years ahead before reaching the critical mass adoption. We need to wait for the infrastructure to be built, the diffusion of the wallets, and then a massive usage of the applications.
- Privacy — All data is private also metadata. One of the capabilities of blockchain is transparency, so all privacy matters should be carefully analysed avoiding to use blockchain improperly without achieving the results expected. Understand the difference between the types of blockchain (public, private, public permissioned, private permissionless) is also paramount.
- Scalability and performance — have to be tested whether they suit the uses cases or not. They are both related to software and hardware. Since there are not available operations data yet, it is still really hard to have metrics that allow you to major how to perform a blockchain unless it is not directly tested. Scalability and performance are characteristics really important since will directly relate to end-user satisfaction and ultimately adoption. Some uses require rapid network consensus systems and short block confirmation times before being added to the chain. For others, a slower processing time may be acceptable in exchange for lower levels of required trust. Scalability, workflow complexity, and performance differ drastically across industries and uses. Business blockchain requirements vary. Each of these requirements and many others requires potentially a specific optimization of the network used.
- Security — key management is an open problem. Key distribution channels, rotation, signature validation, hardware device, key recovery, are all concerns. The degree of security is also related to the consensus mechanism used, and the type of governance implemented.
- Blockchain Interconnectivity — Lots of blockchains will disappear, but the intercommunication between different blockchains will be crucial. The technology is not ready yet, but some players are already started implementing hubs where different technologies can coexist in the same cloud.
- Applications maturity — due to the points explained above, we miss overall best practices. The development of core components is in its infancy, and there is no possibility yet to buy off-shelf plug and play solutions without going through the phase of PoC and pilot, before the adoption. Contributing to open source projects is the way to get to know the technology and build up expertise within a vertical industry or horizontal markets.
- Global regulations —must be taken into account since the solution will operate cross-border and subjected to different regulations. It is something to have in mind from the start because can block the implementation of your product.
- Legality — In case of use of smart contracts take into account the legality of signature on contracts/agreements.
- Governance — need to be analysed pretty well up front in order to understand if the entrance to the network it is easy, or if there are some frictions that limit the network effect. Defining the rules, risks, and responsibilities of each party in your blockchain system. Each participant must benefit from being part of it.
- Consensus protocols: there is a great diversity of algorithms for building consensus based on requirements like performance, scalability, consistency data capacity, governance, security, and failure redundancy. In PoW (Proof of Work algorithm used in ethereum, zchash, monero) miners are chosen based on their computing power, the miner selected verify that the transactions in the block are not conflicting. Others consensus mechanism like BFT ( Byzantine fault tolerance used in neo. ripple, stellar, hyperledger) are more flexible compared to PoW, and faster. With enough stake in the network, any account can become a delegate Node, which verifies a transaction.
- Lack of DLT education. Although there is a general level of understanding of DLT (distributed ledger technology), there is a lack of knowledge about how the implementation works.
- Defining ROI: which is the value of the technology? It is challenging to define metrics to major the network since there are not enough production data. The number of deployments is scarce, although will definitely grow in 2019.
- Digital Identity, it is not a solved problem. Identity is a well-known issue and there are lots of different development ongoing depending on the industry and use cases. There are not yet developed standards, and primitives, although the creation of them is on-going. In order to evaluate the degree to which a digital identity concept is vendor-agnostic, it depicts the degree to which gaining; a) access to the information, b) the verification of the identity does not rely on any specific vendor, c) or does not rely on the use of that vendor’s technologies.
Common errors while implementing a pilot
1)Find a problem to justify a solution rather than find a solution that suits the business need.
2) Evaluate blockchain with a centralized mindset rather than understanding the democratic nature of blockchain.
3) Wrong stakeholders management (not involving since the beginning the sponsor and the stakeholders that are part of your use cases.
4) Skip an upfront analysis of the current organization blueprint (that would be beneficial in any case for cost saving reasons, apart from blockchain adoption or not) in favour of a rough analysis of blockchain solutions/providers.
5) Lack of experience on how to conduct an assessment for the adoption of a new technology.
6) Non-proper change management planning when blockchain is supposed to replace pre-existing legacy systems.
7) Lack of collaboration. Everyone wants to use their own technology and leverage it as a differentiator. Organizations struggle to understand that the value they gain participating in a consortium is higher compare the information they give away to the network.
8) Underestimate the network effect that your software is supposed to activate.
9) Don’t consult or hire a specialist with blockchain expertise.
10) Use blockchain to store too much data where just record of transactions should be stored.
· Part #1— First steps to implementing a pilot