Is Blockchain The Right Technology For The Job?
Blockchain has been one of the hottest tech buzzwords of the last two years. Walmart, J.P. Morgan, Alibaba, and each of the Big Four audit firms have invested millions of dollars in building their own proprietary blockchain applications. But can blockchain walk the talk?
Blockchain flexed its incredible disruptive abilities in its initial use case with Bitcoin, but can blockchain extend into the corporate, centralized world that Bitcoin was designed to skirt? While some believe that blockchain is an overhyped technology with little or no true value, many others believe that blockchain can single-handedly make an honest industry out of corporate and government banking. The utility of blockchain depends largely upon the task to which blockchain is applied. In other words, what is the job for which a person wants to use blockchain? This article will explain four characteristics that might make blockchain the right or wrong technology for the job at hand.
Trust
The first and, by far, most important question to ask when deciding whether blockchain is right for the job is — “To what extent does this current job rely on trust?”
Try framing the aforementioned question with two different emphases. The first version asks, “How IMPORTANT is trust in the system?” If only 1% of transactions are false or fraudulent, how impactful will that 1% be on the system as a whole? The second approach asks, “How LIKELY is trust to be broken through false or fraudulent transactions within a system?” Perhaps the system is built in an inherently trusting environment and false transactions occur only 0.000001% of the time.
If your answers to these questions indicate that trust rates very highly on the “importance” scale, and/or that the potential frequency of false/fraudulent transactions rates very highly on the “likelihood” scale, then you have identified a system where blockchain — the gold standard of trustlessness — is right for the job.
Efficiency
The next question to ask when deciding whether blockchain is right for the job is — “Can blockchain make this job more efficient?” The answer to this question is often misunderstood because many people assume that blockchain is a computationally efficient system. This assumption is incorrect. Computationally, blockchain is much less efficient than traditional systems. Bitcoin, for example, can handle only three transactions per second, while PayPal can handle 150 transactions per second, and Visa can handle 2,000 transactions per second.
There are cases where blockchain can be more efficient, but it doesn’t stem from computational efficiency, it stems from the verification of transactions. For example, if you buy a US$5 coffee with a Visa, that transaction is much more efficient than buying that same cup of coffee with Bitcoin. On the other hand, if you exchange US$5 to a foreign currency or purchase US$5 worth of coffee in a foreign currency using Visa, those transactions can take days to complete because the payment must be verified and valued by a clearinghouse before it can be exchanged. Efficiency of verification is where blockchain shines.
Mutability
“How important is mutability in this job?” may be rephrased as, “How often do transactions in this system need to be changed retroactively?” Although blockchain is nearly impossible to fool with false or fraudulent transactions, there is a price to pay: blockchain technology is very bad at changing transactions that have already been recorded. In the case of Bitcoin, transactions are completely immutable, meaning that no transactions that have been recorded on the blockchain can ever be changed. Not all blockchains are completely immutable, but making a blockchain mutable degrades the most essential aspects of the blockchain’s trustlessness.
As a rule of thumb, if past transactions in a system frequently need to be changed, then blockchain is not the right technology for the job.
Digital Nature
Finally, it is important to determine, “Does the job employ a digital or physical system?” An example of a 100% digital system is Bitcoin. Nobody owns physical Bitcoins because the entire system is digital. Conversely, a supply chain usually has physical products within its system.
The more digital in nature the system is, the more useful blockchain will be, as explained with the acronym GIGO: Garbage In, Garbage Out. Blockchain is only as reliable as the input it receives. If the transactions of physical goods, such as in a supply chain, must be manually entered by a human or a bar code scanner, blockchain may be receiving garbage. If a human feeds the blockchain bad information, that bad information will be spread throughout the entire blockchain system. If a job’s system is extremely physical in nature, blockchain’s reliability will likely be compromised. Blockchain is not the ideal technology for non-digital jobs.
Conclusion
In order to determine whether or not blockchain is the right technology for the job, ask the following questions:
- To what extent does this current job rely on trust?
- Can blockchain make this job more efficient?
- How important is mutability in this job?
- Does this job employ a digital or physical system?
