The Case For Your Internal Blockchain Strategy
Why are corporates using blockchain for an internal use case?
Based on our article on public and private blockchain, the power of blockchain lies in its ability to create trust between parties who do not know or fully trust each other. Therefore, a private or internal permission-based blockchain does not seem to fully make sense.
However, there are a range of internal high-level projects being initiated by some of the largest global corporations.
In this article, we discuss blockchain’s merits and shortfall as an internal solution with comparison to database solutions and highlight 4 key aspects for corporate consideration.
Blockchain versus database
In essence, a blockchain by itself is a way data is logically put together, structured and stored in a file. It is just like other data structures such as text files, comma separated values (csv), images and databases.
The closest comparison to blockchain data structure is the database (with rows, columns, tables etc). This is important for us to acknowledge as we will compare the merits of blockchain implementation against potential solutions provided by database solutions.
Corporate blockchain strategy
Amongst talking to industry friends or recently formed blockchain teams at professional services firms, common reasons for internal blockchain investments are as follows:
- Top-down pressure to formulate a blockchain strategy
- Make use of the department budget allocated to kickstart blockchain initiatives
- A more streamline process of internal establishment under corporate approval policies and governance, versus partnership with external organisations and competitors.
Intuitively c-suite executives see the vast potential of blockchain and the FOMO (“Fear of Missing Out”) drives them to push for their own version of this trendy technology.
Analysing internal corporate blockchain strategy
We take a look at the potential advantages and disadvantages of internal blockchain solutions based on 4 key aspects:
- Speed
We look at speed from two perspectives, reading and writing data:
- Reading data is fast in a blockchain and you can read data just as fast as you would in a database
- Writing data is relatively slower especially with large data volumes.
Note that for a private internal blockchain with no consensus mechanism requirement, an internal blockchain hosted in data centres with good interconnectivity is definitely much faster than that of public blockchain like Bitcoin.
Assessment: No distinct advantage
2. Security
We look at security from three perspectives, reading, writing and amending data.
- Reading data on blockchain is very similar to reading files in a database by using log files to record who is reading your blockchain and there are no significant improvements from this perspective.
- Writing and/or adding data on blockchain has an additional security value. In traditional database, you generally use a username and password to authenticate who can write and add data. With blockchain, digital signatures are commonly used at two levels:
At the transactional level, a digital signature on a payment to prove you are the owner of the asset or coin
At the block adding level for private permissioned chains as a mechanism for block adders to digitally sign blocks with a signature to authentic their identity and for the authority party to approve their access
For data amendment, blockchain offer additional security over traditional database. Data changes will be rejected unless supported by a majority consensus so you would in theory need a majority collusion. Moreover, for regulated companies like financial institutions which need to hold data archives to meet regulatory requirements, blockchain offers immutable data across a number of nodes which may reduce the extra process of regular back-ups.
Conclusion: Possess advantages in particular for security in writing and amending data
3. Privacy and Access
Blockchain replicates data across nodes and which may be an issue with privacy requirements. These issues can potentially be solved with encryptions, however this is not totally riskless as any transaction will still be visible amongst all the nodes in the private network and hence the latter can through time decrypt or analyse any given transaction on the network without penetrating the systems of other nodes.
Interoperability is a positive as internal blockchain database generally makes it easier to connect with other parties should you want to grant them access to your data.
Conclusion: Has incremental advantages in data accessibility with associated privacy downsides
4. Cost Benefit Analysis
Generally, there are incremental benefits of private blockchain depending on the business needs but the impact is nowhere near that of public blockchain.
However, most c-suite executives are correct in the blockchain experiment because it is only through this process they can generate new ideas and solutions and bring in the right people to drive their future blockchain strategy.
One of the major cost benefit of private blockchain is the relatively lower cost requirement with no mining overhead and technical complexity and implementation in comparison to public blockchain. Ultimately based on all these factors, most organisations will make an marginal investments in hope for a slight chance of an exceptional return on investment.
