10 Common Misconceptions about Enterprise Blockchain
By Aayush Bhatnagar on The Capital
The adoption of any new technology or platform in an enterprise is always a tricky proposition.
When it comes to Blockchain, CXOs have tremendous pressure to leverage it and not to be left behind.
However, Blockchain should be applied in a prudent manner to reap the benefits of this transformational technology.
CXOs need to understand that Blockchain is a “means” to achieving an end, but it is not the end goal itself!
In this article, we discuss the ten most common misconceptions about blockchain in the board rooms.
1) CXO to employees: “Everybody start using Blockchain”
This is the most common “knee jerk” reaction in the board rooms.
While we should be early adopters of technology, it is imperative that we understand the application of any new technology in our business context.
Executives should not feel the pressure of “using” something because they are compelled to do so.
CXOs should not feel insecure after reading research reports on the internet that they would perhaps be left behind or get disrupted if Blockchain is not implemented in the next 24 hours!
Wrong use of technology can cause irreparable damage to our processes and our way of working.
A good way to avoid this from happening is to perform a business and technical assessment for Blockchain use, document the potential advantages and perhaps execute a PoC.
2. “Blockchain will reduce my manpower needs”
While it may seem in the beginning that Blockchain adoption would reduce manpower, it is not that straightforward.
Many people equate blockchain to “automation,” and extrapolate further, that more automation would reduce the need for manpower.
However, Blockchain is designed to bring in operational efficiencies in our enterprise processes.
Smart Contracts are a better way to enforce business rules and digitise contractual obligations to a large extent.
However, smart contracts and Blockchain do not replace human intelligence or judgment.
These are just tools for helping organisations to perform their work in a more efficient manner.
3. “Store all the enterprise data in blockchain”
Another common misconception is to consider Blockchain as a “data storage” medium.
This stems from the fact, that Blockchain adds a layer of security and provenance.
Hence, executives feel that if Blockchain is “more secure” and ensures “traceability,” then why not store “everything” in Blockchain?
Fundamentally speaking, this is a flawed assumption.
Blockchain is not replacing document management systems or traditional data lakes.
While the data may remain in the current system of records, Blockchain can provide identity as a service to ensure that only authorized employees access data.
Blockchain can further secure access to this data, by issuing public-private key pairs and authenticating transactions.
Finally, Blockchain provides visibility on all operations (transactions) that may be performed on enterprise data in the system of records. (Create, Read, Update and Delete).
4. “Replace my legacy IT system with an off-the-shelf Blockchain platform”
The idea of replacing IT systems with Blockchain sounds like an exciting value proposition to buyers.
However, the genesis of this assumption also originates from the earlier misconception discussed in point-3.
Blockchain is not meant to replace the IT systems of records. It is not providing the functionality of traditional systems which enable enterprise operations.
Technically as well, it is not feasible to replace a diverse set of IT systems with one technology.
However, these Systems of Records can integrate with Blockchain, to add a layer of identity, security, smart contract automation, and provenance.
5. “Replace all procurement and contracting with smart contracts”
Another popular school of thought proposes that Smart contracts can replace procurement and contracting.
While this is not true, smart contracts can significantly ease the procurement process.
Adherence to the terms of payments, purchase order issuance, as well as generation of debit and credit notes, can be encoded in smart contracts.
The approval flow needed for purchase orders can also be automated through Blockchain consensus.
Fraud Management checks can be added to the process of consensus grant.
However, to the earlier point – ERP systems would still remain and shall be integrated into this ecosystem.
6. “Blockchain is plug and play”
During sales presentations, a picture is painted in front of a visibly excited audience which goes as follows:
“Just containerise these blockchain nodes, and auto deploy them in the cloud. Blockchain will then plug into your infrastructure through APIs, and you will be good to go.”
While there is nothing wrong with this statement, it overly simplifies the work that is involved and gives the impression that Blockchain is plug and play, and that there is no systems integration involved.
Due to such projections, CXOs tend to develop high expectations as they consider integration costs as “nil”.
However, in real life, the situation demands due diligence and systems integration which takes time.
7. “After I use Blockchain, my security needs will be fulfilled”
Security has many dimensions, and no “single” technology can fulfill all security needs of an enterprise.
While Blockchain can help in bringing transactional transparency and identity management, IT teams should not consider a Blockchain implementation as a substitute for network security.
As a matter of fact, the Blockchain infrastructure itself needs to be protected from a network security standpoint.
Hence, it is recommended to write down the specific security features that Blockchain brings to the table and set expectations up-front before we embark on a project.
8. “Blockchain will replace banking”
During the early days of Blockchains, the majority of implementations and PoCs were focussed on financial services and banking.
Supply chain management automation was another “bread and butter” use case of Blockchain.
Most of the early deployments and consortiums were in the banking sector, and financial services trading platforms also implemented many PoCs.
Over a period of time, Enterprise Blockchain implementations have broadened their scope and added diverse use cases.
However, the “banking and financial services” stereotype remains – especially for executives who are new to this domain.
There are extreme views in the industry which moot – that Blockchain can replace Core Banking Systems.
While the use cases for banking are complementary, Blockchain in no way can replace the functionality, features, and requirements imposed by Core Banking Systems (CBS).
Core Banking systems perform a lot of heavy lifting which involves account management for customers, KYC processes, integration with fraud management systems, as well as integrating with payment service providers.
Gartner nicely defines CBS as follows:
“A back-end system that processes daily banking transactions and posts updates to accounts and other financial records. Core banking systems typically include deposit, loan and credit processing capabilities, with interfaces to general ledger systems and reporting tools.”
The last line of this definition is important – “with interfaces to general ledger systems and reporting tools”
Blockchain DLT is like a distributed ledger in the spirit of this definition.
The DLT and its Distributed Apps have to co-exist with these systems of records and integrate with the CBS systems by “interfacing” with them.
Blockchain by itself is not a replacement for CBS.
9. “Port the smart contract from one blockchain to another”
We often use simplistic examples surrounding smart contract management.
One of the popular misconceptions that I have come across involves “portability” of smart contracts from one blockchain implementation to another.
While there are tools and tackles that can be used to design and implement smart contracts, the concept of portability is a far fetched dream.
Different DLT platforms impose rules on how smart contracts are written.
Hence, the “porting” effort is actually a complete re-implementation of a smart contract specific to the target platform.
Perhaps a better way is to have a side-chain integration with an existing blockchain smart contract rather than trying to port it to another platform.
Consider the re-implementation only if there is a very compelling reason to do so.
10. “There are no Blockchain Standards available”
Maybe a year back, this statement would have been true.
However, Blockchain standards are coming up rapidly. This was indeed a missing link in the industry and a major pain point.
The industry realized that for long term sustainable implementation of Blockchains, standards were necessary.
There are multiple efforts underway. Perhaps the most notable among them are the IEEE standards which can be found here:
https://blockchain.ieee.org/standards
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