Sheila Warren, Head of Blockchain and Distributed Ledger Technology, World Economic Forum
Whether in news headlines, book titles, or dinner table conversations, Blockchain is becoming more and more ubiquitous. Subsequently, there has been an overwhelming global response to the implementation of Blockchain in businesses and day-to-day consumer applications. But is Blockchain really worth the hype? First off, let us acknowledge that Blockchain is a technology. Bitcoin and cryptocurrencies are dominating the headlines, but they are just one use case. Blockchain technology was invented by someone using the name Satoshi Nakamoto in 2008, and in fact is an innovative combination (peer-to-peer networking, distributed timestamping, cryptography has functions and pointers, digital signatures and Merkle trees, among others) that have in some case existed for decades.
In technical terms, blockchains are peer-to-peer distributed networks that are cryptographically secure, append-only, tamper-resistant (extremely hard to change) and updateable only through distributed consensus. Blockchain technology and distributed ledger technology (DLT) are often used interchangeably but, strictly speaking, blockchain is an architectural subset of DLT and shares the same principle of enabling distributed control over the evolution of data without a central party. A blockchain is composed of a chain of cryptographically linked “blocks” containing batched transactions. Shortly after each transaction occurs, itis put into a block. These blocks are mathematically“chained” together. The blocks are verified and managed by the network nodes (computers or users participating in a blockchain network) via a shared governance protocol. Each node contains a complete record of all of the transactions ever recorded in that blockchain. No single node can change or delete a block. Nodes collectively agree on valid transactions to include in the blocks through a consensus mechanism.
One of the most unique aspects of blockchain is its high number of evangelists – people who believe blockchain can solve everything from global financial inequality to the provision of ID for refugees, to enabling people to sell their houses without an estate agent. The enthusiasm to (over) promote the technology is also damaging its long-term prospects.
As an open, distributed ledger, it opened an avenue to eliminate the need for the middle-man in transactions. Not only is it digitalized,it is also decentralized. It does not rely on a single point of control, making it more fair and secure. The information added to the Blockchain is nearly impossible to manipulate. In fact, Blockchain’s ability to create highly efficient and immutable distributed ledgers can increase efficiency and accelerate problem-solving methods. But, truly innovative deployments of blockchain require a match between blockchain’s specific benefits and use cases that enable the realization of these benefits, followed by dedicated hard work to get it right and embed in organizations and industries. It is not meant to be a workaround.
Whether or not to adopt Blockchain is not solely a technological decision but also a business decision. It is obvious that good use cases solve real problems for organizations while great use cases solve real issues. For the decision-makers within an organization, it is essential to not be tempted by the hype alone, and instead reason about whether using Blockchain is a sound business decision—even in those cases where a well-defined solution exists. As with any technology deployment, the primary requirement that a business needs is a place to start. Blockchains’ unique properties, however, have convinced us that a new analytical framework is useful, in part because Blockchain has emerged at a crucial point in society’s technological development.
While the application of technology to improve business processes is nothing new, previous generations of technology were predominantly all about the faster and more secure exchange of information—solutions were aimed at delivering the same objectives faster (e.g., back-office services such as payroll and accounting were digitalized). Blockchain, meanwhile, is about the exchange of value, intended to enable individuals to exchange currency and other assets with one another without relying on a third party to manage the transactions. It is a significantly reliable system in an increasingly trustless world. It also implies the dramatic redefinition of the business processes associated with and between companies. Many private and public, government organizations, banks, communities are adopting blockchain technologies to increase their stock values with high hopes or somewhat overblown expectations.
Blockchain as a tool is intended to enable rapid initial analysis of whether it is an appropriate solution for any defined problem. It is not designed to provide a final authoritative answer and instead assists senior decision makers in evaluating whether to deploy resources in exploring a blockchain-based solution to a given problem space and, if so, at what scale shall it be helpful. The hope is that shifting focus to the business problem, and away from a particular solution, will mitigate the effects of the hype surrounding Blockchain technology and encourage a practical approach while reducing the risk of ill-advised experimentation. To make the task a little easier for everyone, the World Economic Forum Centre for Fourth Industrial Revolution and the Forum’s Global Future Council on Blockchain have jointly created the decision tree method composed of 11 numbers of questions. This whole question and answer kit was designed to assist in defining whether a blockchain is a correct approach for a particular business or not.
Like any other technology, successfully implementing Blockchain requires an integrated business focussed approach, which starts with understanding the challenge, prioritizing value-based used cases, configuring cloud-based tools while leveraging the most impactful approach to drive and deliver on the promised commerce. However, for any organization, Blockchain technology should not be a goal in itself; rather, it should be a tool to achieve specific organizational goals.