Basics of enterprise blockchain
Although Bitcoin and other cryptocurrencies dominate discussions about blockchain, this technology could disrupt far more than the financial sector. That’s because there are different types of blockchains, and some are suitable for business use.
In the broadest sense, blockchain is a distributed ledger technology that records data in a public ledger without requiring third-party validation. Instead, unidentified parties confirm the data’s validity via an established consensus method.
To understand blockchain’s potential business value, CIOs and other leaders must first recognize the difference between public blockchain and enterprise blockchain and the advantages and disadvantages of the latter.
What is public blockchain?
Many consumers are familiar with a public blockchain, also known as a unauthorized blockchain. Information on a public blockchain is transaction data stored on digital nodes, distributed via a decentralized, peer-to-peer (P2P) network of computers. Users are pseudo-anonymous and verify the authenticity of data added to a blockchain by consensus. The distributed ledger technology underlying blockchain records the details of an asset transaction in multiple locations, accessible at any time.
Well-known public blockchain uses include cryptocurrency and non-fungible tokens (NFT). NFTs are cryptographic assets converted into exclusive, digital representations that exist as a single copy on the blockchain. Consumers buy, sell and hold these digital collectibles with the NFTs that authenticate their ownership. Uses of NFTs range from trading cards to real estate and artwork. In addition, NFTs and cryptocurrency are examples of decentralized finance. Each uses blockchain technology to remove the middleman of a financial transaction.
Two disadvantages of public blockchain are performance and scalability. The system slows down, is expensive to support, and becomes less sustainable as the number of transactions it must support increases. The number of transactions also inhibits the ability to scale at a reasonable pace. Blockchain, especially cryptocurrency, also consumes a huge amount of energy.
What is enterprise blockchain?
One difference between public and enterprise blockchains is their permission levels. To access the enterprise blockchain — also known as private blockchain — authorized users are granted access to a closed network via assigned cryptographic keys. Unlike a public blockchain, a corporate blockchain is anonymous to the general public. Enterprise blockchain is also not open to anyone; the firm that controls the private blockchain decides who can see, change or add data to the digitally connected nodes.
A private blockchain is not decentralized in the same way that a public blockchain is. The P2P aspect remains, but the relationship can exist as business-to-consumer or business-to-business, as seen with a consortium blockchain.
A consortium blockchain combines features from both public and private blockchains. Instead of using the open system of the public blockchain or the closed system of the private blockchain, a consortium blockchain provides access to a limited group. With this blockchain type, consortium blockchain can be a combination of pre-approved internal and external users.
Enterprise blockchain’s inherent security and privacy limits the ability for an external party to alter the data. An unauthorized external user could not interact with the recorded data unless the controlling firm granted access. However, that does not mean that the enterprise blockchain is infallible. An example of this is if an external user with bad intentions finds a way to exploit a security weakness and gains unauthorized access to the private blockchain.
Advantages of enterprise blockchain
Industries that rely on transactional exchanges, such as banking, identity management and NFTs, are not the only ones that can benefit from enterprise blockchain. For example, blockchain technology can support supply chain management, hospitality and healthcare.
Some other blockchain use cases include:
- Drug supply. Cutting down on counterfeit drugs in the prescription drug supply chain by recording drug types and batch numbers on the blockchain
- HR. To minimize time spent processing mundane tasks such as verifying job applicants’ education levels, employment history and other career qualifications
- Tool. To automate tasks such as P2P solar sales, energy trading between conglomerates and invoicing for autonomous charging stations for electric vehicles
Because blockchain requires a significant investment in finance and change management, a thorough review of how a business processes its transactions is an important factor. Furthermore, the research can explain why a blockchain project can work well. For example, automating transactions and other processes via smart contracts can make business functions efficient and secure. As a result, investing in a blockchain project for businesses can solve a current problem and reduce the risk of rising IT expenses.
Concerns about enterprise blockchain
IT managers may choose not to implement enterprise blockchain for various reasons. One is the challenge of being an early technology adopter in a business setting. An enterprise blockchain requires a mutual agreement between multiple entities to share or grant access to a single ecosystem.
Some leaders are concerned that it is more challenging to achieve trust than public blockchain. Only specific, centralized nodes have the power to do so. Fewer nodes means less security, which means a few rogue nodes can compromise the built-in consensus mode.
Another concern is speed and performance. The closed network of an enterprise blockchain does not need to support multiple public transactions. As a result, business requirements limit the data stored on the enterprise blockchain.
Like any software implementation, blockchain requires change management as all participating parties must adopt clear criteria for success. These specifications may include the following:
- common business rules;
- shared data definitions;
- legal agreements; and
- compliance with government regulations.
Implementation can be more costly and complex than building or staying with a centralized database ecosystem. Blockchain as a service, or BaaS, can minimize costs. But a cloud-based architecture can incur expenses in other ways.
IT managers may face significant internal and external vulnerabilities unique to blockchain. These disruptions can include vulnerabilities such as stolen cryptographic keys, incorrect data input, or developer incompetence. There are also security issues such as the 51% attack threats, which occur when a majority takes control of the transaction consensus process.
Employees and others are also concerned that blockchain for businesses will take away jobs. The concern is that blockchain will replace the administration of routine tasks such as data entry, manual verification and handling of paperwork.
An organization with sustainability as part of its agenda must assess whether corporate blockchain will come into conflict with the sustainability goals. While the decentralized aspect of blockchain is one of its main selling points, its colossal carbon footprint can significantly impact sustainability initiatives.
Blockchain proponents and industry watchers are debating changing the core technology to improve its carbon footprint. But it’s another indicator that enterprise blockchain may not be ready to support the goals of a sustainability-conscious organization.
