“Companies in industries as diverse as finance, sports, health care, retail, oil and gas, and pharma are engaging in a wave of blockchain experiments,” write Gartner analysts David Furlonger and Christophe Uzureau in their recently published book The Real Business of Blockchain. “Many see it as the solution for bringing trust and transparency to digital environments.” Blockchain has indeed been capturing the imagination of business. According to a Gartner Research Forecast, the business value-add of blockchain is expected to exceed $3 trillion by 2030, over half that amount by 2025. But, in plain English, what does this all mean?
“It means you can theoretically do business with an unknown partner located anywhere on the planet and trade any asset at any transaction size and not need a lawyer, a bank, an insurance company, or any other intermediary making sure both of you follow through on what you’ve promised to do,” write the book’s authors. “Such a solution vastly expands the range of assets that a business could trade. The arrangement also greatly increases who or what a business could directly trade with, without needing a third party (which would take a piece of the value).”
Blockchain first come to light around 2008 as the public, distributed ledger for the Bitcoin cryptocurrency. It combined a number of existing technologies and methods into a truly innovative architecture. The book explains that a well functioning blockchain includes five core elements:
Distribution. Blockchain enables its physically removed participants to share a distributed digital ledger over the Internet. and to exchange information with each other without needing a trusted intermediary. Each participant maintains a complete copy of the ledger, which is updated in real-time as new transactions occur.
Encryption. Blockchain encrypts all the data stored in the ledger as well as the data flowing over the network using public and private keys technologies. Participants control who they share information with for each particular transaction.
Immutability. Once information is cryptographically encrypted, time-stamped and added to the ledger, it cannot be changed unless all the participants agree.
Tokenization. Blockchains support the secure exchange of value in the form of tokens. “Tokens might function as digital representations of physical assets, as a reward mechanism to incentivize network participants, or to enable the creation and exchange of new forms of value.”
Decentralization. Every blockchain participant has an identical, encrypted copy of the ledger. “A consensus mechanism operated by each full node verifies and approves transactions. This decentralized, consensus-driven structure removes the need for governance by a central authority and acts as a fail-safe against fraud and bad transactions.”
“When a blockchain is missing one or more of these elements, its value is limited or even negated.”
The ledger in a blockchain is very different from a database. A database is a general store of information, which can be read, written, deleted and changed as appropriate. This is clearly not the case with a blockchain’s ledger. Encryption is an option in data bases, but absolutely mandatory in blockchain. A distributed data base is generally managed by a central administrator, not by a consensus mechanism amongst all its participants as is the case with blockchain.
Blockchain has the potential to transform industries and economies, but it’s still evolving, as is the case with any technology in its early stages of maturity. It has yet to cross the chasm from a market dominated by early adopters to a wider mainstream market. Currently, many blockchain solutions are in the early phases of development and experimentation, and use only some of the five elements outlined in the book. “According to our research, traditional data architecture could have done as well as, or better than, blockchain in 85 percent of these projects.”
A great deal of contradictory information is floating around blockchain. In 2016, blockchain made its first appearance in Gartner’s yearly hype cycles. By 2018, it had already passed the Peak of Inflated Expectation and was starting to fall through the Trough of Disillusionment. Most everyone agrees that, over time, blockchain has the potential to become a truly transformative technology. But, the hype surrounding blockchain makes it difficult to nail down not only its long term strategic value, but also what it actually is and what it isn’t in the present.
To better explain its real-world value, Furlonger and Uzureau created the Gartner blockchain spectrum based on the experiences of hundreds of clients. The spectrum consists of three phases, which are explained in detail in the book and help to illustrate how blockchain is likely to evolve over the next 10-15 years. Let me summarize each of these phases.
Phase 1: Blockchain-Inspired. The first phase started around 2012 and is expected to last through the early 2020s. In this first phase, companies are getting on the learning curve by exploring the technology through proofs of concept and pilots. These blockchain-inspired solutions use only three of the five elements: distribution, encryption, and immutability. They aim to reengineer existing manual processes and improve efficiencies in individual firms, industries or supply chain ecosystem. Some incorporate tokens in a very limited way. Few embrace decentralization, the most difficult of the five elements.
Blockchain-inspired solutions are generally centralized, permissioned, proprietary and enterprise oriented. Gartner expects that the major technical challenges needed to achieve enterprise-scale, reliable, secure blockchains will be resolved by 2025. “Meanwhile, the market has hundreds of experiments in progress but few full implementations. Only 3 percent of the 2,871 chief information officer (CIO) respondents to Gartner’s 2019 CIO survey say they have a live and operational blockchain for their business, and an additional 8 percent of respondents are in short-term planning or pilot execution. Few to none of these implementations use all five elements of blockchain.”
Phase 2: Blockchain-Complete. Deployed with all five elements, blockchain-complete solutions deliver the full value proposition of blockchain. They include tokens operating in a decentralized environment using smart contracts, which allows the creation of new digital assets that can be autonomously traded. Decentralization enables the use of consensus to authenticate users, assets and transactions.
“No mainstream enterprise or government that we know of is building blockchain-complete solutions yet. Many startups are doing so, however, and some will likely gain market momentum by the early 2020s, with more scale apparent after 2025. Though not immediate, the proliferation of blockchain-complete solutions will push organizations to explore new ways of operating with greater degrees of decentralization than they have now.”
Phase 3: Enhanced Blockchain. Sometime after 2025, blockchain networks will start embracing a number of advanced, complementary technologies, especially AI, IoT, and identity solutions. Blockchains will then be able to handle a much greater number of small transactions and microtransactions supported by smart contracts with no need for human intervention. Such blockchains will help create new markets by expanding the types of assets that can monetized and exchanged as digital tokens. In addition, decentralized identity solutions will allow participants in an enhanced blockchain network to secure their personal data in a digital wallet and share it according to pre-established rules.
“As new forms of value come online with enhanced blockchain solutions, businesses will likewise innovate new business models using decentralized operational structures. Organizations will be technically able to delegate economic decision making to ‘things,’ which would act autonomously and according to the terms defined in a smart contract that runs on the blockchain. These enhanced things could remove humans from the transaction and eventually move blockchain networks toward completely autonomous transactions and ultimately the establishment of decentralized autonomous organizations.”
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Posted by: blockchain course in hyderabad | October 03, 2020 at 07:51 AM