Blockchains first came to light in 2008 as the architecture underpinning bitcoin, the best known and most widely held cryptocurrency. It’s a truly brilliant architecture built on decades-old fundamental research in cryptography, distributed data, game theory and other advanced technologies. The blockchain’s original vision was limited to enabling bitcoin users to transact directly with each other with no need for a financial institution or government agency to certify the validity of the transactions. But, like the Internet and other transformative technologies, blockchain has now transcended its original objectives.
Blockchains are a kind of distributed ledger technologies (DLT), which also include non-blockchain DLTs. Over the past decade, an increasing number of people, including me, consider blockchains and DLTs as major next steps in the evolution of the Internet. In 2016 the World Economic Forum (WEF) named The Blockchain in its annual list of Top Ten Emerging Technologies citing its potential to fundamentally change the way markets and governments work. “Like the Internet, the blockchain is an open, global infrastructure upon which other technologies and applications can be built,” said the WEF. “And like the Internet, it allows people to bypass traditional intermediaries in their dealings with each other, thereby lowering or even eliminating transaction costs.”
The Internet is a general purpose network platform that unlocked huge innovations and economic value by significantly lowering the cost of connections and supporting a large variety of applications. A major reason for its ability to support so many different kinds of applications is that the Internet’s foundations, its TCP-IP layer, has stuck to its basic data-transport mission, i.e., just moving bits around. It has no idea what the bits mean or what they’re trying to accomplish.
The design decisions that shaped the Internet back in the mid-late 1980s didn’t optimize for security and privacy, or for the ability to authenticate transactions between two or more parties. That’s all the responsibility of the applications running on top of the TCP/IP layer, and they each generally do it their own way, sometimes not at all. Not surprisingly, the lack of standards for security, privacy and transactional integrity have been the biggest challenges facing the Internet in our fast growing digital economy.
Blockchain promises to help us enhance the security and integrity of the Internet by developing a middleware fabric on top of the TCP/IP layer with the required security, privacy, and transaction services, and by providing open source software implementations of these standard services which all blockchain platforms and applications would support.
Let’s also remember that the Internet is a network of networks, a global system of interconnected networks all using the same TCP/IP communication protocols. Use of the Internet took off in the mid-late 1980s once there was agreement on the standard TCP/IP protocols, open source implementations of the protocols that everyone could use, and the establishment of the Internet Engineering Task Force (IETF) to oversee the evolution of these standards.
Blockchain is not at this stage yet. There are a number of blockchain platforms in wide use, such as Ethereum and Hyperledger. They’re all based on the original 2009 design, but with some variations and limited interoperability. A number of groups have been working on blockchain standards and interoperability across platforms, including ISO and IETF. But, while standards and interoperability are necessary, they’re not sufficient. For blockchain to achieve wide commercial success, it’s absolutely necessary to integrate emerging blockchain and DLT solutions with the huge number of legacy IT systems that institutions have been developing over the past several decades.
“The innovation of blockchain technology leads to an important question about how legacy digital systems, operated by enterprises, governments and institutions, will be affected,” said Bridging the Governance Gap, a recent WEF white paper. “Presently, the answers to this question have varied from one extreme (‘all legacy systems will be replaced’) to the other (‘DLT is too slow and unproven to actually replace any working legacy system’). However, the eventual answer may lie somewhere in between, where the utility of select legacy systems is upgraded by DLT integration wherever appropriate, and DLT solutions witness a growth in enterprise adoption.”
The white paper argued that two major technologies are required to enable interoperability between blockchain/DLT and legacy IT systems: smart contracts and oracles. Smart contracts are self-executing agreements embedded in digital code, which are triggered based on predefined events without human intervention. And oracles are secure middleware that connect the self-contained world of blockchains and blockchain-based smart contracts with the external world, including legacy IT systems.
“The primary and predominant reason for DLT‐legacy interoperability is to enable smart contracts (on‐chain) to use an oracle to fetch information from a legacy system (off‐chain), format it, validate it and store it on the blockchain where it can be used to trigger some type of agreement,” adds the WEF white paper. “The reverse use case also exists, whereby on‐chain information or some type of command from a smart contract is sent to an external system that uses it for further processing or to act in the real world.”
A recent research paper, Towards Blockchain-enabled Open Architectures for Scalable Digital Asset Platforms by Denis Avrilionis and Thomas Hardjono, proposed a very interesting framework for DLT-legacy interoperability. Entries on a blockchain or DLT should be viewed as the digital representation of a real-world asset, either digital or physical, with the objective of safeguarding its integrity over the asset’s lifecycle. The paper introduces the concept of digital twin to ensure the consistent state between an off-chain real-world asset and its on-chain DLT representation, as well as a corresponding mediating software layer that sits in between the two worlds, - the digital twin container.
The digital twin concept has been used by engineering companies over the last decade to track the state of a complex physical object, - like a jet engine, an elevator, a wind turbine, an MRI scanner, or a - in order to anticipate potential problems and schedule preventive maintenance before the problems occur. The digital twin of each such object is a highly realistic computer model of the specific physical object being tracked. The huge amounts of operational data collected from IoT sensors embedded in the object, - e.g. a jet engine transmitting data while the plane is inflight, - make it possible for the model of the object to accurately mirror its near real-time state.
“A digital twin container is utilized to permit off-chain state persistence and on-chain state traceability, where the container can be deployed on the blockchain as well as on traditional application servers,” note Avrilionis and Hardjono.“The digital twin container becomes the bridge between legacy infrastructures and the newly emergent blockchain infrastructures, permitting legacy systems to interoperate consistently with blockchain systems.”
“We believe that a new and broader computational paradigm is needed to underpin and encompass blockchain-based digital asset transactions. This new paradigm must permit assets to flow into and out of blockchains and legacy systems seamlessly. It must also allow off-chain data and other asset-related state information in digital form to be reachable by the smart contract. Moreover, computations occurring in legacy systems must also be possible in coordination with smart contracts.”
For example, if an applications seeks to modify the state of an asset, it must insure that the real-world asset, - like a bank account, medical record, real estate ownership certificate, or computer model of a physical object, - and its respective digital twin representation on the blockchain or DLT are fully synchronized. “This continuous synchronization is performed to prevent changes in the asset ownership on the blockchain from being conducted without a corresponding state-change in the real world asset.”
The paper reminds me of the e-business strategy we developed in IBM in the mid-1990s to explain the business value of the fast growing Internet. Companies could now engage with their customers, suppliers, business partners, and employees in a much more productive and efficient way by simply integrating their legacy applications and data bases with the emerging Internet and Web technologies. The business world was thus able to rapidly embrace the Internet, which then led to a series of major innovations over the next two decades. Similarly, the current interoperability efforts between blockchain/DLT technologies and the now much larger base of legacy IT systems will facilitate the commercial adoption of these technologies and lead to future major innovations.
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