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Technology Kaplan

3 Blockchain Questions to Ask Prior to Adoption


Sponsored by Kaplan

Forget the hype and technical jargon. These are the considerations executives must analyze before blockchain implementation.

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Blockchain is arguably is one of the most discussed topics in the financial services arena since the integration of computers and computer software into the professional landscape. Entire conferences have been held on the topic, articles are seemingly written on an hourly basis, and entire books are dedicated to helping readers better understand the topic. The simple truth is that no one person, and no one firm, has a monopoly on blockchain expertise or knowledge. Such a situation creates a unique situation; while almost every organization and management team is interested in blockchain, a large amount of uncertainty still hangs over the space.

This article will not address all of the questions or ambiguity, but rather should serve as a conversation starter that can help work through three key issues: 1) whether blockchain as it currently stands is worthy of your time and investment; 2) if yes, what type of blockchain solutions work the best; and 3) what key considerations to keep in mind moving forward.

Let’s get started.

1. Is blockchain the right fit?

Blockchain has received a great deal of discussion and investment after Bitcoin burst onto mainstream media coverage in 2017. Although these two topics are often discussed in the same conversation, they are not the same thing. Put simply, blockchain is the technology and solution that powers the cryptocurrency space, and puts the “crypto” in cryptocurrency. Organizations such as IBM are moving aggressively to establish blockchain market leadership by offering platforms like Hyperledger for adoption, experimentation, and education. But a hard question needs to be asked: will blockchain—as it is currently constituted and operates—perform tasks and processes better or more efficiently than current technology infrastructure? 

Depending on the size, scope, and available resources of your organization, that answer may be “not yet.” Now, even if you are not planning on rolling out blockchain this year, or even next year, that is no reason for you and your organization to not be well informed on the topic. Even if your firm is waiting for blockchain to become more user friendly and scalable, your clients, partner organizations, and prospective clients will expect there is organizational knowledge on this subject.

2. What type of blockchain should be implemented?

Not every blockchain is the same. Blockchain has been tossed around quite a bit in the media—including virtually at every accounting conference—but it’s often discussed as if it’s one concept or idea. That could not be further from the truth. There are literally hundreds of different blockchain options that exist in the marketplace, including some with industry specific applications. There are three common blockchains that are used.

Public Blockchains 

These are decentralized and can be joined by any individual or organization with a computer or server capable of running the operating software. While free to install, the approval and verification process around entries can make this model less appealing for business applications due to the fact that it can take a relatively long amount of time per transaction, and each approval also requires significant computing power. This is the model used by Bitcoin, and is also associated with the proof of work (PoW) approval methodology, which in turn has caused a conversation around the amount of computing and electrical power used to support the Bitcoin blockchain.

Private Blockchains 

These are where a large percentage of the current investment and activity is taking place, such as the announcement by Walmart to use blockchain for food safety concerns. This is because in a private blockchain, there is an organizing firm that, in addition to establishing the underlying protocols and computer language, also serves as a mediator for any disputes and gatekeeper for who can join the network. While not a pure blockchain—since it is not entirely decentralized—this model does appear more closely aligned with business use cases. A good way to summarize this concept would be to think of it as a hybrid that combines some of the characteristics of blockchain with the (usually) more familiar concept of a cloud-based private network.

Consortium Blockchains 

These represent an idea where several different institutions pool resources to establish the blockchain and associated protocols, and collaborate to outline the approval and verification processes—which may make sense in the case of different organizations that have large number of transactions with each other. For example, in a consortium setting, in order for any data to be added to the blockchain, a subset of nodes (members)—like the three largest—must verify and approve this data. Every consortium is different, but generally rely on a certain subset of network members to act as the members who approve  blocks as they are created instead of - effectively - using the entirety of network members

3. What other considerations should be factored in?

After all of the other aspects of blockchain have been debated and addressed within the organization, and the decision has been made to move forward with a blockchain option, the first part of adoption is complete. The second part, which may not attract as many headlines or coverage, is to make sure this decision is carried out effectively. 

Clearly every organization is different, and different industries will have varied regulatory guidelines pertaining to different aspects of customer data and information technology, but the following are points to consider, discuss, and plan for as blockchain adoption gets underway:

  • Who will be contracted to build the blockchain? Will this be done internally or (more likely) will an outside firm be utilized? In either case, resources need to be allocated to help ensure that as this new technology is onboarded, current controls are maintained or even strengthened.
  • How will blockchain connect to existing systems? Something that often goes undiscussed in the blockchain conversation is that blockchain is a technology system that will need to connect to current systems. The daunting nature of this challenge might lead some firms to, for example, create a pilot blockchain program focused on a specific area of the firm and organizational data at first.
  • Who is paying for this? The simple reality is that blockchain adoption, implementation, and integration is not a cheap proposal. Between developers, programmers, internal and external resources to test the system, and the personnel necessary to maintain the system—fees can escalate quickly. In addition to making sure that the funds are available, both for initial adoption and future maintenance, a conversation needs to be held to help determine which functional areas of the firm will contribute resources. Blockchain is a technology tool, but if it is being piloted as a strategic experiment, should information technology be footing the entire bill?

The blockchain space is very technical, fast moving, and is changing on a continuous basis. That said, without having to dive too deep into the computer programming weeds and technical jargon, there is no reason why any organization should remain uninformed. No single article is comprehensive, but I hope I have given you food for thought, and questions to ask, about this critical area moving forward.;

To learn more, register for the upcoming webinar, Blockchain - What You Need to Know.