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Breaking Blockchain  — A Framework to Evaluate Blockchain Use Cases

Go to the profile of Leo Jiang

How to determine a real blockchain use case with 11 questions

The truth behind the hype

I used to be born in a medium-sized metropolis in Northern China named Harbin, a spot that’s principally well-known for 2 issues: beer (the primary beer brewery in China was based right here) and ice sculpture. Leading edge know-how is quite distant to the town of Harbin. Dad was a retired businessman who spent most of his life within the hospitality enterprise sector. In one among my current visits house, dad requested what I’ve been busy with these days and I advised him that I had been busy with one thing referred to as “Blockchain”. His reply shocked me, “I know what that is”. When my previous man informed me that even he is aware of blockchain, then I knew for positive that there’s large hype about blockchain. The one query that popped to my thoughts was, simply how huge is that this hype round “blockchain” or “distributed ledger” know-how?

Gartner provides a reasonably spectacular reply because it forecasts that the enterprise worth of blockchain will attain $360 billion by 2026, surging to $three.1 trillion by 2030. Individuals and companies leap proper into the craze of blockchain with the mindset that it’s the “new Internet”, investing on an ICO and rolling out a blockchain answer with out understanding the elemental drawback that blockchain is fixing (refer to “The Age of Trust — The Problem Blockchain Solves that Others Cannot”).

Within the MERL Tech 2018 convention in Washington, DC, three MERL practitioners documented 43 blockchain use instances by way of Web searches, most of which have been described with glowing claims like “operational costs… reduced up to 90%”.

“However, we found no documentation or evidence of the results blockchain was purported to have achieved in these claims. We also did not find lessons learned or practical insights, as are available for other technologies in development.”

I contemplate most of those use instances to be funded by startups, so perhaps that gained’t rely.

What about within the company world?

Having labored with a large spectrum of multi-national corporations, I view the so-called “Blockchain projects” to be extra pushed by the FOMO (worry of lacking out) issue as an alternative of by compelling use instances that are structurally evaluated. I typically hear claims akin to “We already implemented blockchain in our system” (most of that are “Proof of concept” tasks). I then ask for what the use case behind their blockchain challenge is and discover out a lot of the use instances didn’t want to apply blockchain options. So, what occurs to a few of these tasks? They acquired launched, the corporate received the headline, then individuals went again to the legacy system as they have been a lot simpler, user-friendly and cheaper to use and keep. In accordance to CNBC, “84% Of Companies Are Dabbling In Blockchain”. To be truthful, blockchain continues to be at its early stage; most of corporations are discovering and experimenting round blockchain with the purpose of proving the viability of its use of their companies. Refer to the determine under.

Determine 1: Blockchain adoption cycle

The aim of this text is to present you ways to structurally consider blockchain concepts, decide up the actual use case and apply the fitting sort of answer.

The blockchain use case analysis framework (2019)

To help you in evaluating blockchain and figuring out the best use case, I developed a blockchain use case analysis framework I name the “Chili Sauce Blockchain Evaluation Framework”. Right here are some things to pay attention to:

1. This framework was developed with reference to the white paper “Blockchain beyond the Hype” from the World Financial Discussion board (WEF).

2. I made a lot of modifications, i.e. I felt the unique white paper didn’t contemplate options like “asset tokenization,” therefore it regards bodily belongings not appropriate for blockchain.

three. I added and eliminated a number of questions based mostly on my expertise from engaged on company blockchain tasks in addition to startup ICO tasks.

four. This framework is sure to be a reside doc and might be up to date as blockchain know-how progresses. please comply with me on Medium and LinkedIn to get the newest framwork and pdf model.

Determine 2: Chili Sauce Framework — a blockchain use case analysis framework

A: Are there compelling occasions to take away intermediaries?

The very first thing to think about whenever you consider any blockchain use case is to perceive what issues you are attempting to remedy and subsequent advantages. Blockchain introduces a belief mechanism that’s trustless. In different phrases, it’s unbiased of the place it resides and who operates it, because the belief mechanism is mathematically confirmed. Therefore, it removes the intermediaries and unlocks a brand new sort of enterprise mannequin and set of advantages.

B: Are you working in a multi-stakeholder surroundings (i.e. greater than 2 entities are concerned)?

Blockchain is best in coping with a multi-stakeholder state of affairs, ideally involving greater than 2 entities. Trendy monetary accounting is predicated on the double-entry e-book holding system and it comes with its limitation by design. For instance, it requires a 3rd celebration to validate the transaction document. Blockchain supplies an answer to this limitation by introducing three-entry accounting during which all accounting entries/transactions involving outdoors events are cryptographically sealed by a 3rd entry and reside in a shared ledger. The third entry serves as a digitally signed receipt for the events concerned within the transaction, which could be verified with out the necessity for a central certifying authority or a clearing home.

One instance of any such surroundings is roaming providers for cellular community operators (MNOs) and Telcos the place all of the cellular community operators depend on knowledge and monetary clearing homes (DCH/FCH) for the info, voice and monetary reconciliation service. Making use of blockchain to roaming providers will probably save MNOs hundreds of thousands by eradicating the necessity of utilizing intermediaries resembling DCH and FCH.

C: Are you working with digital belongings as an alternative of bodily belongings?

Blockchain is efficient when it comes to “digitally native” belongings. With asset tokenization it turns into possible to apply blockchain with bodily belongings additionally. For instance, Quorum, an enterprise model of Ethereum developed by JPMorgan, is used to tokenize gold bars based mostly on Australian Monetary Evaluation.

Observe, this risk was dominated out within the unique WEF white paper. Whereas I consider it’s potential, I’ll recommend you proceed with warning given the next issues:

C1: Do you’ve got a strong “Tokenomics” mannequin (i.e. one which helps asset tokenization)?

“Tokenomics” is a mixture of token + economics. The newly created phrase describes the very precept of asset tokenization rather well, that’s the enterprise mannequin of digitalizing bodily belongings to models of digital worth (token) wants to make financial sense. That requires you to take into consideration the position of your token in your “tokenomics” mannequin, its functions and the options that fulfill these functions. For instance, a key position that the designated token performs is worth change. The aim of worth change is to guarantee customers are in a position to earn worth and to spend it on providers which are inner to the inherent ecosystem. For extra particulars about tokenomics, I’ll refer you to the article “Tokenomics — A Business Guide to Token Usage, Utility and Value” by William Mougayar.

C2: Are you able to couple digital belongings with bodily belongings with everlasting and authoritative report of proof?

For my part, that is in all probability probably the most troublesome a part of asset tokenization. I name it “the last mile challenge” of asset tokenization. The phrase “last mile” is usually used within the telecom world to describe the ultimate leg of the telecom community to finish consumer premise. The final mile can also be the costliest a part of the end-to-end community connectivity as it’s typically not owned by the telecom firm who delivers the end-to-end connection. Within the blockchain world, to mirror bodily belongings with digital tokens, you want to have the ability to hyperlink the 2 types of belongings legally and financially. For instance, in case you are going to tokenize an actual property property, the “token” wants to have the identical authorized binding as your property possession certificates endorsed and guarded by the native jurisdiction. That is the primary a part of the final mile problem — how do you legalize the tokenized asset? The second a part of the final mile problem is on the monetary aspect. At present, the overwhelming majority of nations have legal guidelines that require monetary establishments to use depository banks for securing asset collateral. No such depositories exist for digital belongings. This implies there are not any authorized means for digital belongings to be secured to be used within the mainstream monetary sector, whatever the state of the know-how.

Briefly, asset tokenization by way of blockchain is extra of a enterprise problem than a technical problem.

I’ve seen many ICO startups fail to tackle this half regardless of how technologically savvy they’re. To proceed with warning is strongly suggested (I plan to write a devoted article on the “The Last Mile Challenge” and related mitigation recommendation. You’re greater than welcomed to comply with me on Medium or LinkedIn for the replace.)

D: Do you require shared write entry?

Do stakeholders in your community want to give you the chance to write transactions to the blockchain? If the reply is “No” you then don’t want blockchain as the answer.

E: Do you require excessive efficiency, speedy (milliseconds) transactions?

Blockchain shouldn’t be very environment friendly when it comes to transaction velocity due to its consensus mannequin. Does your use case require the transaction to be in milliseconds? In that case, you will have to rigorously consider totally different platforms to ensure they meet your requirement. For instance, IBM Hyperledger Material makes use of a brand new execute-order-validate structure which boosts the transaction velocity to three,500 transactions per second in a single cloud knowledge middle surroundings.

F: Do you plan to retailer non-transactional knowledge as a part of your answer?

The essential utilization of ledger is to report transactional data. This works properly for blockchains designed to host a foreign money which makes use of a transaction mannequin. The info saved on chain are transactional knowledge. Contemplating a lot of the chains solely permit a restricted quantity of knowledge to be saved on chain i.e. within the vary of kilobytes, it’s subsequently not sensible to retailer non-transactional knowledge reminiscent of movies, photographs and so forth. due to their measurement. So in case you intend to retailer giant dataset or non-transactional knowledge as a part of a blockchain answer, I recommend you take a look at a hybrid answer involving each blockchain and a standard answer. For instance, storing the hash of knowledge on blockchain and storing the precise knowledge off chain i.e. on a database. That approach we will inform if our knowledge was modified by simply wanting on the hash. For extra info, I recommend you learn: “Storing Data on the Blockchain: The Developers Guide”. Lastly, ask your self the very first query earlier than continuing additional, why think about blockchain?

G: Would you like/want to depend on a trusted celebration, for instance, for compliance causes?

If an business has particular necessities on using intermediaries or trusted companions, then it might be difficult to deploy blockchain, even when different advantages of its use are readily obvious. The important thing problem is to persuade them to play an element in your ecosystem.

H: Do you want to give you the option to management performance?

If the power to change the performance on a blockchain (e.g. node distribution, permissioning, engagement guidelines, and so forth.) with out having an in depth dialogue throughout the massive open-source boards for blockchain is fascinating, then you need to choose a personal, permissioned blockchain.

I: Ought to transactions be public?

If transactions want to be stored personal, then a personal, permissioned blockchain is acceptable. If not, then a public, permissionless blockchain could also be used.

The Chili Sauce Concept

Why do I would like to identify it because the “Chili Sauce Blockchain Evaluation Framework”? as I felt blockchain is like chili sauce. Chili sauce is shocking as a result of you’ll be able to put it on a variety of issues and it actually tastes good. However there are some issues chili sauce simply doesn’t belong on. For instance, you’d by no means put chili sauce on an ice cream. Perceive that blockchain is like chili sauce — there are a whole lot of areas you possibly can add slightly splash of blockchain to, and find yourself making a a lot better and extra compelling answer. Nevertheless, it’s definitely not a one measurement matches all, all or nothing sort of proposition. Blockchain is basically greatest when it’s mixed with typical know-how.

Lastly, I hope you possibly can take away this nugget:

“The success of blockchain implementation is never about the technology, as it wasn’t built on technological innovation, but rather a new way of managing transactions.”

For those who discovered this text helpful and would really like to view my different work please make sure to clap and comply with me on Medium and LinkedIn!