Utility Criteria Determine Blockchain Applicability
The so-called distributed ledger is not for everyone, despite broad hopes.
Blockchain has achieved enough recognition and use so it no longer is a fad, but neither is it a panacea. Companies and organizations are discovering limitations to its usefulness as they embrace what they originally thought was the answer to all their concerns. While some of these hopes have been found wanting, the new cryptographic record-keeper is still evolving, and it ultimately may develop into a tool with utility far beyond current expectations.
“Blockchain is not the answer to everything, but it could be a part of the answer in the right use case,” offers Nikhil Shenoy, CEO and co-founder of Colvin Run Networks. “The most important thing that people can think about in blockchain is whether it is the best tool for the situation.”
He cites the space shuttle as an example. It worked well for placing or retrieving large payloads into low earth orbit, but it would not have been effective as a short haul transport between two cities. The metric for determining if blockchain is effective for a particular application or organization is to understand where blockchain is the best answer to a problem. While organizations are pursuing an answer to that, some will discover new capabilities that could turn out to be society-changing.
“The development of blockchain will be attributable to significant improvements both in government and the private sector—and in ways that we haven’t [had] yet,” Shenoy states.
A favorite term for blockchain is “distributed ledger technology,” Shenoy notes. It defines as a shared version of the truth where everyone has the same information in front of them, and that information is added to the database only based on a shared understanding of the rules—a consensus, he offers. A copy of this database of transactions can be made available to chosen viewers across multiple locations in a peer-to-peer network without control by a centralized third party.
Where previous platforms required trade-offs between performance and security, blockchain achieves both, Shenoy points out. He suggests that blockchain makes the most sense in uses that require a lot of compliance, benefit from disintermediation or reduced ecosystem friction, and need a robust system that can continue if one part goes down. Cryptocurrency embraced blockchain for these reasons, he adds.
Shenoy offers that the most interesting place to start evaluating blockchain’s suitability is “when you have multiple and different incentives but with common goals.” Having regulated boundary conditions with a high requirement for compliance also is key. Third is actionable shared data, in which people are willing to disclose certain parts of data that do not harm their business but could improve the overall well-being of the community.
For example, people might know of a dollar transaction between two parties. They would not know how much money each party has after the transaction, but they would be aware of the deal. “You have data that people are willing to share and benefit from seeing that data with everyone else,” he explains.
With these criteria in mind, the best use cases for blockchain are supply chains, Shenoy suggests. Cryptocurrency, for example, is just another type of supply chain in which people transact value without necessarily knowing the counter-transaction, he expresses.
Organizations that are unsure about turning to blockchain should consider whether they can accomplish their goals cheaper, better and faster with traditional tools instead of blockchain, Shenoy offers. This goes back to his space shuttle analogy, he adds.
Blockchain is not ideal for any organization that wants to maintain control over its data or processes, he declares. Even internal processes with a high degree of trust are not necessarily a good fit for blockchain.
Yet blockchain has great unrealized potential that only can come out through trial and error. “It’s important to maintain healthy skepticism,” Shenoy says. “It’s important to invest; it’s important for governments to participate and fund these types of activities; it’s important to be willing to fail and experiment. Taking smart risks, trying to understand what those risks are in the context of the potential benefit, it’s really important to understand when and how to use blockchain for the maximum social good,” he declares.
Blockchain already has been applied to government acquisition (SIGNAL Magazine, March 2019, page 37), which Shenoy describes as one of the first real government use cases. The Department of Health and Human Services (HHS), particularly its HHS Accelerate, has had several initiatives that allow it to share procurement data. HHS Accelerate received its authority to operate late last year. The department is extending this capability to the U.S. Army and Air Force, he adds, noting this would help people across government access better data using a blockchain-based framework.
“The government is in a phase where it has moved from proof-of-concept to thinking about where the right [blockchain] applications might be,” Shenoy says.
The National Institute of Standards and Technology (NIST) summarized blockchain applicability well with its decision tree, Shenoy offers. A complication is that blockchain is always evolving. “There is probably a new blockchain platform out every day, at a minimum,” he states. Add evolving standards to the mix, and separating the wheat from the chaff is “more an art than a science,” he says.
Military uses of blockchain are emerging as the services realize its applicability. In addition to acquisition, command and control is suited for its use. It will enable new types of coordination, Shenoy says, and avoid single points of failure in defense communications and networking. He analogizes it to a swarm of drones in which one drone is shot down, and another drone assumes its mission while the others autonomously adjust to this new configuration.
Outside of finance, blockchain will have its biggest impact on the supply chain, Shenoy posits. Walmart recently conducted a proof-of-concept for it, he says. The second most affected area will be commerce. Blockchain will influence barter and value exchanges, for example. The third area will be higher education, he observes. Standards-based learning will see blockchain’s first effects. Skills will be more transferable through distributed learning. “The collective knowledge of mankind is in everybody’s pockets right now, and I think we’re just starting to scratch the surface of how that works,” he declares.
Ultimately, blockchain will evolve in different directions. “I think you’ll see that the publicly available blockchain and the private blockchain are two completely different things,” he predicts. A third approach that is gaining momentum is a hybrid concept that resembles a highway system. Transactions take place internally, but cryptocurrencies such as bitcoin or ethereum are used as an anchor of trust, Shenoy says, adding, “It’s almost like paying a toll to certify a transaction. You do everything in your own system, and then you only interface with the public one with your trust anchor.”
As with other revolutionary technologies, blockchain will spawn major societal changes. As barriers to using cryptocurrency fall, more people will transact exclusively with cryptocurrency or a blockchain variant. This will happen first in countries that do not yet have fully developed banking systems and have high inflation and mismanaged central banks, Shenoy predicts.
Many developing countries are fully embracing blockchain-based government, he continues. Government control of the process means it is not blockchain in the purest sense, but it does feature highly trustworthy credentials. “There will be some very unexpected winners and losers as the technology evolves over the next three to five years,” Shenoy declares.
He sees blockchain fundamentally altering the concept of government. “It’s not whether [governments] adopt it or not, it’s whether they evolve to remain relevant,” he says.
Part of this will be personal identification. The average driver’s license for a person in the United States contains a plethora of personal information that is not needed for that purpose, Shenoy points out. Many businesses request to see a license for identification, and they can obtain access to this personal information. Using a trusted methodology, blockchain identity can serve to attest to a person’s relevant characteristics without sharing everything about that individual. It would provide only the information needed by the institution requesting identity verification.
He says that this change is more than just the form. “The idea of what is an identity is going to evolve,” he asserts.