B L O C K C H A I N — E N T R E P R E N E U R S H I P
Insights and thoughts about the current blockchain hype
Blockchain is on everyone’s lips. But is a blockchain necessary at all? As a company, you ask yourself the question: Does my company need a blockchain?
In order to consider whether a blockchain makes sense at all in your company, you should ask yourself a few questions. In the following diagram, you get a decision tree if a blockchain is necessary. You will then receive more detailed explanations of the individual questions. PS: By the writer, I mean nodes that actively add data to the blockchain.
Do you have to save data or states?
This is the simplest question, but it should also be answered. Are there any data at all that needs to be stored? This is still completely independent of the blockchain. This is about the need for a database in general.
If you do not intend to store any data with your company, you do not need a blockchain.
Are there multiple writers?
Only then can a blockchain be necessary if there are several writers or active nodes that collect transactions in blocks and insert blocks into the blockchain.
This is because the technology offers no advantage if only one instance wants to store data. So you don’t get any additional security or trustworthiness.
So, you don’t need a blockchain if there is only one instance that writes data. A regular database would be better here because of faster response times and data throughput.
Is there a trusted third party?
If all parties agree that they can fully trust a particular third party, a blockchain is not absolutely necessary.
A blockchain has its advantages in avoiding central instances which are not 100% trustworthy. Corrupt authorities or banks at risk of bankruptcy are mentioned here as 2 examples.
I neglected other advantages like cheaper or faster processes without a third party. Of course, this has to be considered.
However, a trustworthy third party can lead to the fact that no blockchain is necessary.
Are all writers known?
If all parties know each other, they can decide for a permission blockchain. This is not a publicly accessible blockchain but only reserved for certain participants. This can be limited to participants within a company or several cooperating companies together with their suppliers and customers.
In the event that not all participants are known to each other, the permission blockchain is omitted. The Bitcoin or Ethereum are good examples for public blockchains because logically not all participants know each other.
In the case of a permission blockchain, you should note that its philosophy is somewhat different from the originally decentralized approach of the blockchain and more in the direction of the central databases.
Are all the writers trustworthy?
If all parties know and trust each other, no blockchain is necessary. Of course, it can be used because of other advantages, but here the disadvantages have to be considered.
If none of the participants is maliciously active in the network but trustworthy, a regular database with shared write access can be the better solution.
Is public auditability necessary?
The permissioned blockchain represents a solution in the event that all writers or participants in a network know each other but do not trust each other completely.
A distinction would still have to be made: If the writers in the blockchain are to be subject to approval, but anyone is allowed to read the data, it would be a publicly permissioned blockchain (even in these cases, the blockchain is able to encrypt critical data and comply with data protection rights).
In a privately permissioned blockchain, in addition to the writers, the readers are also limited.
Is blockchain necessary — does my company need a blockchain?
Based on the diagram and the detailed explanations of each decision question, you have now been given clues as to whether a blockchain is necessary or not. The content basis for this is taken from the work “Do you need a Blockchain?” by Karl Wüst and Arthur Gervais (https://eprint.iacr.org/2017/375.pdf, accessed on 08 April 2019).
With regard to the diagram, it can be said that a blockchain makes sense if there are several instances that interact with each other, but cannot or do not want to trust each other and a third party completely.
There are other aspects to consider when deciding whether a public or permission blockchain is necessary or a central database:
- Response times
- Number of participants
- Centrally or decentrally managed
Besides, the blockchain is not a solution for everything. So there are conceivable applications in the logistics industry. However, here malicious actors can leverage the effectiveness of the blockchain.
For example, by deliberately exposing temperature sensors in transporter to a prescribed temperature using a small refrigerator of their own. The rest of the transporter, however, is uncooled, which the freight forwarder hopes will save him money.
Instead of enthusiastically rushing into the blockchain technology, you should deal with your company soberly and objectively. The Blockchain should solve a real technical, entrepreneurial problem and not only be introduced for the sake of technology.
Nevertheless, the blockchain has many uses to meet speed, cost or trust requirements. In areas with several parties, it can provide transparency and bypass third parties.