Currently Blockchain is firmly established on the hype curve, and as with all technologies at this stage it seems this is the answer to, well just about everything. At this early stage of the hype curve the exciting possibilities always exceed the tested deployed solutions. Reality arrives with early adopter experiences showing the real technology capabilities that match genuine business case requirements, with corresponding deployable product sets.
You don’t have too read too many articles to sense the lack of cohesion in technology views as to what the various pluses and minuses of Blockchain technology may be. Nor to realize the generality of the concepts as to the business value it brings. However these arguments can be better understood and rationalized by examining the two basic Business requirements, which are fundamentally different from each other.
Instead of launching into the usual definition and description of Blockchain, (inevitable in some way linked to Bitcoin), lets start with the basic capability requirements for the business solutions. It is for a shared Asset Register of transactions, but transformed from existing Asset Registers by Digital Business/Markets requirement for no single centralized controller to support its ‘any to any’ operating model. Event driven and optimized interactions rely on finding the right partners for any deal unconstrained by the need for pre-established relationships.
It sounds simple, but full-scale market places operating in a fully decentralized manner using, on demand any to any interactions business and technology model is a new phenomenon. However not all Digital markets have the same characteristics so the simple common requirement definition splits into two major, different requirements introducing the split between the two major technology approaches; Blockchain and Distributed Ledger Technology, known as DLT.
Two major Business requirements;
- Fully Secure and Authenticated Transactions; usually associated with FinTech, (financial technology) and the commercial settlement of financial transactions. Here the basic mechanisms of Blockchain are a key aspect of the attraction, and the challenge is to overcome the associated limitations.
- Mass Updates of Asset Registers; usually associated with IoT endpoints data transfers and associated micropayments. In this role there are questions as to the basic suitability of Blockchain architecture leading to the development of other techniques, including ‘Blockless’ Blockchain.
Though the differences between the two are substantial the basic task of managing and updating an Asset Base with transactions is common; as is the challenge of its distributed across a network of participants. The question is the tradeoffs between the two requirements concerning what is transacted and the manner in which every participant’s copy is maintained to be identical. The numbers of participants, the size of updates, their timing and manner of updating, the secure approach used, together with the form of cryptography are all variables to be ‘adjusted’ according to the exact business requirement.
There is one fundamental difference between Blockchain supporting FinTech and Distributed Ledger Technology supporting IoT. Participants in the former are permanently connected to the network to maintain their registers and authentication, whereas IoT devices are often only periodically connected to conserve battery and bandwidth usage. The basic Blockchain architecture requires the participants to maintain connectivity and abilities to update as a key part of its security authentication, IoT focused Distributed Ledger Technology solutions seek to overcome this.
Bitcoin illustrates some of the challenges in deploying Blockchain Technology based solutions. Bitcoin requirements suit its role as a specialized crypto currency, but with increasing popularity the limitations of transaction updates, and network/processor demands becoming obvious. The tendency for many articles to use Bitcoin’s success as the basis for Blockchain’s suitability other requirements frustrates those with detailed expertise, creating further confusion around ‘Blockchain’.
Bitcoin proves that it is possible to implement and deploy a global decentralized Asset Register and Transaction Recording solution that is automatic, autonomous, auditable, and securely authenticate by allowing all participants to understand the integrity of the process. This established starting point has created huge interest in the potential of using the mathematical principles of ‘Blocks’ as the basis of developing solutions for Business requirements.
Whatever the requirement; FinTech, or Asset Register; Blockchain or Distributed Ledger there are four common basic capabilities required in a commercially acceptable solution, and the challenge is to achieve this whilst enabling the other specialized requirements.
- Permanent unbreakable relationship between the Asset and the mathematic Authentication; a substantial and unacceptable risk lies in the two being separate entities that can be exploited and combined separately.
- Sophisticated Identity Management; able to support full identity authentication to the direct participant’s in individual transactions, whilst ensuring the individual transactions updating the distributed Asset Registers are totally anonymous.
- Complex Transaction Management; capable to ensuring the form of transaction is standardized, transparent, and distributed to all Ledgers within the determined time frame.
- Consensus based Trust model; to ensure that all participants collectively are able to verify all transactions through common comparison of their Asset Ledgers.
Examining just the most simple basic requirements for FinTech Transactions versus Mass Update Asset Registers illustrates just how different the Business solutions and resulting the technology development are;
|
Core Requirement |
FinTech |
Mass Update Asset Mgmt |
|
Principle use |
Auditable financial payment transactions |
IoT Device updates with micro payments |
|
Volumes/ Transaction sizes |
Low volumes with relatively large transaction data |
Massive volumes with exceeding small transaction data |
|
Security/Reliability |
Absolute, both transaction and end devices must not be accessible to hackers |
Functional, acceptable as individual transactions low value, & dumb end devices |
|
Cost |
Transactions are each of high importance/value and higher cost is acceptable. |
Transactions are individually of low value and cost must match |
As a generality the development of Blockchain with its secure use of ‘Block’ technology suits the primary requirements of FinTech, whilst the inherent limitations that Blockchain imposes make it less suitable for the development of Mass Update of Asset Registers solutions. (HyperLedger, one of the most popular Blockchain consortiums, has now started ‘Performance and Scalability Working Group’, PSWG, to address this topic).
Whilst a great deal has been published about the development of Blockchain based solutions, (see appendix for Constellation Research reports and blogs), very little has been said about alternatives. Whilst there are a number of existing traditional centralized approaches for Asset Register management even if they could be modified in some way they would fail at least some of the four basic principles outlined earlier.
The Trusted Internet of Things Alliance, aims to rectify the lack of attention to the need for Mass Update Registers solutions for IoT market places by building on the work of one of its founding partners IoTA. Founded by David Sonstebe, with a group of mathematicians who had worked on Blockchain, the focus is on the IoT challenge. The initial Whitepaper on its approach can be found here, but the following quotes by its founder provide a simple explanation as to the goals of the IoTA’s Tangle Ledger approach;
At heart Hyperledger is a permissioned ledger, and that’s the antithesis of IoT, which has to be open to realize its potential. IoT cannot be a closed ecosystem because that is literally the opposite of interoperability. IoTA Tangle Ledger is a Directed Acyclic Graph, as opposed to the linear Blockchain design, allowing the systems to settle transactions with zero fees and allow trading in specified resources on demand.
The recent IoTA announcement entitled ‘IoTA’s Tangle meets IOT requirements better than any Blockchain’, sums up the issues to be addressed and compares Blockchain technology with the IoTA Distributed Ledger Technology. The detail makes clear the deep differences that have to be addressed and is a must read for anyone contemplating involvement in IoT solutions. There are more issues than just the often remarked through put and scaling difficulties including the need to support periodic connect and disconnection of participating devices that appear to render current Blockchain architecture unsuitable.
Blockchain has the headlines, and in Bitcoin has convincingly demonstrated that it can meet the difficult requirements for an any to any decentralized business transaction solution. When applied to Business requirements that require the rigors of secure authenticated decentralized transaction management between known Ledger participants then Blockchain has compelling features.
But there are other types of requirements for decentralized transaction solutions which require high volume, low cost, good enough secure Transaction management, often with periodic connection. Here alternatives to Blockchain based on Distributed Ledger Technologies are emerging
Reversing the approach by defining the basic business requirements helps rationalize the frequently confusing statements being made. As an example anyone involved in the design and deployment of IoT solutions should investigate alternative developments such as IoTA Tangle.
Additional Material; Constellation Reports and Blogs
Update on HyperLedger with release of Fabric 1.0 for the use of solution developers
Report; Blockchain explained in plain English
