Blockchains — A Catalyst for Digital Transformations: Challenges & Approach
What are the barriers to BlockChain adoption today? How can one start with BlockChains from a Transformation Consultant perspective?
This is the third and final article of the series — ‘Blockchains — A Catalyst for Digital Transformations’.
The first part dealt with an overview and the problems that BlockChain solves for organisations undergoing Digital Transformations.
Blockchain — A Catalyst for Digital Transformations: Problems Solved
How BlockChain addresses some of the issues faced by Digital Transformation initiatives in wanna-be Digital Economies
The second part dealt with how BlockChain should be treated as a foundational technology and we saw some of its real world applications
Do not expect an overnight transformation to happen with BlockChain. It will take time!
In this article from McKinsey, Blockchain is depicted predictably in the Pioneering stage.
We would need more scalable use cases and applications where BlockChain can be truly tested and it leaves its competitors behind in terms of performance. Until then it challenges what is known as the Occam’s Razor Problem, the statement of which goes as:
“Suppose there exist two explanations for an occurrence. In this case the one that requires the smallest number of assumptions is usually correct. Another way of saying it is that the more assumptions you have to make, the more unlikely an explanation. Occam’s razor applies especially in the philosophy of science, but also more generally.”
So, in technology, the simpler solution is supposed to be better. Will BlockChain, with its inherent complexities and properties be the best fit for the solutions that we are envisioning? Could this be an overkill?
The factors questioning the prophecy:
Is it as safe as it is made to be?
Be it glitches with supporting systems or with the blockchain implementation itself, since 2017 more than $2 Billion worth of Cryptocurrency has been stolen. The very fact that transactions cannot be reversed, makes it a double-edged sword — fraudulent transactions, once introduced cannot be reversed as well. This makes it a target for even organised cybercrime syndicates.
The blockchain contains the list of transactions that happened. What if I were to replace this version with a new version (fork) where the payments never happened? I would then be able to re-use the cryptocurrencies for my purposes, while the ‘immutable’ truth is changed for ever!
This is the 51% attack that we hear of in the BlockChain context. Most Cyrptos such as BitCoin and Ethereum use blockchains that have ‘Proof of Work (PoW)’ as their basis (spend computing power to solve ‘puzzles’ and come up with the ‘hash’ to establish themselves trustworthy to add new blocks).
So instead of individuals hold large amounts of money (Proof of Stake), it is the one with more computational power who can solve puzzles and become a decision making authority. For an established crypto such as BitCoin, getting to control the majority power (51%) is nearly impossible. But as we had see in the case of Ethereum Classic, the heist was pulled off by an attacker who gained control of more than half of the computational power. A theoretical scenario, just discussed as a ‘What-if’ came true in a matter of just a year!
Smart Contracts have also been vulnerable to bugs that hackers have been able to exploit. AI based audits and transactions monitoring is now in development to detect and resolve vulnerabilities in systems and contracts (Bug Bounties soon for Blockchain!).
Scalability is a challenge to adoption as well. The data base replication across multiple nodes, and the growing amount of data will needed limitless storage. The need for space, bandwidth and the power needed to carryout the computation increase along-with. We really do not have many applications at the moment — what will happed if more data intensive use cases are implemented using block chain? Will firms be able to afford the space and power requirements?
Speaking of power, there are some interesting numbers:
The amount of electricity used for mining Bitcoin (one of the cryptocurrencies) last year has been tagged at 64.15 TWh (1 TeraWatt hour = 1000 GigaWatt hour = 1 Million MegaWatt hour). This is more than the electricity requirement of Switzerland for the complete last year!
The lack of established industry standards and a governance mechanism would mean that collaboration, direction and establishment of foundations for rapid development and adoption of BlockChain applications is going to take time. The efforts from different individuals and organisations are going to be siloed leading to much redundancy and inefficiency that could be avoided with a global watchdog. Plenty of work is needed to standardize rules, systems, peer transactions and most importantly, data handling.
The constraints will, no doubt diminish as the technology progresses, but until then companies are going to be cautious about investing in Blockchain. Apart from the operating costs, the associated switching cost, including building a blockchain ready workforce, is going to play a key role in the decision making process. How many start-ups can today project sufficient credibility and authority for organisations to decommission their ‘trusted’ legacy systems and jump on the BlockChain bandwagon?
As an Organisation looking forward to adopt Blockchain, Defining the WHY would probably be the most important action.
Fear of Missing Out, Fashion Statement, Proof for Innovation, Modernization for the sake of it and half baked use cases aren’t worth the effort. The returns from BlockChain aren’t immediate and the problem solved better be worth it to justify the need for the sizeable financing that a blockchain implementation will require today. I am sure we would be seeing solutions around power consumption. Some of the Coin mining organisations have been shifting their base to North China and to countries such as Venezuela where power is comparatively cheaper, but it will take more than just that to make BlockChain mainstream.
The approach is going to be ‘test the waters first’ kind. From understanding the problems to be solved to understanding the developments made that can efficiently solve those issues using Blockchain, it will pay to be circumspective. Creation of a ‘BlockChain’ talent pool, validations using PoCs that will serve to establish BlockChain as the ideal solution and ensuring an Agile implementation that will course-correct as it happens are areas where serious thought and deliberation is needed.
Overall, Blockchain is promising, it is exciting! The journey over the coming decade is to watch out for. Whichever way it goes, we will be stretching the boundaries of computation and human though for creating a scalable, immutable and secure storage framework. With Google’s quantum computing things will only become more interesting and could possibly help BlockChain as well in establish failsafe platforms!