The biggest value of blockchain in enterprise storage will be what it enables, not what it is. While it has yet to be fully embraced by the enterprise, blockchain is well poised to change enterprise IT much like open source software did 20+ years ago. Interest is steadily rising, and there is evidence that businesses are starting to investigate how blockchain technology will integrate into their future business goals and objectives. In this post I’m going to dive in to what exactly blockchain is, how it works, how it may be applied in the enterprise storage space, and how it’s already starting to be used in various global industries.
What is Blockchain technology?
Blockchain is a distributed ledger that maintains a continuously growing number of data records and transactions. It is a chain of transaction blocks built in adherence to a defined set of rules. It allows organizations who don’t trust each other to agree on database updates. Rather than using a central third party or an offline reconciliation process, Blockchain uses peer-to-peer protocols. As a distributed database, Blockchain provides a near real-time, permanent record that’s replicated among the participants. Bitcoin, probably the most well-known cryptocurrency right now, was possible due to Blockchain. It’s the core of the Bitcoin payment system.
What are the main characteristics of Blockchain?
There are a defined set of characteristics that make blockchain what it is. It is both a network and a database. It has rules and built-in security and it maintains internal integrity and its own history. Let’s take a look at the main characteristics of blockchain.
1. Decentralized. Blockchain is decentralized, there is no central authority required to approve transactions. It is a system of peer to peer validating nodes. Because there are no intermediaries, transactions are made directly and each node maintains the ledger of updates.
2. External clients manage changes. Changes to the ledger are triggered by transactions proposed by external parties through clients. When triggered by transactions, blockchain participants execute business logic and follow consensus protocols to verify the results.
3. Shared and distributed publicity. Participants in the ledger maintain the blocks. When consensus is reached under the network’s rules, transactions and their results are grouped into cryptographically secured, immutable data blocks that are appended to the ledger by each participant. All members of the blockchain network can see the same transaction history in the same order.
4. Trusted Transactions. The nature of the network distribution requires nodes to come to a consensus that enables transactions to be carried out between unknown parties.
5. Secure Transactions. Strong Cryptography is added to each block. In addition to all of its transactions and their results, each block includes a cryptographic hash of the previous block, which ensures that any tampering with a particular block is easily detected. Blockchain provides transaction and data security. The ledger is an unchangeable record. Posts to it cannot be revised or tampered with, even by database operators.
How Blockchain Works
Consensus in Blockchain
Consensus is at the heart of the blockchain. To keep the integrity of its database, a consensus protocol is used that considers that the longest chain is always the most trustworthy and nodes can only be allowed to blocks to the chain if they solve an arbitrary mathematical puzzle. These rules define which changes are allowed to be made to the database, who may make them, and when they can be made. One of the most important aspects of the consensus protocol concerns the rules governing how and when blocks are added to the chain. This is vitally important as in order for blockchains to be useful, they must establish an unchangeable timeline of events which must be agreed upon by all nodes, so that all nodes can agree on the current state of the database. The timeline cannot be subject to censorship, thus no single node may be entrusted with control over what enters it when.
Proof of Work is the original consensus protocol and is used by Bitcoin and Ethereum. Proof of Work is based on puzzles that are difficult to solve but have an easily verifiable solution. It can be thought of like a jigsaw puzzle. While many hours of effort may be required to piece a puzzle together, it takes only a momentary glance to see that it has been correctly assembled. With proof of work consensus, the effort required to solve a puzzle is the “work” and the solution is the “proof of work.” The fact that the solution to the puzzle is known proves that someone did the work to find that solution.
Blockchains that utilize proof of work consensus require proof for each new block to be added to the chain, thus requiring work to be done to create new blocks. This work is frequently referred to as mining. Proof of Work consensus protocols state that the chain containing the most blocks is the correct chain because it contains the most work. Blockchains which use proof of work are regarded as secure timelines because if one node attempted to rewrite history by changing an old block, its change would invalidate the work on the block it changed and all blocks after it by making the proofs incorrect. While experimentation with different consensus mechanisms continues, proof of work is by far the most the widely adopted. There are alternatives however, so let’s take a brief look at some of them.
Proof-of-Stake. In proof of stake, participants are required to maintain stocks of the currency (or tokens) to use the system. Creators of a new block are chosen deterministically depending on their stake.
Proof-of-Activity. In proof of activity, proof of work and proof of stake are used at the same time to help alleviate the issue of hash rate escalation. Hash Rate is the measuring unit that measures how much power Bitcoin network is consuming to be continuously functional.
Proof-of-Burn. With proof of burn, instead of trying arbitrarily large numbers of hashes to answer a puzzle as done with the proof of work method, the system instead runs a lottery and the tokens are burned so a node can try to win a block.
Proof-of-Capacity. Proof of capacity is similar to proof of stake, but it is measured in hardware capacity that is dedicated to the network.
Federated Byzantine Agreement. This is designed for private, permissioned Blockchains (like Hyperledger) where good behavior is an expectation, it is designed with less resource intensive methods. This method offers more flexibility with trust because a fork can be agreed upon by its members.
How can Blockchain be used in Enterprise Storage?
Enterprises looking for data access speed, physical security of the files, and businesses that must adhere to strict regulatory requirements about access policies and in-country data location regulations may have trouble applying the technology. Blockchain doesn’t meet those requirements in a traditional sense, most notably because of the distributed nature of blockchain. For enterprise environments with less stringent regulatory requirements, it could still be an attractive option. The main benefits relate to its redundancy and reduced cost. The cost savings could be the major driver toward this technology in the enterprise. Let’s take a look at some of the primary benefits of adopting the technology in the enterprise.
The primary benefits of blockchain in the enterprise
1. Decentralization and Redundancy. Amazon S3 achieves redundancy by spreading files through all of its regional data centers, which makes each data center a point of failure. On a decentralized blockchain where data is stored on many individual nodes across the globe, it is much more difficult to create disruptions.
2. Privacy. No third party controls user data or has access to user files. Each node only stores encrypted fragments of user data and users control their own keys.
3. Huge cost reductions. Blockchain storage costs around $2 per terabyte per month. In comparison, S3 hosting from Amazon can cost over $20 per month per terabyte.
4. The Bottom Line. Companies are always looking to increase revenues, cut costs, and reduce risks. Blockchain technology has the potential to address those core, bottom line issues.
The Elements of Blockchain in the Enterprise
How can blockchain be implemented in an existing enterprise storage envinroment? Steve Todd from Dell EMC started by defining the basic elements of blockchain and the questions that need to be asked, all of which need to be answered in order to implement blockchain solutions in the enterprise. I’ve copied his questions below. It’s very high level, but it’s a good start in establishing a baseline for an enterprise blockchain implementation.
1. New business logic. What new business logic is being written, and what is it’s purpose? Will modern application development processes be used to develop the new logic? How will this code be deployed when compared against existing application deployment frameworks? Will your business logic be portable across blockchains?
2. Smart Contracts. How are smart contracts deployed compared to existing application deployment? Are these contracts secure (e.g. encrypted)? Are they well-written? How easy are they to consume? Do they lock-in application developers to a certain platform? Are metrics collected to measure usage? Are access attempts logged securely?
3. Cryptography. Given the liberal use of cryptography within blockchains, which libraries will be used within the underlying ledger? How are these libraries maintained and used across ledgers? what role does cryptography play in different consensus algorithms?
4. Identity / Key Management. The use of private and public keys in a blockchain is foundational. How are these keys managed in comparison to other corporate key management systems? How do corporate identities translate to shared identities with other nodes on a blockchain network?
5. Network Programmability. How will the network between blockchain nodes be instantiated, tuned, and controlled? How will application SLAs for latency be translated into adequately-performing network operations? Will blockchain transactions be distributed as cleartext or encrypted?
6. Consensus Algorithms. How will decisions be made to accept/reject transactions? What is the “speed to finality” of these decisions? What are the scalability limits of the consensus algorithm? How much fault tolerance is built into the consensus? How much does performance suffer when fault tolerance limits are reached?
7. Off-chain Storage. What kind of data assets are recorded within the ledger? Are they consistently referenced? How are access permissions consistently enforced between the ledger and off-chain assets? Do all consensus nodes have the ability to verify all off-chain data assets?
8. Data Protection. How is data consistency enforced within the ledger? Do corrupted transactions thrown an exception? How are corrupted transactions repaired? Does every consensus node always store every single transaction locally? Can deduplication or compression occur? Can snapshot copies of the ledger be created for analysis purposes?
9. Integration with Legacy. Does the ledger and consensus engine exist on the same converged platform as other business logic? Will there be integration connectors that copy and/or transform the ledger for other purposes? Is the ledger accessible to corporate analytic workspaces?
10. Multi-chain. how will the ledger interact with the reality of a multi-chain world (e.g. Quorum, Hyperledger, Ethereum, etc). How will the ledger interact with non-chain ledgers (e.g. Corda)? Will there be a common API to access different blockchains?
11. Cloud automation. Can routine blockchain tasks be automated? Will cloud providers offer non-repudiation and/or blockchain governance? Can blockchain app developers execute test/dev processes in one cloud provider environment and then push to a (different) cloud production environment?
Blockchain Cloud Storage in the Marketplace
There are multiple blockchain powered distributed cloud storage offerings that I’m aware of, and there are likely more to come. These organizations are using blockchain technology to take advantage of the spare hard drive space it’s users to make decentralized competitors similar to Amazon Web Services and Dropbox.
All of these options provide decentralized cloud-based storage. Customers who use their services allocate a portion of their local storage for cloud-based storage. It’s akin to a decentralized, blockchain-powered version of Amazon Web Services. They all show that a public ledger can be used to facilitate a distributed public cloud, but I think it’s unlikely to be used for mission critical enterprise storage in the near future, at least until some of the basic questions about the elements of blockchain in the enterprise are answered, as I detailed in the previous section.
As cloud based storage becomes more relevant over time, the number of blockchain solutions similar to these projects will surely increase. Blockchain’s decentralization, speed, and reliability give it an inherent advantage over centralized cloud services, as they require the storage of data in data centers with high costs and maintenance requirements. Blockchain technology will likely have an increasingly important role in decreasing costs and increasing the security and efficiency of the methods data storage is implemented.
Blockchain Storage Provider Operations
I thought it would be interesting to take a look at how these existing competitors implement blockchain and how they market their services. In addition to the security benefits, overall these decentralized cloud storage providers seem to be marketed as being inexpensive storage for general consumers. A terabyte of storage at Sia costs about $2 per month. Storj charges by gigabyte, starting at $0.015 per gigabyte per month.
Storj, Sia, MaidSafe and Filecoin are built with a proprietary storage marketplace where users can buy and sell storage space. They all use mining to provide compute power for the network.
Filecoin miners are given token rewards for hosting files, but also must prove that they are continuously replicating the files for more secure storage. Miners are also rewarded for distributing content quickly as the miner that can do this the fastest ends up with the tokens. Filecoin and Sia both support smart contracts on the blockchain that set the consensus rules and requirements for storage, however Storj users pay only for what they consume. Filecoin also aims to allow the exchange of its tokens with fiat currencies and other tokens via wallets and exchanges.
In Maidsafe’s network, Safecoin is paid to the user as data is retrieved. It’s done in a lottery system where a miner is rewarded at random. The amount of Safecoin earned is directly linked to the resources they provide and how often their shared storage is available and online. Maidsafe miners rent their unused compute resources to the SAFE network (capacity, CPU, and bandwidth) and are paid in Safecoin. The SAFE network also supports a marketplace in which Safecoin is used to access, with part of the payment going to the application’s developer. Miners can also sell the coins that they earn for other digital currencies, and these transactions can happen either on the network or directly between individuals.
All of these service providers store data with erasure coding. Files are split apart and distributed across many locations and servers, which eliminates the chance of a single point of failure causing catastrophic data loss. Filecoin uses the IPFS distributed web protocol, allowing nodes to continue to communicate even if the rest of the network goes down.
Blockchain technology implementation can provide a lot of benefits, most notably that it provides for making interactions faster, safer and less expensive, ensuring data security. Although blockchain technology is primarily associated with the financial industry, blockchain solutions have the potential to be a disruptive force in other businesses sectors as well.
At a high level, what are the main benefits of blockchain in a business environment?
• Fewer Intermediaries. Blockchain avoids centralized intermediaries by using a peer to peer business network.
• Faster, More Automated Processes. Businesses can automate their data exchange and the processes that depend on it and eliminate offline or batch reconciliation. Business can automatically trigger actions, events, and even payments based on preset conditions with the potential for dramatic performance improvements.
• Reduced Costs. Business can lower costs by accelerating transactions and eliminating settlement processes by using a trusted, shared fabric of common information instead of relying on centralized intermediaries or complex reconciliation processes.
• Increased Visibility. Businesses can gain near real-time visibility into their distributed transactions across their networks, and maintain a shared system of records.
• Enhanced Security. Businesses can reduce fraud while at the same time increase regulatory compliance with tamper-proof business-critical records. They can secure their data by using cryptographically linked blocks so that records cannot be altered without detection.
With that in mind, let’s consider the most likely scenarios for Blockchain implementation in business. How exactly is blockchain technology being used in the industry today, and how may it be used in the future?
Blockchain in the Energy industry
The German company Share&Charge and California based eMotorWerks announced they are testing the first phase of a peer-to-peer electric vehicle charging network with blockchain payments. The technology has been called an “AirBnB for EVs,” and will allow EV owners to rent out their charging stations, set their own prices and receive payments via Bitcoin. The technology aims to prove that blockchain technology can make sharing and payment easier and more efficient and at the same time decrease the range anxiety that EV drivers experience.
The companies say that the partnership is the first peer to peer charging network to use blockchain technology in North America. The new P2P network was made available in California starting in August 2017, and a planned expansion to other states is in the works.
Blockchain technology in Banking and Finance
Blockchain solutions are looking to revolutionize how we transfer funds in a business environment. As transactions within Blockchain occur without intermediaries or any kind of central authority, a direct payment flow between customers around the world is easily accomplished. Blockchain application development is booming as more and more startups attempt to innovate the payment chain. Abra, a good example of a recent Blockchain startup, offers a digital wallet mobile app using Bitcoin currency. There is intense interest in Blockchain in the finanace sector. A New York-based company that runs a consortium of banks (R3 CEV), has recently released a new version of its blockchain platform (Corda) that it hopes will make it easier for financial firms to use the technology. Banks and other financial institutions have been investing in the technology for the past few years in the hope that it can be used to automate some of their back office processes such as securities settlement and regulatory reporting.
A report from Accenture claimed blockchain technology could potentially reduce infrastructure costs for eight of the world’s ten largest investment banks by an average of 30%, which would result in $8 to $12 billion in annual cost savings. The savings, according to Accenture, would come in replacing traditionally fragmented database systems that support transaction processing with blockchain’s distributed ledger system. That would allow banks to reduce or eliminate reconciliation costs and data quality.
In addition, Accenture, J.P. Morgan Chase and Microsoft were among 30 companies that announced the formation of the Enterprise Ethereum Alliance, aimed at creating a standard version of the platform for financial transaction processing and tracking.
Blockchain in the Insurance industry
Insurance interest in blockchain appears to be growing. Blockchain has the potential to vastly improve the nature of claims processing and fraud detection in the insurance industry.
Blockchain could reduce many of the typical issues involved with smart contracts. Insured individuals usually find insurance contracts long and confusing, and insurance companies are constantly battling fraud. Using blockchain and smart contracts, both sides could benefit from managing claims in a more responsive and transparent way, and recording and verifying contracts on the blockchain could be a great start. When claims are submitted, blockchain could ensure that only valid claims are paid as the network would know if there were multiple claims submitted for the same accident. When specific criteria are met, a blockchain could trigger payment of the claim without any human intervention, improving the time it takes to resolve claims.
Blockchain also has great potential to detect and prevent fraudulent activity as well. Because validation is at the core of blockchain technology’s decentralized repository, its historical record can independently verify the validity of customers, policies and all transactions.
In the summer of 2017, blockchain Firm Bitfury Teams with Insurance Broker Risk Cooperative. The Bitfury Risk Cooperative partnership seeks to leverage Bitfury’s expertise in blockchain applications across a range of sectors and Risk Cooperative’s insurance placement platform and partnership model with leading insurers to spur adoption of blockchain in the insurance space.
Blockchain perspectives in Supply Chain Management
Blockchain has the potential to transform the supply chain and disrupt the way we produce, market, purchase and consume goods. The added transparency and security to the supply chain will make huge improvments, making our economies safer and more reliable by promoting trust and preventing the implementation of questionable business practices.
Microsoft’s blockchain supply chain group, Project Manifest, is testing the ability to track inventory on cargo ships, trains and trucks using RFID tags that link back to blockchain technologies. Though Microsoft hasn’t shared many details about the project yet, it appears it is working with partners to track things like auto parts to address cross-industry supply chains, which are very complex.
IBM offers a service that allows customers to test blockchains in a secure cloud and track high-value items through complex supply chains. The service is being used by Everledger, a firm that is trying to use the blockchain to push transparency into the diamond supply chain. Finnish startup Kuovola Innovation is working on a blockchain solution that enables smart tendering across the supply chain.
Blockchain smart-contracts are being used to address everything from the shipment, to receipt of inventory between all parties in various supply chains. Doing so could reduce complexity and the number of counterfeit items that enter the supply chain.
Blockchain in the Healthcare Industry
There are plenty of opportunities to leverage blockchain technology in healthcare, from medical records to the pharmaceutical supply chain to smart contracts for payment distribution. While progress has been slow, there are innovations in the healthcare industry taking place.
MediLedger successfully brings pharmaceutical manufacturers and wholesalers who compete with each other to the same negotiating table. They designed and implemented a process for using blockchain technology to improve tracking and tracing capabilities for prescriptions. They also successfully developed a blockchain solution that allows full privacy with no leaking of business intelligence, while still allowing the capability of drug verification and provenance reporting.
Built to support the requirements of the U.S. Drug Supply Chain Security Act (DSCSA), MediLedger also outlines steps to build an electronic, interoperable system to identify and trace certain prescription drugs, meaning it successfully met not just the law, but the operational needs of industry.
Additional projects were kicked off by SimplyVitalHealth and Robomed, where they focused on developing an audit trail and smart contracts between healthcare providers and patients, respectively.
Blockchain solutions for Online Voting
Blockchain could be the missing link in the architecture of an effective and secure online voting system, and could resolve major issues related to the privacy, transparency, and security of online voting.
Using blockchain technology, we can make sure that those who are voting are who they say they are and are legally allowed to vote. We can also make voting online more accessible, as anyone who knows how to use a cell phone can understand the technology required for voting, all while making the election process more secure than it currently is and allowing greater participation for all legally-registered voters.
Sovereign was unveiled in September 2017 by Democracy Earth, a not-for-profit organisation in Palo Alto, California. It combines liquid democracy – which gives individuals more flexibility in how they use their votes – with blockchains, digital ledgers of transactions that keep cryptocurrencies like bitcoin secure. Sovereign’s developers hope it could signal the beginning of a democratic system that transcends national borders.
The basic concept of liquid democracy is that voters can express their wishes on an issue directly or delegate their vote to someone else they think is better-placed to decide on their behalf. In turn, those delegates can also pass those votes upwards through the chain. Crucially, users can see how their delegate voted and reclaim their vote to use themselves. It sits on existing blockchain software platforms, such as Ethereum, but instead of producing units of cryptocurrency, it creates a finite number of tokens called “votes”. These are assigned to registered users who can vote as part of organisations who set themselves up on the network, whether that is a political party, a municipality, a country or even a co-operatively run company.
No knowledge of blockchains is required – voters simply use an app. Votes are then “dripped” into their accounts over time like a universal basic income of votes. Users can debate with each other before deciding which way to vote.
Blockchain usage in Stock Trading
Some of the most prominent stock exchanges are looking at ways to leverage blockchain to fundamentally overhaul traditional mechanisms. Blockchain could enable savings by reducing duplication of processes, settlement time, collateral requirements and operational overheads. This would minimize the need to set aside financial resources to cater to counterparty risks and achieve higher anti-money laundering standards and reduced risk exposure.
Nasdaq has been at the forefront of blockchain innovation. At the turn of 2015, Nasdaq unveiled the use of its Nasdaq Linq blockchain ledger technology to successfully complete and record private securities transactions for Chain.com—the inaugural Nasdaq Linq client. In May, Nasdaq and Citi announced an integrated payment solution using a distributed ledger to record and transmit payment instructions based on Chain’s blockchain technology. The technology overcomes challenges of liquidity in private securities by streamlining payment transactions between multiple parties.
The path to its adoption will require resolving issues such as scalability, common standards, regulation, and legislation. Blockchain could revolutionize the core infrastructure systems of capital markets around the globe, bringing in greater transparency and efficiency.