Getting past the hype — why blockchain?

7.3.2018 / Falk Borgmann, Strategy Consultant, Deepshore GmbH

Requests from the bandstand, and whether they make sense

This article is the first in a series of background pieces to provide an understanding of blockchain technology and its outlook. Which mechanisms, theories, concepts, and implementations exist? What are we already capable of right now, and where are the limits? Where might we uncover risks, and which direction will this take in the future? What are the legal aspects that apply to a blockchain project, which errors need to be avoided?

With ICOs and discussions about the blockchain everywhere you look, we feel it's important to make a clear distinction between the blockchain and cryptocurrency. A deeper understanding of blockchain basics is essential to understanding a number of completely different applications and ideas that many observers of the market have paid little mind to. It is precisely these topics that we address here and in the posts that follow — condensed and distilled down to the essence, as food for thought for CIOs and IT managers.

To start, a fundamental question presents itself: why blockchain? Why have a system without a master?

The reception of all this blockchain hype in the IT community reminds one of how, when deciding on a new car purchase, rational considerations mix with irrational desires. Do I want to buy this car simply because I can? Is this just a status symbol? Will it truly get me to places faster? Do I even need to own a car? Maybe it would be more efficient for me to use taxis and car sharing. Is a car even the right means of transportation for me? And if it is, which model is the right choice if I ignore all the emotional factors?

It’s similar with all the hype surrounding blockchain applications. The all-consuming question is, who will be the one to find the next bitcoin? Or, more directly, who will be first in line to reap the spoils? The fear of being too late to the party and missing out has triggered a veritable panic, leading to projects and ICOs whose justification is questionable to say the least.

Yet the answer to a single question can clarify whether a blockchain implementation is feasible and viable over the long term.

Does the decentralization of certification information offer added value over a centralized database system?

Thus, it's a question of whether two basic principles of the blockchain make sense.

The first is decentralization without a master, in other words, the distributed storage and administration of data. Specifically, agreement on whether information is correct or false is achieved without placing a central control unit between the participants in the system. We're talking about eliminating masters and intermediaries. We call it a peer-to-peer network — each participant is able to (and must) communicate with any of the others.

The second is the verification and validation of data. In the blockchain, this is about ensuring that sufficient nodes of a cluster have identical information at a given point in time. The blockchain is concurrently available at many different subscriber nodes of a cluster, which contains data (blocks) that can no longer be modified once there is a common agreement that they are correct. In contrast to other distributed database systems, every participant is able to verify the authenticity of data with the blockchain at all times, since it can't easily be changed.

These are the two basic principles that must be considered if we wish to deliver more value than we can using other technologies. If the question of whether certain principles make sense for a particular application cannot be answered with a confident yes, then the decision to use blockchain may be based on wishful thinking and fail to generate sustainable value. In such cases, a critical reassessment of all aspects of the project is appropriate.

From our series
»Blockchain — compliance in the business cloud«
Entry 1/7