To Blockchain or Not To Blockchain
By: Open Factory Editor
Tags: Distributed Ledger Tech, Blockchain, Distributed Ledgers

By now if you haven’t heard businesses and governments talking about using blockchains to overhaul finance systems or build identity platforms or transform supply chains, then you’ve been living under a rock. Blockchain has become the new atom of software. But before we flash our blockchains to customers and investors, let’s take a step back and understand what Blockchain really is.

Blockchain, in basic terms, is a shared ledger and a consensus mechanism to reconcile transactions on the shared ledger. This is the basic structure of all blockchains.

In fact, the basic structure of blockchains can also be found in traditional distributed databases. The software industry is blissfully aware of this and some vendors have repackaged traditional distributed databases as blockchains to attract new markets.

Consensus mechanisms help establish trust in the transactions recorded on a shared ledger. It’s important to understand however that trust is modeled differently in different environments. The consensus mechanism used with a shared ledger should be suited to the trust model among participants using the shared ledger.

There are a lot of ways to achieve consensus on a shared ledger and consensus mechanisms usually make trade-offs between performance efficiency (transaction latency and throughput) and energy efficiency (compute and network resource consumption) while making certain assumptions on the trust model.

Types of Trust Models. Illustration from Innovation Insight for Blockchain Security by Gartner, Inc.

Consensus mechanisms are the sine qua non of distributed databases. But unlike traditional distributed databases, Bitcoin-born blockchain was introduced to operate on a completely different trust model — one where there is a complete absence of trust among participants using the shared ledger. We know however that the world of enterprise is very different — businesses do not operate in the complete absence of trust. The trust models range from full trust environments where participants of the shared ledger fully trust each other to partial trust environments where participants of the shared ledger only partially trust each other. The partial trust models are further characterized by the governance model they use, which includes legal agreements and frameworks for handling disputes.

Most businesses in today’s age are networked entities. They produce and consume information with their business partners on a daily basis and this shared data fuels both their business operations and business intelligence. In such a setup, it’s quite natural to realize the need for a shared ledger between business partners. But for businesses to be able to use shared ledgers effectively, it becomes imperative to first define the trust models.

Most enterprise blockchain platforms operate in partial trust environments and provide various knobs and controls to facilitate different governance models. It’s however helpful to note that these blockchain platforms still rely on offline processes to handle disputes and are very unlike their ancestors — Bitcoin and Ethereum — in both structure and operations.