In the 90s adding a “.com” to your company name had a positive impact on your share prices. 74% to be precise in the first 10 days of announcement*. Something similar is happening in the decentralised world. This post will help you take a step back and ask yourself certain questions to overcome the confirmation bias of believing that blockchain is the solution to everything!
By the end of this post you should be able to
- Discover the factors to look at when evaluating if blockchain technology is right for a particular project.
- Decide when to use and when not to use blockchain technology.
Blockchain is a new data structure with an automated way to enforce trust among participants. Consensus algorithms ensure that all participants agree on the data stored within the blockchain. Blockchain opens the door to disrupt any industry that relies on a central authority to confirm authenticity. It also allows independent, and even competing organizations, to share information to gain efficiencies across an industry.
In permissioned blockchains, a consortium of organizations are responsible for authenticating and controlling the participants in a blockchain. In public blockchains, no central authority or administration is required to exchange data. Blockchains can drive business innovation through controlled data-sharing networks for industry consortiums.
The promise of distributed ledger technologies (DLT) to simplify and automate key work functions has many industries taking notice. Businesses recognize the efficiency gains from transitioning from closed and proprietary solutions to standard open source capabilities, such as Hyperledger business blockchain technologies. Several common project features of blockchain applications are taking shape as the technology matures.
Business professionals when they see the word ‘hyperledger’
- They should associate it with open source development practices. They should know that any project that carries the term ‘hyperledger’, ‘hyperledger foobar’, ‘hyperledger rhubarb’, that these are projects that have been collaboratively built, that have been vetted by multiple developers working in concert on the technology, that it’s as secure as we can make it, because the code is out there.
- They should realize that they can build their business on top of Hyperledger technologies, they can use it all day long, they don’t owe anybody a fee, a license fee, a patent license, nothing.
Dot com Mania
We document a striking positive stock price reaction to the announcement of corporate name changes to Internet-related dotcom names. This “dotcom” effect produces cumulative abnormal returns on the order of 74 percent for the 10 days surrounding the announcement day. The effect does not appear to be transitory; there is no evidence of a postannouncement negative drift. The announcement day effect is also similar across all firms, regardless of the firm’s level of involvement with the Internet. A mere association with the Internet seems enough to provide a firm with a large and permanent value increase. — Michael J. Cooper, Orlin Dimitriv, Raghavendru Rau
Full Paper below:
Blockchain / Bitcoin Mania
Similar to the dot com hype, amid the cryptocurrency mania, several companies have launched initiatives to take advantage of the burgeoning assets, from retailer Overstock.com to photo group Kodak. Some much smaller firms have rebranded themselves completely, adding “bitcoin” or “blockchain” directly to their name. In some cases, the companies’ share prices soared in the US, Germany, and Hong Kong after this crypto-tweak.
For example, Bitcoin Services, formerly known as Tulip BioMed, saw its stock increase by as much as 42,500% last year.
Here is a list of such companies!
Anyhow, the point is, it’s easy to just add blockchain / bitcoin to anything and ride the wave but that’s not what we are here to do. So let’s take a step back and ask ourselves certain questions to see if the problem that you are trying to solve really needs blockchain!
When to use blockchain?
Factors to consider when evaluating blockchain distributed ledger technology for your business.
- How many participants are in your system?
- What is the geographical distribution of the participants?
- What sort of performance requirements do you have?
Defining the rules, risks, and responsibilities of each party in your blockchain system is useful as you consider transferring a database to a decentralized environment such as one of the Hyperledger frameworks.
Blockchain is best suited for business applications where one or more of the following conditions apply:
- There is a need for a shared common database
- The parties involved with the process have conflicting incentives, or do not have trust among participants
- There are multiple parties involved or writers to a database
- There are currently trusted third parties involved in the process that facilitate interactions between multiple parties who must trust the third party. This could include escrow services, data feed providers, licensing authorities, background verification companies or a notary public
- Cryptography is currently being used or should be used. Cryptography facilitates data confidentiality, data integrity, authentication, and non-repudiation
- Data for a business process is being entered into many different databases along the lifecycle of the process. It is important that this data is consistent across all entities, and/or digitization of such a process is desired
- There are uniform rules governing participants in the system
- Decision making of the parties is transparent, rather than confidential
- There is a need for an objective, immutable history or log of facts for parties’ reference
- Transaction frequency does not exceed 10,000 transactions per second.
When not to use Blockchain?
Blockchain technology is a powerful tool, but it is not always the right tool for the job at hand. If you are contemplating using blockchain technology, be sure to evaluate the problem fully.
The following conditions are not currently well suited to blockchain-based solutions:
- The process involves confidential data
- The process stores a lot of static data, or the data is quite large
- Rules of transactions change frequently
- The use of external services to gather/store data
Let’s use the above parameters to see if a professional network (candidates / professionals + recruiters + educational institutions + regulators) requires blockchain
- Need for a shared common database ? — Yes [so background verification isn’t done multiple times as the records here would be pre-vetted / pre-validated]
- Multiple Parties Involved? — Yes [Candidates, Recruiters, Educational Institutes, Regulators & Outsourced Verification Companies ]
- Parties involved have conflicting incentives and/or not trusted? — Yes [Candidates can add fake certificates..Exhibit A]
- Rules governing participants are not uniform ? — Yes
- Need for an objective, immutable log? — Yes [Public, De-centralized log of pre-validated resumes can remove trust establishing parties in the Hiring context]
- Rules of Transactions do not change frequently? — Yes [Engagement terms of candidates and employers may vary but not the process]
- Are transactions public? — Not always— so permissioned blockchain.
Let’s tentatively name this project “Peoplechain” so in the future posts it’ll be easy to refer.
So what did we learn in this post ?
1. Is Blockchain Technology the solution to all business problems ? — No 2. When to use Blockchain 3. When not to use Blockchain
In case you missed chapters 1 & 2 you can find them below:
This is my learning journal of Hyperledger, the framework to create, deploy and maintain blockchains for businesses…medium.com