Decision time is here for blockchain, but are enterprises ready?

Blockchain may help deliver the open transactions and innovation we've long been promised. But there may be plenty of friction getting there.
Written by Joe McKendrick, Contributing Writer

Blockchain -- the purportedly immutable global database -- has been in the headlines for several years now, and it's looking like 2018 will be the year that IT and business leaders have to decide whether to move forward in a serious way with it. That means, of course, committing both budget dollars and peoples' time building out capabilities.

It also means -- and this is a huge part of it -- getting organizational buy-in to the approach. The rise of blockchain-savvy disruptors may help push the issue, but until that happens, business and IT leaders may resist the idea of tearing up current processes embedded within current infrastructures. Blockchain represents an entirely new dynamic in the way information is moved across networks.

Photo: Joe McKendrick

Skills and knowledge is essential, of course, and it's going to take time for these to be available. There are signs of a growing base of skills and expertise in the blockchain space. A recent report from Upwork, for example, indicates that blockchain is the second-fastest growing base of skillsets on its list of the top 20 skills now available from independent talent, right behind robotics. While it is still linked to Bitcoin, it's worth noting that blockchain has potential well beyond the cyber-currencies, with the ability to assure smart contracts within supply chains, the Internet of Things, financial documents, and a range of other people-to-machines or machine-to-machine interactions.

Don Tapscott and Alex Tapscott, among the earliest and most forceful proponents of blockchain, say the time is now to make the move to this new, open architecture. Writing in MIT's Sloan Management Review, the Tapscotts say blockchain throws open the doors of innovation in a way not seen before. "We believe that blockchain will transform how businesses are organized and managed," they write. "It allows companies to eliminate transaction costs and use resources on the outside as easily as resources on the inside. In most cases, we believe that networks based on blockchain will be better suited for creating products and services and for delivering value to stakeholders."

In essence, blockchain has the potential to make open innovation truly "open." Blockchain, because it is based on a common, open network, represents the next step over the internet as we've known it. "There is a complex web of archaic processes, legacy systems, and misaligned incentives intra-and inter-company within the value chain of an industry," notes Josep Lluis de la Rosa and a team of co-authors in a recent paper. 'If you stand any chance of innovating it, you really need the ability to orchestrate and move multiple stakeholders, in multiple organizations, at the same time, for the right reasons, in a non-threatening, trustable, and efficient way. The distributed nature of open innovation meets the distributed nature of the blockchain technology."

There are downsides that need to be addressed. A key issue is legal. Blockchain's smart contracts -- confirmed with electronic signatures -- need the force of law behind them. "As private industries begin to recognize blockchain's appeal, many states are taking legislative steps to grant full legal force to blockchain-based electronic information," writes Riley T. Svikhart in Stanford Law Review. "While this is a good first step, blockchain-based records will remain in an awkward legal limbo until Congress clarifies ESIGN--or until courts adopt the interpretive view."

Another potential issue is forking problems. Software developers are well aware of the issues that arise when two entities start making their own separate modifications to applications. As things develop within a blockchain, there is a risk of nodes in blockchain network being "divided into two types, the new nodes and the old nodes," Iuon-Chang Lin and Tzu-Chun Liao warn in a recent paper. With nodes being potentially bypassed, the result is a "hard fork" and a "soft fork" in tracking blockchain transactions, they state.

"'Hard fork' means when system comes to a new version or new agreement, and it didn't compatible with previous version, the old nodes couldn't agree with the mining of new nodes, so one chain became two chains.... 'Soft fork' means when system comes to a new version or new agreement, and it didn't compatible with previous version, the new nodes couldn't agree with the mining of old nodes."

LIn and Chun also point to the challenge that all enterprise IT executives and professionals need to carefully weigh: steering funding -- and peoples' time -- in new directions. Moving to blockchain-based systems "will have lot of cost including time and money to change existing systems, especially when it's an infrastructure," they understate. "We have to make sure this innovative technology not only create economic benefits, meet the requirements of supervision, but also bridge with traditional organizations."

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