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Blockchain Basics For Business Leaders

By

Mary

Driscoll

WriterETHNews.com

What do CEOs and business planners need to know about blockchain technology? Here’s the skinny.

CEOs are getting the news: Blockchain technology is big. "Everyone is talking about blockchain, and no one wants to be left behind," says PricewaterhouseCoopers (PwC) in its summary of findings from its 2018 Global Blockchain survey. PwC heard from 600 executives in 15 territories and found that 84 percent say their organizations have at least some involvement with blockchain technology.

That sounds like a fast train coming. But many CEOs and business planners are not clear about what blockchain is or how it could become a force multiplier for productivity or a lever for strategic advantage. Within early-adopter sectors such as financial services, the innovator's view is vivid. But senior managers in industrial businesses are apt to confuse blockchain platforms with cryptocurrency. Ask them about Blockchain as a Service (BaaS)? Forget about it.

Robert Kugel, senior vice president for Ventana Research, a business and IT research and advisory services firm, has noticed that "even among people who grasp that blockchains are more than bitcoin, you'll discern a narrow sense of the technology."

To begin with, people need to recognize that blockchains will come in many shapes and sizes, says Kugel.

"There will be blockchains that track assets, trading blockchains that facilitate asset exchanges, and those that serve as data interchange hubs between computing systems. Some will perform one, two, or all three of these functions. They will share some limited, albeit crucial, characteristics – chiefly encryption, record immutability or a protocol for 'forgetting' the transaction, multiple mirrored nodes, and functional persistence – but they won't all be the same."

And while cryptocurrencies operate in an un-permissioned environment, almost all business-to-business interactions will occur in a permissioned blockchain environment, says Kugel. (See his full discussion in the research note, "Blockchains Come in Different Shapes and Sizes.")

Distortions

Kugel warns CEOs or COOs who are new to the blockchain arena to avoid focusing solely on a certain user case or sector. "People may have opinions about how it works that are spot on for a given purpose," he says. "But they may generalize in a way that often isn't correct." This stems from communicating only with people who share their views. Kugel elaborates:

"For example, in all cases, the content of a blockchain record cannot be altered. To maintain their integrity, all blockchains use separate correction or nullification entries to adjust previous records just as accountants use adjusting entries. However, immutability, generally considered to be a necessary attribute of a blockchain, isn't always necessary."

Instead, it's more accurate to say that the lifespan of the underlying assets or information will dictate the temporal persistence of a record in a blockchain. Kugel adds:

"To be sure, in the world of cryptocurrencies and permissionless systems, immutability is essential to enforce integrity. Even in permissioned systems, immutability is essential where certain long-lived assets, such as real estate and diamonds, must be tracked in perpetuity. You want to be able to preserve records and be certain of the provenance of assets in a blockchain or series of blockchains."

On the other end of the spectrum, says Kugel, for example, financial services, on many types of trading platforms where assets are fungible – or traceability of the asset or transaction isn't a requirement – once the trade is settled and all counterparties have signed off on the transaction's validity, you'll want to "forget" the transaction took place. Otherwise, the cost of the platform will be unacceptably high because of the need to store zettabytes of data after only a couple of weeks of operations. Platform designers, in such a case, need a protocol that reliably truncates the blockchain by "forgetting" settled trades.

Blockchains also can enable a fast, secure and inexpensive form of data interchange. Consider data protection (for example, in the healthcare industry), where entities that participate in a specific healthcare system (primary care providers, specialists, insurers, hospitals, pharmacy chains, etc.) can think of blockchains as a way to protect data, ensure that data is tamper-proof, and at the same time reduce the cost of relevant business processes.

Personal data about individual patients would be held securely in a responsible party's system, but could be queried by the network participants who are permissioned to do so without raising privacy issues. For example, drug dispensers in a certain healthcare network can easily gain proof that a physician has checked whether a newly prescribed medication for a specific patient would likely have an adverse interaction with other medications. The blockchain would allow the drug dispenser to ask a yes-or-no question to determine if the new drug would have an adverse reaction, without having to know which drugs the patient is taking.

The important point here, says Kugel, is that the blockchain acts as a loosely coupled connector between the dispensary's system and the doctor's system.

"These two disparate systems don't have to be integrated, which makes it simple for them to communicate securely with each other without the cost of managing an almost infinite number of integration points."

Kugel explains that loosely coupled systems are those where each component has little or no knowledge of the definitions of other separate components, but can function without such knowledge. Loosely coupled systems are designed to require less effort to integrate components and less effort to maintain those integrations because changes in one system do not necessarily require any change in the other or in the connection.

In all, CEOs and other non-IT decision-makers who are curious about heading down the blockchain path will need to grasp the basic concepts and terminology. (This article tackled just a few.) CEOs will want to fully apprehend important distinctions, such as permissioned systems vs. non-permissioned systems. They'll want to ask questions about saving time and money and why this time around could be different. Perhaps most important, CEOs will want to know enough to ask their planners about the strategic advantages that blockchain conceivably confers. 

Mary Driscoll

Mary Driscoll covers finance and business trends as a staff writer for ETHNews. She formerly served as an editor for management and finance at the Economist Intelligence Unit and a research principal at APQC. In addition, she has written for The Wall Street Journal CFO Report, HBR-online, and strategy + business. Her book on corporate treasury management was published by John Wiley & Sons, Inc. Mary enjoys hiking and skiing in the Sierras with family. Her goal in life is to win big on Jeopardy.

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