Over the past few years, blockchain—a type of distributed ledger technology (DLT) that first became known in relation to cryptocurrencies such as Bitcoin—has become more and more mainstream, with government agencies and other organizations finding ways to leverage it. The attributes that make blockchain attractive for currencies also make it attractive for exploring ways to make business processes more automated and secure.
DLT is essentially a database hosted in multiple locations that multiple parties use to record information and track transactions. Ledger entries are encrypted, making the ledger difficult, if not impossible, to tamper with, and alterations are easy to detect. Further, the ledger is irrefutably attributable: There can be no question which entity made a specific entry.
With cryptocurrencies, blockchain’s key benefit is resolving the so-called double-spend problem i.e., spending a digital token more than once. By logging the spending in the distributed ledger—time-stamped and tamper-proof—blockchain provides proof of the expenditure. A subsequent attempt to spend the same token will be obviously invalid.
The same principle makes blockchain useful in other settings. For example, by saving a Word document in a DLT, an organization can establish precise version control and ensure older—or altered—versions are not accepted.
This opens up the possibility of exchanging data in a new ways that further reduce friction in business processes while enhancing trust.
But: Is blockchain your best choice?
Blockchain is indeed a useful and potentially transformative technology when put to the right use. However, it is not ideal for every situation. There are a few basic questions for determining if your organization has a blockchain need.
- Is there a broad business network involved?
- Is proof of provenance important?
- Are multiple parties required to validate transactions?
- Is it important for the data to remain immutable?
- Is finality and the need to resolve disputes important?
Is there a broad business network involved?
Blockchain works well when used to coordinate multiple parties that are all broadly involved in an activity. For example, consider the difficulties of data sharing among government departments. Agencies share data for many reasons, and a blockchain network can improve processes surrounding data sharing by making the shared information tamper-proof and attributable. If there is no broad business network involved, consider a simple distributed database as a less expensive solution. A DLT is meant for a trustless to semi-trusted environment. It eliminates the need for intermediaries, thus reducing the friction that equates to increased cost in business processes. However, DLT is not a transactional system replacement. If a setting does not span a broad network, and involves only trusted parties, a distributed database is probably the better choice.
Is proof of provenance important?
The ability to prove where a particular item came from is a common need for many federal agencies. Provenance represents a verifiable audit trail—a complete record of who owns what asset throughout its life cycle— recorded on the blockchain. One possible use case where this capability matters is public health and epidemiology. Consider several recent outbreaks of E. coli infections related to tainted lettuce. Had a DLT system tracked the lettuce to its point of origin, there might have been less need for broad product recalls and public health warnings.
Are multiple parties required to validate transactions?
If there are transactions and certain business rules participants must follow, a blockchain may be more useful than a standard database. Consensus comes when the parties on the blockchain agree on who within the network gets to validate and approve the transactions.
Is it important for the data to remain immutable?
One of the most important aspects of blockchain is the ledger and its immutability. Blockchain privacy services are responsible for cryptographically linking one block in the blockchain with the next block. This means that it is impossible to tamper with the blocks once they are written. This boosts trust across the network. Much like an accounting ledger where transactions move among debits and credits, once you write a block, it will show a history of all transactions as they progress. The ledger aids in dispute resolution.
Is finality important?
Finality is a consequence of proof of provenance, consensus and immutability. Once a transaction is committed to the blockchain, it is unalterable. You cannot rewrite history for that transaction. A blockchain represents the single version of truth for its contents and network participants.
So: Is blockchain your best choice?
If you answer yes to the first question and to at least two or three of the rest, it makes sense to investigate blockchain options to solve your agency’s need. However, these five questions among many that your organization should ask when considering setting up a blockchain network. They are by no means an exhaustive list of all the possibilities to explore when making a blockchain investment decision, but they are a good starting point.