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Enterprise Blockchain Basics

Although Bitcoin and other cryptocurrencies dominate blockchain discussions, this technology could disrupt more than just the financial industry. Indeed, there are different types of blockchain, and some are suitable for use in business.

In the broadest terms, blockchain is a distributed ledger technology that stores data in a public ledger without requiring third-party validation. Instead, unidentified parties confirm the validity of the data through an established consensus method.

To understand the potential business value of blockchain, CIOs and other leaders must first recognize the difference between public blockchain and enterprise blockchain, as well as the advantages and disadvantages of the latter.

What is the public blockchain?

Many consumers are familiar with a public blockchain, also known as without authorization blockchain. Information on a public blockchain is transactional data stored on digital nodes, distributed through a decentralized network of peer-to-peer (P2P) computers. Users are pseudo-anonymous and confirm the authenticity of data added to a blockchain by consensus. The distributed ledger technology underlying the blockchain records an asset’s transaction details in multiple places that can be accessed at any time.

Well-known uses of the public blockchain include cryptocurrency and non-fungible tokens (NFTs). NFTs are crypto assets converted into proprietary digital representations that exist as a single copy on the blockchain. Consumers buy, sell and hold these digital collectibles with NFTs authenticating their ownership. The use of NFTs ranges from trading cards to real estate and artwork. Additionally, NFTs and cryptocurrency are examples of decentralized finance. Each uses blockchain technology to remove the middleman processing of a financial transaction.

Two disadvantages of the public blockchain are performance and scalability. The system slows down, is expensive to maintain, and becomes less durable as the number of transactions it must support increases. The number of transactions also inhibits its ability to scale at a reasonable pace. Blockchain, especially cryptocurrency, also uses a huge amount of energy.

What is Enterprise Blockchain?

One difference between public and enterprise blockchain is their permission levels. To access the enterprise blockchain – also called private blockchain – approved users are granted permission to access a closed network via assigned cryptographic keys. Unlike a public blockchain, an enterprise blockchain is anonymous to the general public. Moreover, the enterprise blockchain is not open to anyone; the company that controls the private blockchain determines who can view, modify, or add data to digitally linked nodes.

A private blockchain is not decentralized in the same way as a public blockchain. The P2P aspect remains, but the relationship can exist as business-to-consumer or business-to-business, as seen with a consortium blockchain.

A consortium blockchain combines the functions of public and private blockchains. Rather than using the open system of the public blockchain or the closed system of the private blockchain, a consortium blockchain provides access to a limited group. With this type of blockchain, the consortium blockchain can be a combination of pre-approved internal and external users.

The inherent security and privacy of the enterprise blockchain limits a third party’s ability to modify the data. An unauthorized external user could not interact with the recorded data unless the controlling company granted access. However, this does not mean that the enterprise blockchain is infallible. An example of this is if an external user with bad intentions finds a way to exploit a security weakness, gaining unauthorized access to the private blockchain.

Benefits of enterprise blockchain

Industries that rely on transactional exchanges, such as banking, identity management, and NFT, aren’t the only ones that can use enterprise blockchain. For example, blockchain technology could support supply chain management, hospitality, and healthcare operations.

Some other blockchain use cases include:

  • Drug supply. Reduce counterfeit drugs in the prescription drug supply chain by recording drug types and lot numbers on the blockchain
  • HOUR. Minimize processing time for mundane tasks such as confirming applicants’ education levels, work history, and other professional qualifications
  • Utilities. To automate tasks such as P2P solar energy sales, inter-conglomerate energy exchanges, and self-driving electric vehicle charging station billing

Since blockchain requires significant financial and change management investment, a thorough review of how a business handles its transactions is an important consideration. Additionally, the research could explain why a blockchain project might work well. For example, automating transactions and other processes through smart contracts could make business functions efficient and secure. Therefore, investing in an enterprise blockchain project could solve a current problem and reduce the risk of increased IT expenses.

Enterprise Blockchain Concerns

IT managers may choose not to implement enterprise blockchain for a variety of reasons. One is the challenge of being an early adopter of technology in a commercial environment. An enterprise blockchain requires a mutual agreement between multiple entities to share or grant access to a singular ecosystem.

Some executives worry that it is harder to build trust than the public blockchain. Only specific, centralized nodes have the power to do this. Fewer nodes means less security, which means a few malicious nodes could compromise the built-in consensus mode.

Another concern is speed and performance. The closed network of an enterprise blockchain does not need to support multiple public transactions. Therefore, business requirements limit the data stored on the company’s blockchain.

Like any software implementation, blockchain requires change management because all participating parties must adopt unambiguous criteria for success. These specifications may include the following:

  • common business rules;
  • shared data definitions;
  • legal agreements; and
  • compliance with government regulations.

Implementation can be more expensive and complex than creating or maintaining a centralized database ecosystem. Blockchain as a service, or BaaS, could minimize costs. But a cloud-based architecture could incur expense in other ways.

IT managers can encounter considerable internal and external weaknesses unique to blockchain. These disruptions can include vulnerabilities such as stolen cryptographic keys, erroneous data entry, or developer incompetence. There are also security issues such as the threat of 51% attacks, which occur when a majority takes control of the transaction consensus process.

Employees and others are also concerned that enterprise blockchain will kill jobs. The concern is that blockchain will replace the administration of routine tasks such as data entry, manual verification and paperwork management.

An organization that has sustainability on its agenda needs to consider whether enterprise blockchain will conflict with its sustainability goals. While blockchain’s decentralized aspect is one of its biggest selling points, its colossal carbon footprint can have a significant impact on sustainability initiatives.

Blockchain adherents and industry watchers are discussing changing the core technology to improve its carbon footprint. But it’s another indicator that the enterprise blockchain may not be ready to support the goals of a sustainability-minded organization.

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