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by Ian Foley, Jul 27, 2018

Blockchains and Enterprise: The Hybrid Approach to Adoption


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Technology change is often confounding, and with the arrival of blockchain technology has come a whole new approach to building and managing enterprise systems. However, like the waves of change that have come in the past (for example, mobile technology and AI), the reality will likely not be wholesale change, but adaptation of the new and the building of hybrid solutions.

What is the return on investment (ROI) from deploying blockchain technology in enterprise business? How does blockchain technology fit into the existing enterprise architecture? What are some of the successful use cases for blockchain technology? These are just some of the questions executives now face.

How Should I Measure ROI for Blockchain Adoption?

Blockchain technology is touted as a way to help reduce costs, accelerate transactions and build trust between people and parties that transact together.

According to a Santander fintech study, distributed ledger technology could reduce financial services infrastructure costs between $15 billion and $20 billion annually by 2022, providing the possibility of decommissioning legacy systems and infrastructure and significantly reducing IT costs.

To break this down further, Accenture analyzed eight banks and identified savings of at least $8 billion per year, or approximately 27 percent on a cost base of $30 billion. Annual cost savings could reach as high as 38 percent — or around $12 billion.

Many such reports and projects focus on the financial services industry as examples. But there are other industries that are applicable, including healthcare and agriculture, as well as cross-industry applications, such as identity management.

However, analysts are not all convinced on the merits of blockchain technology, with some questioning its applicability in the short term outside of a narrow set of use cases in the financial services industry. For example, Nucleus, a research firm, analyzed the ROI of blockchain technology for the healthcare system and reported that “for the solutions offered, blockchain [technology] was either not feasible, or was a solution to a problem that didn’t exist.”

Similar to their other investment decisions, executives need to have a clear understanding of the use case and think about both the operational savings and new operational costs. Some of these new costs include increased power and storage. For example, according to Jason Bloomberg, president of the analyst firm Intellyx, “storage requirements will always be exploding, due to the fact that each individual node must maintain an immutable ledger of all transactions back to the origin of each blockchain.”

How Does Blockchain Technology Fit into My Existing System?

Enterprise system architecture has radically changed over the last 10 years. In 2008, 88 percent of enterprise buyers preferred on-premises solutions, but by 2018, 72 percent were saying they were believers in a cloud-based infrastructure. Throughout this change, hybrid solutions, such as virtualization software, have acted as bridging points.

The next software evolution is the shift to decentralized architectures, of which a blockchain is one example. Currently, blockchain technology is primarily used to verify transactions — within digital currencies, though, it is also possible to digitize, code and insert practically any document onto a blockchain. It is this concept that provides the opportunity for decentralized enterprise data architectures, once some of the key challenges around performance, security and integration are resolved.

However, even when these issues are tackled, blockchain technology will exist alongside legacy systems and the most likely outcome will be a “hybrid blockchain.” Hybrid blockchains consist of the public blockchain (which all participants are a part of) and a private network (also referred to as a “permissioned network”) that restricts participation to those invited by a centralized body. A private network generates the record of transactions, which is stored and verified on the public blockchain. 

For example, a healthcare provider will want to keep customer profiles on access-restricted, HIPPA-compliant local environments, while the IoT usage data from medical equipment in the hospital can be placed in a distributed environment on the blockchain.

Ethereum founder Vitalik Buterin, in a TechCrunch interview, remarked that it will be a couple of years until transaction volumes allow blockchain technology to compete with Visa and there might not be a time when decentralized operations are better than centralized cloud solutions such as AWS for serial computation or personal data use cases.

What Are the Initial Use Cases That Should Be Considered?

To date, there has been no single winning use case for enterprise blockchain technology, but a lot of individual projects that together reflect the evolution we are seeing toward a new hybrid architecture. Companies are starting off with rapid experimentation to determine the best applications and ensure their system environments are production ready.

Loyyal has built out a blockchain and smart contract solution to provide a decentralized rewards network for consumer travel and employee benefit rewards. Meanwhile, Chronicled applies blockchain technology combined with IoT systems to supply chains, such as pharmaceutical firms, to help improve traceability and accountability.

Outside of these startups, most companies should consider blockchain technology as part of their journey to constantly optimizing enterprise technology. Therefore, like the rollout of other new technologies before blockchains, the best approach is to find an initial use case, undertake rapid experimentation and then build internal support to scale.