PRACTICAL ENTERPRISE BLOCKCHAIN

January 28, 2019

Michael Hathaway, CEO, IronBridge Enterprise

Blockchain Overview

Blockchain is the underlying technology used by cryptocurrencies, developed with the intent of eliminating reliance on central banks or trusted third parties, to execute data transactions. Blockchain technology combines multiple cryptographic tools to achieve this end. Cryptocurrency transactions are represented as data,  copied to identical ledgers shared with each stakeholder on the network. This technology has evolved since its start in 2009, resulting in multiple mature and successful cryptocurrency networks.

Blockchain in a Nutshell

  1. Blockchain is network of digital identities
  2. All identities on the network share identical copies of data
  3. The task of updating blockchain data is shared between participating digital identities, ensuring that no single identity dominates the execution of transactions on the network

Core Blockchain Features

Public/Private Key Encryption – Public/Private key encryption, commonly referred to as Public Key Infrastructure (PKI) is not unique to blockchain, but is a good practice for securing digital identities. A key pair is created to establish a digital identity. The identity (user or machine) maintains a secret, private key, which is used to encrypt a digital signature. The signature can be decrypted with a publicly shared key to authenticate the identity. Blockchain has adopted this method to authenticate and authorize users doing transactions on a blockchain network.

Distributed Ledgers – Distributed ledgers are an important and unique feature to blockchain. All nodes on the network share a common ledger that contains identical copies of information shared with all stakeholders on the blockchain network. This eliminates dependencies on a central service to manage transaction data.

Hashing – Hashing is a mathematical procedure performed on a digital record to produce a fixed sized number used to validate a record. Hashing is used extensively in blockchain to validate transaction related data and detect data tampering.

Decentralized Transactions – Blockchain networks utilize a network of stakeholders to validate transactions on the network and distribute updates to all distributed ledgers. Blockchain projects have devised multiple methods for distributing the ledger update tasks and achieving consensus on ledger accuracy without involving a central authority. Two common methods are used to achieve this goal, Proof of Work (PoW) and Proof of State (PoS).  PoW employs a network of cryptocurrency miners, where a complex mathematical challenge is presented to participating miners. The first miner to solve the challenge generates a new block on the ledger that is distributed to all the ledgers on the network. In the case of Proof of Stake (PoS) and derivatives of it, (e.g. Delegated Proof of Stake (dPoS)),  all token holders exercise a degree of influence on the state of the ledgers in the blockchain network, using a weighted system where holders of larger quantities of tokens have larger influence on the network. All these methods seek to avoid centralization by insuring that no single stakeholder performs 51% or more of the transactions on the network.

Smart Contracts – Smart contracts eliminate the need for a trusted third party arbiter to insure that prerequisite conditions have been met for a transaction to take place. A smart contract is a software program that is tied to a blockchain transaction. This program performs tasks to validate that the transaction can be executed using criteria that can be verified with data available on the blockchain network. This can include things like data stored on the ledger, date ranges in which a transaction can be performed or digital identities of qualified participants in a transaction.

Blockchain Technology Benefits To Enterprises

Enterprise Adoption of Digital Identities and PKI

Transitioning away from username/passwords to public/private key authentication, commonly used in blockchain networks, is a good practice for enterprises to adopt. Utilizing public key infrastructure (PKI) instead of username/passwords to authenticate users eliminates the need to store passwords on servers - which are routinely hacked and stolen.

With the significant increase of machines generating data from artificial intelligence, IoT and edge computing applications, computers require digital identities in order to be authenticated, in the same manner as humans. Using a single identity management methodology within an enterprise for both machines and humans will significantly improve security and streamline identity management in the enterprise.  

Distributed Ledgers

Distributed blockchain ledgers have specialized uses for enterprises in cases where information needs to be securely shared on a network. Examples include distributing common security information across distributed network computers, or sharing digital identity information between enterprise customers, partners and vendors.

Enterprise applications for data stored on distributed ledgers include:

  • Sharing lists of digital identities
  • Enforcing security policies on distributed systems
  • Data hashing to validate shared data
  • Tamper proof immutable transaction records

Smart Contracts

Common enterprise applications of smart contracts are being explored for logistics and tokenized financial instruments such as currencies, securities, and derivatives, etc. To date, smart contracts have been relatively simple as they involve only data accessible on a blockchain network.

As enterprises adopt smart contracts, they will naturally evolve to incorporate systems that may not directly interact with blockchain. For example, to complete a blockchain transaction, a smart contract might require that a remote system, in a secure location, provide data from a real-time sensor scan. This involves software outside of the scope of a smart contract program and requires interaction with secure enterprise data, devices and systems.

Edge computing plays a role as an intermediary between sensitive enterprise systems and blockchain networks. Edge computing devices can utilize digital signatures to authenticate on both enterprise systems and blockchain networks and run specialized programs that translate data for smart contract operations.

Practical Approaches To Enterprise Blockchain

Not All Data Belongs on Blockchain

Only a small subset of enterprise data actually benefits from being shared with everyone on a blockchain network, encrypted or not. The cost of duplicating massive amounts of enterprise data on blockchain ledgers makes absolutely no sense and is a pipe dream of naive blockchain advocates. Transaction latency limitations of blockchain networks prevent storing high volume real-time private enterprise data on blockchain ledgers. Private data should remain on private servers. Blockchain should be used where data needs to be shared publicly or across a large number of users, organizations or servers.

Private vs Public Blockchain Networks

Public blockchain networks that have high utilization, are available today and offer practical data sharing capabilities for enterprises seeking to share data publicly. However, not all blockchain networks need to be public. Industries can establish private blockchain networks for stakeholders that can be optimized to support higher transaction rates and avoid involving volatile cryptocurrencies. However, it makes little sense to develop private blockchain solutions from scratch. There are experienced blockchain teams with mature technology who can create and operate private blockchain networks on proven and existing technology. Whether the blockchain network is private or public, there must be sufficient stakeholder participation to ensure the task of maintaining blockchain ledgers is distributed across a significant quantity of stakeholders to achieve consensus.

Blockchain Secured Private Data

While it makes little sense to store the vast majority of enterprise data on blockchain, blockchain technology can play a valuable role in securing data that is stored privately, off-chain.

Identity and Access Policies

Platforms like the open source Cognida Platform, utilize blockchain to store an enterprises list of digital identities, roles and access policies. This data can be shared with partners or used by edge and cloud computing systems to authenticate and authorize access. Enterprises can maintain digital identity lists on a blockchain ledger, sharing them with other organizations. This decentralizes identity and access management and eliminates the need to manage or store user information on networked servers.

Shared Document Validation

Digital documents can be digitally signed with an identity’s private key and hashed to validate both the document and signature. Document hashes can be stored on immutable blockchain ledgers to validate documents. Documents can be distributed via email, stored on multiple servers, yet each copy can be authenticated using data hashes from shared blockchain ledgers. This approach has broad applications across all industry sectors to validate shared digital documents.

Conclusions

Blockchain Hype, Myth and Reality

With the plethora of cryptocurrency ICO’s over the last few years, there has been no shortage of blockchain advocates promoting the tokenization of literally everything imaginable. 2018 saw the demise of many of these projects as cryptocurrency values plummeted. With the majority of crypto investors on the sidelines due to major losses,  a more practical breed of blockchain experts are emerging.

There is a shift away from unregulated ICO’s and a move to tokenized securities and the establishment of regulated security token exchanges. Experienced software development teams with blockchain expertise have emerged to address the needs of enterprises.

Cryptocurrencies like Bitcoin and Ethereum will likely continue to be viable cryptocurrencies and will ultimately be accepted by regulators and adopted by mainstream financial institutions. Blockchain technology, meanwhile, is finding its way into the enterprise. Industry groups are developing specialized private blockchain networks to explore practical applications of the technology.

A new reality is emerging based on lessons learned and founded on more practical approaches to enterprise blockchain.

Enterprise Blockchain Adoption

While industry associations explore blockchain technology in labs and test nets, early adopters are already incorporating blockchain technology into their infrastructure to improve security, operate more efficiently and establish a competitive advantage.

Like any technological revolution, large scale blockchain adoption by enterprises is unlikely in the immediate future. Early adopters today are supported by a new generation of blockchain solutions providers who combine enterprise expertise with practical blockchain know-how to achieve significantly improved security and control over the growing enterprises data challenges As these solutions succeed, enterprise blockchain technology will continue to evolve, paving the way for large scale adoption over the next decade.

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