Blockchain isn’t a single innovation, but a large umbrella | PaymentsSource

Blockchain technology looks like a revolution in project management. But in reality, there is nothing new about blockchain; it is just a new way to manage data, tackling one of the greatest challenges in fintech and financial services.

The technology is simple, but the way to think about the solution is different. A blockchain solution is not only a technical upgrade. It’s also a cultural change for systems administration, technical teams, project management, project direction, business development and sales.

There are several blockchains and frameworks, each including different features, so it is easy to get lost in technological explorations. For instance, how can you choose between MultiChain, Ethereum, Corda, Sidechains, or DragonChain?

By analyzing different parts of a project, it’s easy to highlight some important points to keep in mind during a blockchain solution creation. A short answer would be, it depends whether the blockchain technology can make sense for your project.

As a starting point, it is worth pointing out that blockchain technology is a form of distributed ledger technology (DLT), but DLT is more than that and can use blockchain technologies in the middle of other technologies. For example, Hyperledger Fabric uses a blockchain in the middle of other technologies, such as data management.

Therefore, if your project focuses on payment transactions, then blockchain might be a relevant tool. On the other hand, if your emphasis is more focused on data and the traceability of the data, you are more likely to find your interest in DLT.

That is the reason why it is important to define the project, the environment, the context to assess the architecture of your project before deciding which technology you really need.

Blockchain is a decentralized technology. This is maybe the most important feature about blockchain but also the most complex, as centralization can be everywhere in projects. If there is a part of your project that is centralized, maybe you don’t really need blockchain.

To better understand this, imagine you have set up a configuration with two sets of users alongside a blockchain solution. The first set is directly connected to the blockchain and for some reason to make the connection easier (or for user rights connection) the users of the second set must use a centralized gate to connect to the blockchain. If the first set is more important than the second set, there is no problem. However, if the second set of users is bigger than the first set, then you probably have a centralized project. If 90% of your users use a centralized gate to access the blockchain and only 10% of users are directly connected to the blockchain, then why not have a database behind an application server?

In addition, centralization can take place in the users’ level, for instance with a merchant who sells a product to consumers. If those clients are allowed to sell the product to other consumers, this is a decentralized project. But if consumers must ask the seller first for authorization or to obtain a product control by the seller, then the use case is centralized on the seller.

A blockchain solution manages transactions for traceability, meaning that one transaction output is used as input in another transaction. That is why blockchains are commonly used as a traceability storage system.

What use will be made of a blockchain solution depends on the importance of traceability storage within the project. In other words, if the traceability storage system is a main part of a project, then all the technology of that project will have to be adapted to the blockchain solution you have selected. Whereas if the traceability storage system is only a little part of your project then it is the blockchain solution which should be adapted to the other technologies in your system.

Finally, blockchain must be understood as a decentralized tool for traceability in an untrusted context.

I once heard of a company that wanted to create traceability between itself and its suppliers. In itself this is a good thing but, in fact, there was already a genuine level of trust between this company and said suppliers, if anything, because both parties were involved and working with each other. As a result, contracts had been signed, and subsequent obligations were created, hence the rise of trust between business and suppliers. This whole scenario makes the implementation of blockchain irrelevant, at best.

Blockchain was created to be used in an untrusted and private environment and that is maybe the greater difference with other technologies. Using blockchain makes sense if you want to sell a product with a client in another part of the world. If you do not trust this person, how can you be sure that the exchange will be safe?