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All aboard the blockchain express

This article appears in the issue April 2015 [Volume 24, Issue 4]


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We’ve always envisioned the enterprise of the future as a massively interconnected virtual organization. One of the greatest challenges in making this vision a reality is finding a way to stitch all the pieces together in a meaningful, coordinated way.

This is particularly difficult for large global enterprises, smart cities and all levels of government. Forcing decision-making and control to the center slows everything down. Pushing it out to the edge speeds things up, but at the cost of increased fragmentation and redundancy.

At long last, the breakthrough we’ve been seeking may have finally arrived. It comes in the form of one of today’s more disruptive innovations—the cryptocurrency and, in particular, Bitcoin.

As intriguing as it is, the value of a cryptocurrency as a medium of exchange is only a small part of its disruptive capacity. The greatest, most far-reaching impact lies in the underlying technology—a data structure known as a block chain. This simple yet elegant idea has the potential to change our entire notion of the enterprise, the economy and all of society.

Let’s take a deeper look and see what it all means.

How it works

A block chain is nothing more than a ledger maintained over a public peer-to-peer (P2P) network. The “secret sauce” isn’t even secret. It’s an open source model described in the paper: “Bitcoin: A Peer-to-Peer Electronic Cash System,” authored by Bitcoin’s inventor who uses the pseudonym Satoshi Nakamoto.

Here’s a simple comparison. A central bank prints money. Each note has a unique serial number and anti-counterfeiting features such as holograms. Credit ATM machine, debit wallet. Credit wallet, debit soft drink machine.

Bitcoins, on the other hand, are digitally generated using a unique “hash” (a common indexing technique). A digital signature is added using the recipient’s public encryption key and recorded in the block chain. Entries are validated using a clever puzzle-solving algorithm as a means of determining “proof of work.” That makes it extremely difficult to compromise the system. It also minimizes the overall computational burden on the network, an important factor in P2P processing.

The blockchain-based enterprise

In a traditional enterprise, the flow of goods, services and information has many interruptions. Timesheets, purchase orders and other ledger entries are validated internally by management as well as by an outside auditing firm. Legal documents by a notary. Background checks by a personnel security firm. Product quality by a standards testing lab. All are separate, trusted entities and in many cases, slow and expensive.

Traditional institutions such as those are fraught with single points of failure. Recent examples include cases ranging from Enron to Edward Snowden, from failed space launches to airline and cruise ship disasters. As the volume of data being processed continues to escalate, so does the risk.

In a block chain, only a relatively small number of processing nodes are needed to authenticate an item. Not just a bitcoin, but any document, person, organization, transaction or object—from smallest part to finished assembly—is fair game. The difference is that trust is replaced with transparency.

As a result, speed, volume and accuracy are increased. Yes, Virginia, you can now have all three! The applications and cost savings are substantial, especially considering the explosive growth in the number of items being tracked.

Consider the many functions and activities that would benefit: intellectual property protection; contractual obligations; marketing, sales and customer service (including tracking individual preferences); document authorship and authenticity; logistics and inventory management. The list goes on.

More importantly, enterprises can become better equipped to enable mass customization, where every product is unique not only in its physical configuration but also in how it interacts with the user. Add to that the ability to continually sense and respond to changes in the environment. Imagine custom pharmaceuticals uniquely formulated to each person’s genetic makeup, metabolism and vital signs as measured by an internal array of body sensors.

You can see where all of this is going. Just-in-time is giving way to just-ahead-of-time.

The status of everything

The potential impact of cryptocurrencies on traditional banking and commerce is huge. But it pales in comparison to the impact the underlying blockchain technology will have on how we interact with just about everyone and everything on the planet. Even legacy corporations like IBM (ibm.com) and Samsung are hopping on board, having launched their Autonomous Decentralized Peer-To-Peer Telemetry ADEPT system at the Consumer Electronics Show in Las Vegas this past January. Their strategy is spelled out in IBM’s white paper: “Device Democracy: Saving the Future of the Internet of Things”.

According to the paper, by 2050 the number of addressable devices will expand by an order of magnitude from its current 10 billion to over 100 billion. The upshot is that old, trusted approaches will become overwhelmed and far less trustworthy, as we have already seen in the recent spate of privacy data breaches making front-page news.

Blockchain technology provides a way to address that vulnerability. By way of example, as of this writing, more than 13 billion bitcoins are in circulation, each assigned in whole or in part to a secure, virtual “wallet.”

What it all means

To be clear, challenges remain. Will the blockchain concept scale into the trillions? Will it hold up against cyberattacks? Will governments even allow it? Or will they demand some type of “back-door” access, possibly resulting in a skeptical public abandoning the idea altogether?

Blockchain technology uses PKI encryption, so it’s reasonably secure from fraud, theft, corruption and the like. But anonymity is never 100 percent guaranteed.

One thing is for certain: The current disintermediation trend will continue to whittle away at the “middle man,” cutting out all those folks who take a percent here, a percent there, adding little if any value. Massive, slow-moving and expensive bureaucracies will find themselves becoming increasingly irrelevant. They may have worked well during the last century, but they have little hope of keeping up with the ongoing explosion in the volume of data.

The burning question to ask is: Are you and your organization likely to get capsized in the coming wake? Or as XPRIZE founder Peter Diamandis puts it: “Are you demonetizing your industry, or are you the one being demonetized?”

On which end of the value equation would you rather be? A value drain, using slow, outdated, centralized structures to review and approve everything you do? Or a value creator, looking outward from the edges, free to stretch the boundaries of intuition and creativity?

Don’t take too long. Now that the world is running in blockchain time, you’ll need to decide quickly.

 


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