The blockchain industry has developed to a stage where every startup can make use of the technology; but just because they can, doesn’t mean they always should.
Is blockchain the magical solution that will erase global hunger and end corruption once and for all?
Probably not. At least not anytime soon.
While the term “Blockchain” may be new, the technology is not new at all. Public key cryptography and cryptographic hash functions first popped up in the 70s, Proof-of-Work was invented in the 90s.
The underlying technologies have been around for a while, and the recent emergence of a global blockchain ecosystem has made it possible for all sorts of companies to develop their own applications.
Blockchain or not blockchain; that’s the question
It seems trendy these days to find problems for blockchain to solve. A more sensible approach is to do it the other way around: Finding the best technological solution to fix a pressing issue, that’s what successful tech companies do.
Before anything, it is crucial to decide “why you need blockchain”. Is it just to fit the trend, or is there a real need?
The only reason to apply blockchain technology in business is if existing centralized solutions are slow, expensive or lack transparency. In all other cases, there most likely are better solutions than blockchain – for example traditional databases. The three applications where blockchain performs best are data authentication and verification, digital asset management and deployment of smart contracts.
In a world where everyone wants to jump on board and blockchain projects are continually emerging, it is crucial to be creative and to not replicate from other projects. However, keep in mind that there will be similar projects, and even someone trying to copy it.
By the end of 2017, there were 86,034 blockchain-related projects on GitHub. A small percentage of these projects succeed – 8% according to Deloitte -, with the majority failing to bring any substantial results beyond the crowdfunding. In other words, the interest in the technology is growing, but only a small number of projects survive the initial stages.
Public vs. Private Blockchain: not the place for ideological debates
Blockchain networks are either private, public or hybrid. Within the blockchain community, there are heated ideological debates – some may call the idea of private blockchain treason against the original concept of decentralized, distributed networks.
Engaging in that sort of debate is an unnecessary waste of time and energy. Building a blockchain solution is about finding the most efficient way to solve a real-world problem, while also building a profitable and legal business. Who cares what Satoshi Nakamoto would think?
For most enterprise solutions, private permissioned blockchains are the way to go. They are faster, cheaper and allow for a certain degree of centralized control. Because public blockchains are slow, it only makes sense if transparency and anonymity are at the core of the solution.
It’s all about the use-case. Financial service firms, for example, rarely ever work with public blockchains, as they don’t want to share any financial data on a public blockchain. That’s why Ripple is a private network.
Another consideration is the consensus mechanism. Proof-of-Work and Proof-of-Stake are the most common, but there are a lot more. Each solution comes with its benefits and disadvantages; thus, choosing the right mechanism will be paramount on the way to success.
After deciding which blockchain your company needs, a choice of platform needs to be made. Most of the top-rated platforms – Bitcoin, Ethereum, Litecoin, Cardano, IOTA, Dash, Stellar – are public and based on Proof-of-Work protocol, which means that the selection is wide.
What about smart contracts?
As mentioned, smart contract is one of the key assets of blockchain performance. When building your blockchain solution, applying smart contracts is only necessary if you have an issue with enforcing the rules of a contract. Smart contracts are automated self-executing deals with specific instructions written on its code. Every action written in the smart contract gets executed only when certain conditions are reached. They have a wide variety of use cases, from cryptocurrencies to insurance claims.
The most platform for smart contracts is Ethereum (ETH), the first ones to offer this application. Now there are several blockchains that do it, such as Ethereum Classic, Lisk and EOS.
Spoilt for choice: choosing a platform
While some firms may choose to build their own blockchain, most will opt for one of the many existing platforms that are already on the market and build their own solution on top of it. Developing a blockchain from scratch takes months, is expensive, and in most cases, it’s not needed.
Most platforms are open-source. And each has its particular focus. Etherum is the go-to platform for smart contracts; Stellar is famous for asset tokenization. Thus, platform selection depends on the specific use-case.
In the meantime, the blockchain ecosystem has developed to a stage, where every start-up can build a solution. It’s not without challenges, but it’s also not that difficult. Thus, the primary question is not how to do it, but why to do it? Just because building a blockchain solution has become doable, doesn’t mean it always makes business-sense.