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Blockchain’s missing link

By Andrea Murad

Is Blockchain ready for large-scale implementation within financial services? We explore the missing links that need to be forged for success.

Blockchain is being adopted across a multitude of business sectors, such as delivering supply chain processes, but the platforms are evolving at great speed.

“Like anything new, it takes some time and testing,” said Eli Stern, Principal at EY. “New technology and change is never broadly embraced quickly. Blockchain is powerful technology, and if it becomes an integral component of technology, it has potential to create a paradigm shift.

“While it eliminates roles, it will create new opportunities. It will reduce the need for reconciliations, and there are new types of processes and controls and risk management techniques that will be needed.”

The technical background on blockchain

Blockchain is a distributed ledger where transactions are recorded chronologically and publicly. When a transaction is recorded on blockchain, the entire history is simultaneously distributed to every node or peer, which is the foundation of the blockchain network.

A node or peer is a device on the blockchain network that allows the network to function, like a smartphone, computer or printer – essentially any device that’s connected to the Internet with an IP address. Nodes willingly contribute resources and computing power to store and validate transactions.

“Every individual that is involved in that network has a full replica of all the transactions,” said Bhooma Chutani, head of the Blockchain and Distributed Ledger Technologies practice at LTI. “If I were to give you $100, it would reflect immediately to everyone that I gave that $100 and there’s never a contention that the transaction never happened.

“If my network were to go down, others on the network would still have a copy of the ledger. It provides complete transparency to all involved so there is little dispute. If there is any breakdown in the process, there is a reconciliation that goes into the process, but in blockchain it happens at real time.”

The technology eliminates the need for a middleman to reconcile any ledgers because everything is in sync instantaneously. “Once it’s in a ledger, it’ll always be in the ledger,” said Bhooma. “If I need to reverse it, I have to create a new entry, and everyone will know the reversal is made.”

Blockchain is also immutable, transparent and secure – if one or two nodes go down, the other nodes that are still operating would have access to that data.

Despite these benefits, many companies are still in the pilot and Proof of Concept (PoC) stage, due in part to the three missing links:

Not Enough Consensus

For blockchain to truly work, collaborating participants – like banks and trading partners – need to build a consortium to work on blockchain together. The challenge is that each participant has competing interests.

“It only makes sense if there are multiple partners involved,” said Bhooma, “The more parties that are involved, the harder it is to build consensus and to agree on what the solution needs to look like.”

Lack of Compatibility

Currently, more than 30 strong blockchain platforms in the market are available, and companies are likely building on different platforms. Since there is no interoperability between these platforms today, connecting a global network will be a top issue to tackle.

Companies are working on technology so that these platforms are able to talk to each other, but they evolve so fast that solutions can’t keep the pace and quickly become outdated. “By the time I build the connectors, the platform has changed,” said Bhooma.

Platforms Have Specific Characteristics

Privacy options often differ greatly among each platform.

For example, Ethereum allows people to control what other people see, and while they can see that a transaction is happening on the network, they can’t read it.

Hyperledger has solved the privacy issue in that someone on the network isn’t able to see nor read a transaction being processed.

While Ethereum hasn’t adapted privacy controls yet, the platform has much better adoption and has a better ecosystem, said Bhooma.

Some platforms are better than others and standout, while others are fairly niche and may not be around in a few years. Larger platforms tend to have more investment globally and may, as a result, evolve faster so that they’re enterprise-ready and cloud-enabled.

Ethereum is a public blockchain that’s best for a large public solution, for example, while a Hyperledger fabric works best for a more private blockchain.

Quorum is an enterprise version of Ethereum developed with JP Morgan for financial services. Stellar is specifically for financial platforms and payments with a framework that helps to decide which technology platform to build on, dependent on the use case.

Corda, which was initially developed for Bitcoin, is also built specifically for financial services.

“We are seeing more blockchain solutions being built on a cloud because there are so many participants and it’s easier to integrate the participants rather than build a point to point solution,” said Bhooma. “It’s easy to onboard participants on a cloud platform.”

What’s needed to advance blockchain?

For web and app development, there are often ‘skeletons’ that allow developers to build on and tailor existing frameworks, but there is no such blank template with standardised tools for blockchain.

Standard formats and building block tools would allow for a benchmark of protocols and how systems communicate with each other – and ultimately, a way forward in global adaptation and adoption. The most imaginative and forward-thinking solution to a unified blockchain could be in the hands of a developer, if only they had the tools.

This article was originally published by CA North America.