Christophe Uzureau, Vice President, Analyst at Gartner [NYSE: IT]
According to the 2019 Gartner CIO Survey, while 60% of CIOs expect some kind of blockchain deployment in the next three years, only 5% of CIOs rank it as a game changer for their organization.
The rationales for lower expectations toward this technology is two-fold. Most organizations have only explored blockchain on small, narrowly-focused pilots or proofs-of-concept (POCs), with the objective of dealing with an existing process. In most cases, these processes benefit from a certain level of centralization, the opposite of the promise of blockchain technology. And most POCs are not relying on true blockchain solutions. As a result, CIOs may feel that we have entered a blockchain winter, but the reality is that the wrong solutions have been applied to the wrong problems.
So let’s go back to the fundamentals. True blockchain has five core elements:
Distribution:Blockchain participants are located physically apart from each other and are connected on a network. Each participant operating a full node maintains a complete copy of a ledger that updates with new transactions as they occur.
Encryption: Blockchain uses technologies such as public and private keys to record the data in the blocks securely and semi-anonymously (participants have pseudonyms). The participants can control their identity and other personal information and share only what they need to in a transaction.
Immutability: Completed transactions are cryptographically signed, time-stamped and sequentially added to the ledger. Records cannot be corrupted or otherwise changed unless the participants agree on the need to do so.
Tokenization: Transactions and other interactions in a blockchain involve the secure exchange of value. The value comes in the form of tokens that can represent anything from financial assets to data to physical assets. Tokens also allow participants to control their personal data, a fundamental driver of blockchain’s business case.
Decentralization: Both network information and the rules for how the network operates are maintained by nodes on the distributed network due to a consensus mechanism. In practice, decentralization means that no single entity controls all the computers or the information or dictates the rules.
Understanding each of the elements, and how they come together to form a true blockchain, gives CIOs a framework to explain the technology to other executives and clear up misconceptions.
It also provides them with a way to avoid “blockchain washing” by vendors that are mostly repackaging existing technology by giving it a blockchain stamp of approval by solely focusing on the distribution, encryption and immutability components.
Most solutions marketed as “blockchain” are missing tokenization and decentralization. These capabilities are the catalysts for the introduction of new business models and to justify an investment into blockchain technology. The introduction and use of blockchain-enabled tokens will allow for new value exchange systems and business models.
One concept that CIOs cannot ignore is asset deconstruction. This refers to the ability of the owner(s) of an asset to represent its outputs with tokens of value. This especially applies to the data generated by the asset. Tokenization enabled by smart contracts and decentralization enables the asset owner to define consent for access to the data generated. It enables the creation of new data markets that are cruelly missing today. Without such markets, the asset owners do not know the real value of the data trails and may give away data too cheaply to a third party, notably a digital platform provider – in exchange for convenience in the short term. Asset deconstruction also acts as a defensive mechanism. It limits the ability of digital platform providers (notably digital giants) to collect data and correlate metadata. Data is distributed or accessed in a piecemeal fashion – it is now transactional. Offering short term convenience in exchange of an open and indefinite access to the user’s data is disrupted. And as a result, third parties cannot use such data as a business currency for building market power.
By design, the use of a true blockchain implies a minimum level of decentralization of the governance, the economics and technology underlying the creation of the new data tokens. Usage of blockchain implies that the user is in charge or is gaining much more control over the access rights to the data generated via his/her asset.
For example, automotive owners (retail or commercial) become asset creators. With the increasing number of sensors in cars, they have an ability to generate data tokens. They are rewarded for supporting the business requirements of the car manufacturers, auto-part manufacturers and financial services providers. They are also able to generate social benefits by using the data tokens to support their local community – such as indicating they have free car boot space to share as part of a ride. And they can perform all of this without relying on a digital platform to coordinate the exchange.
We are back to the essence of the real business value of a blockchain – it allows you and your organization to reengineer business relationships, monetize illiquid assets, and redistribute existing data and value flows to rebalance market power.
Asset deconstruction reverses the ownership of data as well as the economic models. And with adoption of artificial intelligence (AI) and the Internet of Things (IoT), such capabilities are now strategic for any companies that value the autonomy of its business development.