If linguists were to track the most popular technology words in 2021, blockchain would probably top the list. According to Deloitte, it is one of the major innovations of the future. Mckinsey sees it as the basis for creating a trust architecture to help fight cybercriminals. Either way, blockchain is becoming more common, and companies are wondering if they should implement this innovation into their business processes. How do you know if your company needs blockchain-based software development?
This is an important question for those planning to invest in blockchain. Spending on this technology is growing steadily at a rate of 46.4% per year to reach $17.9 billion. That’s nearly four times the $4.1 billion that CEOs spent on innovation in 2019. For this spending to justify and pay off, the following must be understood:
- what problems businesses have;
- how the blockchain works;
- potential uses of the technology;
- how blockchain would solve these problems;
- how businesses will benefit when they hire blockchain developers and from the development of blockchain applications:
- whether companies need dApps (decentralized applications).
To understand the value of blockchain, you need to understand how the technology works.
How blockchain works and its benefits
Blockchain is a digital ledger, which is a chain of blocks (records or transactions). There is no centralized server in blockchain. Chains of blocks are copied and distributed among network nodes (computers). Together they form a distributed database.
If a new block is added to the chain, the info in the nodes is updated according to the current data. Old blocks cannot be deleted or changed, the information is securely encrypted with a hash. To access it, you must be a member of the network and have a secret key that decrypts the data on request.
To initiate a new transaction, a participant must get approval from the rest of the network. If 51% or more of the partners approve the transaction, the smart contract algorithm will automatically execute it. Thus, the actions of blockchain participants are governed by consensus.
Technology gives businesses a number of advantages, namely:
- Openness. Blockchain participants can examine the history of transactions and see all the operations that have taken place on the network.
- Transparency. Blockchain data cannot be faked. This means that unfamiliar partners can participate in a transaction, trusting each other.
- Security. End-to-end encryption and immutability of data make the blockchain network a secure system for storing information. Blockchain has no centralized server. To hack it, a hacker would need to “break” thousands of nodes at once. This is virtually impossible because you need a super-powered computer capable of running through billions of combinations.
- Privacy. Users do not need to create a personal account or remember a username and password to log into blockchain applications. Public and private cryptographic keys are used for authentication.
The leaders in the application of blockchain applications are considered to be the financial sector, manufacturing, energy, healthcare and the public sector.
For example, in 2018, the Swiss city of Zug tried out a blockchain-based digital voting platform. Residents participated in the election remotely, from their smartphones. Given that the data cannot be faked, and it is unrealistic to log into the network instead of the owner of the secret key, citizens and local leaders see great promise for elections via blockchain.
In 2018, the Danish shipping company Maersk was also interested in blockchain. It introduced TradeLens, a distributed ledger application. A year later, major shipping partners joined the platform. Now half of the world’s containerized cargo is delivered via TradeLens.
When it doesn’t make sense to develop blockchain applications
There are alternative technologies (IoT, AI, NFC, cloud and others) that handle tracking and transparency just as well as blockchain. So when planning blockchain software development, it’s worth making sure that dApps are a less profitable solution than other innovations. To understand this, you need to make sure that:
Decentralized structure optional
When an enterprise needs a central authority to manage operations within an application, it is impractical to create a platform with a distributed database to handle queries.
If a blockchain system can transfer, for example, money, goods or freight, ownership is registered by a regulatory authority. The same authority can use its power to rewrite ownership to another person against the owner’s wishes. Thus, blockchain does not work because no one can disprove the validity of the record. This work is done by the supervisory authority, which contradicts the principles of blockchain. Therefore, the land registry needs centralized development and support.
Storing information in blockchain is not profitable
In the 1980s, building and maintaining a server farm was prohibitively expensive. It cost $18.8 billion to process 1 billion transactions. In 2020, the price per gigaflops dropped to 4 cents. Processors are getting cheaper and more powerful, so it’s worth seeing if developing blockchain applications will be profitable.
There are owners of huge computing farms on the market who sell computing power in the cloud (Amazon, Azure, Google Cloud, Oracle, and others). Cloud servers scale easily and handle incoming requests quickly. If such resources are sufficient to meet an enterprise’s needs, and their cost is cheaper than blockchain development, then it’s worth waiting to adopt the technology. But when an enterprise needs to store huge amounts of data, it is worth considering the benefits and evaluating the cost-effectiveness of blockchain.
Blockchain is less useful when participants know each other
Blockchain manages online transactions between participants who do not know each other. For example, a buyer sending money does not know the seller to whom he/she is transferring funds. Sender doubts the recipient, but trusts the blockchain system that manages the smart contract. Transactions are verified and approved by a large number of participants. But if the sender has been defrauded, the identity of the fraudster cannot be recovered.
Blockchain is not urgently needed when users know each other. If a customer sends money to an enterprise but does not receive goods in return, he/she will be able to take legal action.
How blockchain can be dangerous if misused
Blockchain software development makes sense if a company can maintain more than 50% of its mining processing power to withstand a 51% attack. In this way, it would prevent new blocks with fake confirmation of fake transactions from being added to the blockchain.
The blockchain network has grown so big that a 51% attack is unlikely. To pull this off, crooks need superpowered computers. For example, bitcoin has grown from 1.5 gigabytes in 2012 to 360 gigabytes in 2021. The bigger the network, the harder it is to hack.
If the network is not that large and a fraudulent transaction occurs, it will be difficult to restore a previous version of the distributed database.
Conclusion
Blockchain is at the peak of its popularity. Companies such as Andersen are rethinking their operations; they want to build trust architecture with this technology. But the opportunity is not open to everyone. Decentralization, smart contracts, and database immutability may not be good for business.
Therefore, before developing blockchain software, it is worth making sure that the technology will help a business grow and become its competitive advantage. Unwarranted innovation or the introduction of a dApp “for fashion” will result in a loss of money, time and resources.
