Why you should think twice before jumping on the blockchain bandwagon

As the buzz around blockchain grows, organizations in just about every sector are poised to spend millions to adopt the new technology. For many of them, this will be an expensive mistake.

Well before the Bitcoin-dominated headlines of recent weeks, the technology behind the cryptocurrency – blockchain – had become a flashpoint of tech debate. Some pundits have been hailing blockchain’s decentralized architecture as ‘the new internet’. Others are justifiably skeptical.

There are two key questions anyone considering building their system around blockchain or moving towards it blockchain needs to ask: “What specific problem do I want to mitigate?” and “Is blockchain the best tool for that in my case?”

Trust and integrity

It’s important to understand that blockchain is, in essence, a shared ledger. In the case of public blockchain, this ledger is distributed among several members, or nodes, around the web. Any change to the ledger is verified by and synced with other nodes as it is written to the blockchain. This distributed setup is what makes public blockchain extremely transparent and secure against hacking.

Adopting blockchain can be an expensive mistake

It’s also useful for archiving the log of financial transactions without having to trust the controlling establishment or the compromised integrity of their data. Kodak’s approach of using blockchain-backed archiving is good example of a trust and integrity solution. It secures both the photographers’ unchangeable identity and the integrity of their artworks.

However, in most cases where companies and public institutions want to adopt this technology, they will be using private blockchain. In this version, the owner of the system writes and verifies each transaction themselves or gives membership permission to a limited community with whom they want to establish trust.

The private setup may not offer the same decentralized security as its public counterpart. In addition, trusting an institution to run a blockchain is no less risky than trusting it to run any system without blockchain.

Adding to the above limitations is the unchangeable nature of the ledger. Private blockchain users will have to think carefully about what information they want to archive, keeping in mind the EU’s new General Data Protection Regulation (GDPR), and in particular the right to be forgotten.

Blockchain is no magic bullet. Like any other tool, it has its strengths, but should be appropriately applied. Make a thorough analysis of your systems. Take a hard look at your needs. Figure out if, and how, adopting blockchain would the best way to meet them. Then, and only then, will you know if it’s worth taking the plunge.