This note will try to understand when to use blockchain technology and the conditions to be taken care of before building blockchain applications.
Although blockchain technology is not very mature yet, it is still maturing as a technology. The industry started investing money in this technology because it can transform business processes from manual or semiautomatic to completely automatic. The diagram below shows a very high-level overview of few sectors where we can use blockchain technology.
Before going to study different use cases of blockchain technology, we will try to understand what makes a good blockchain use case, what would be the different criteria that must satisfy, and why the uses of existing technology (centralized ) are not able to solve it, why other partners will join new kinds of technology where they need to invest money in resources such as hardware, humans, etc.
What makes a good blockchain use case?
For the blockchain use case, the first and primary requirement is a business problem that needs to be solved. However, identifying a good blockchain use case is not always an easy task.
Few points that need to keep in mind to make good blockchain use cases are as follows:
- There has to be a business problem, and the people or investors or organizations are willing to invest money and time in it. Moreover, there should be a proper rationale why a proposed business problem can’t be more efficiently solved with other technologies.
- There has to be a business network, which means there has to be a set of participants from different organizations who want to exchange information (i.e., the information can be in any form, like transactions, records, status, etc.) or creating a business network to solve a business problem which does not currently exist.
- There should be multiple parties who do not trust each other but need technology such as blockchain, which ensures trust. The first part of the trust factor could be consensus, immutability, finality, and provenance of the information that is getting generated. The second part of the trust factor is auditability, which is required in many organizations where regulators exist. They do not trust the individual entities, who want to see that the individual entities follow due diligence with substantial evidence.
Blockchain is a bit different technology, and it does require multiple organizations to agree to come together, join a particular network and work as a consortium. Unlike traditional software products, where one person/organization develops the product and puts it out there for others to use.
Understanding the Business Problem
Understanding and having a clear picture of a problem is essential for the proposal and successful design and development of a business solution. These are the following pinpoints that must be considered at the conceptualization phase.
- What is the specific business problem or challenge that the project will address? The project scope must be very clear and concise about what problem it is addressing and why it is challenging.
- What is the current way of solving this business problem? Understand the current systems are involved, and where systems do not exist, and if they exist, identify the areas for improvement.
- Assuming the business problem is large, what will be the specific aspects of this business problem? It may not always be possible to provide a complete solution. However, a specific contribution may give significant value addition. In this case, the scope of the problem must be addressed properly.
- Who are the business network participants involved, and what are their roles? If there is no business network involved, then this is not a good use case.
- Who are the specific people within the organization, and what are their job roles? Understand the key users in a business network and how they interact with each other. To understand it, analysts need to understand the current working system.
- What assets are involved, and what is the key information associated with the assets?
- What are the transactions involved, between whom, and what assets are associated with transactions? Understand user what business or contractual conditions assets are under as they transfer from one wonder to another.
- What are the main steps in the current workflow, and how are these executed by the business network participants?
- What is the expected benefit of applying blockchain technology to the business problem for each of the network participants?
- What are legacy systems involved? What degree of integration with the legacy systems is needed?
Assessing Business Value
Assessing business value is the key step to succeed in setting up the blockchain network and growing it. For that things to be considered.
- Existing Pain Point
- Scope – Participants, assets, transactions
- Benefits: Baseline, minimum viable ecosystem (MVE), and mature network
- Blockchain Design Points
- References
Cost-benefit analysis: A blockchain system is always costly compare with centralized systems. The benefits of using the blockchain system have to outweigh the cost of running that blockchain network. Often it has to outweigh multifold because these are disruptive in nature. People or organizations have to throw away their existing ways of doing business and moving to new ways. There will be resistance if the benefit does not significantly outweigh the cost. So that is an essential consideration for use cases.
References
- NPTEL lecture series on Blockchains Architecture, Design and Use Cases by Prof. Sandip Chakraborty, IIT Kharagpur.
- https://eprint.iacr.org/2017/375.pdf
- https://hbr.org/2021/04/how-blockchain-can-simplify-partnerships
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