Blockchain vs. Database

When should I use blockchain and when a database? 

A lot of companies and consultants are looking for meaningful use cases and blockchain implementations, the problem is no one has really experience dealing with the professional blockchain principles, architectures or the technologies. The result of the first considerations could be the transfer of existing concepts to blockchain technologies. This way, consulting companies will make a lot of money, but sustainable solutions will not be produced. The result will be very complex and expensive systems where solutions with a simple database and an standard application server would have been cheaper and better.

What are the parameters you can look for to find the right decision?

Business model: If the business between two partners 1:1, or sell company products or service to many companies 1: many, or sell many marketers something to many customers many: many

Governance of the IT solution and the business model: Is one of the partners responsible for the IT solution and business model?

IT platform: Is the IT platform, e.g. Application Server, etc central or distributed over many participants?

Let’s look at all possible combinations which can work and which are suitable for a blockchain solution:

Business ModellGovernanceIT ArchitectureSolution
1:1database
1:manydatabase
many:manysingle/hierarchical centraldatabase - platform use case
cooperativecentralfail
single/hierarchical decentralDLT or blockchain
cooperativedecentralblockchain

If the transaction only takes place between two parties or a supplier sells a product to many customers, then a blockchain based solution is probably not the appropriate approach in many cases. But it is possible to use it, if the features of a blockchain are helpful, i.e. you want to have journal where you can prove the immutability of electronic contratcs or publication. The functionality of stampery is good example for it.  

Blockchain is more exciting in a market where many suppliers want to sell something to even more customers.

If one chooses a hierarchical governance and a central IT architecture with central databases and application servers, the result will be a classic Silicon Valley platform approach. The money will be made by the platform providers like Uber, Amazon or Ebay.

Theoretically, a solution with cooperative governance and a central IT solution could work. All the projects I have seen so far in the way have failed terribly, it’s not possible for the central solution to fulfill all unspoken requirements from different  stakeholders with more or less equal rights.

There are still two useful scenarios:

Hierarchical professional business and technical control and specifications and decentralized IT architecture. The technical features of the blockchain are in the foreground, transparency, stability, etc. can be the base of an successful and useful IT system. 

When governance is cooperative and the IT system is decentralized, all basics for a sustained system are given. Everyone can define the type of the deployment, features of his front-ends and services. Every participant can decide which services he offers himself and which one can used from someone else. This is the most useful scenario for the blockchain.

But ….. blockchain based application doesn’t mean it’s blockchain only.

If you decide in a business application for a blockchain, however, this does not mean that you are building a blockchain only application. The blockchain remains the right platform for the transaction data; all the others should be stored outside the blockchain, since otherwise you would have to spend a lot of time to encrypt and decrypt data.

It’s a hard job to find the right blockchain architecture principles, everybody enters new territory. 

KW 14.17 – Weekly Blockchainers Recap

The Ethereum universe grows really fast and you get lost very soon when you try to get a good intro on actual developments, “The Ethereum Wiki”  is good start to get an overview on Ethereum projects and related tokens.  

When you start thinking about your own Ethereum application, you have to solve the question how to store the related data, some startups using the IPFS filesystem. Then the next decision could be: “How can I search efficiently on this Filesytsem ?” . A solution could be the AFIX – Advanced File Index from Novus.  

Andreas Antonopoulos has also some new inspiring films in his youtube channel. He also announced his new book “Masting Ethereum” for autumn

… and the first beer was paid over the lightning network.  

Marketing usecase based on blockchain

This week I stumbled upon the following article:

Liverpool gets its own currency 

The company colu from Tel Aviv  has generated a local digital currency for Liverpool. Local currencies are not new. Many municipalities use some kind of local coupons to buy in the suburb, often linked to local festivals that take place in limited periods.

To map such actions digitally so far was extremely complicated and finally not done, since it’s technical to complicated so you quickly missed any ROI. With a public blockchain comes almost everything therefore what you need. It still lacks a nice front end for the user and for the point of sales, that’s it.

The costs for the infrastructure go against zero, the investment costs are very low and the system is safe.

If you thinks about this use case, you quickly come to the conclusion that you can simplify various marketing processes with blockchain technology. In some countries, less in Germany, couponing is a huge business. Customers collect coupons in advertising or cut out from newspapers and get a discount at the supermarket checkout for special items. You can save a lot of infrastructure by mapping this with the blockchain.

As a rule, these data are collected and analyzed with marketing databases. If you link the use case with the preceding “claim to endorse” article, you can see that you can not only manage coupon values, but also assign these to the registered users.

In order to depict such systems conventionally large databases are necessary, the blockchain reduces the most infrastructural costs dramatically.

The couponing example can be perfectly combined with the customer card idea, which is no longer physical output, but only as a wallet that would make the processes really slim and fast.

Marketing based on blockchain is in a really undeveloped early state, it has the potential to become the blockchain killer use case. 

An overview of the blockchain universe

The blockchain universe is evolving very fast. New products and platforms are announced daily. This post should help you to get a rough overview about the existing blockchain technologies.

wich BC.001

I categorize the blockchain technologies into 3 tiers:

tier 1The market leaders.Bitcoin, Ripple, Ethereum
tier 2The challengers, upcoming blockchains where we see the potential to reach tier 1 during the next 6 month.Hyperledger, Quorum, Stellar
tier 3Promissing technololgies and conceptsMonero, Corda

 

Tier 1:

Namebitcoin
Linkshttps://bitcoin.org
https://blockchain.info
https://github.com/bitcoinbook
Main application areavalue transfer, crypto-currency
Characteristicsstable, secure
Consensusproof of work
Governanceopen source, 5 committers, non commercial
DescriptionBitcoin is the first blockchain implementation. The network has started in 2009 and the consensus mechanism has not been hacked yet, despite countless attacks. Bitcoin does not support smart contracts like Ethereum do, however, it offers limited scripting possibilities, which haven been applied in various Bitcoin extensions (e.g. Coloured Coins).

Very often we hear the criticism about performance of the Bitcoin blockchain, the lightning networks shows a possible solution.

In any case, everyone new to blockchain should put his hands on bitcoin and try it at least. The book of Andreas Antonopoulos gives a good introduction to it.
NameRipple
Main application areacurrency independent money and security exchange
Links https://ripple.com/
https://github.com/ripple/rippled
Characteristicsfast
Consensusprobabilistic voting consensus
Governanceopen source managed by Ripple Labs
DescriptionThe ripple concept is based on IOUs and trust relations between network participants. For instance, if a person B trusts that a person A will pay his debts, and C trusts that B will be paying his debts, A will be able to send money to C by introducing following debts (IOUs): 1) A owes money to B, 2) B owes money to C. The network is only managing the ledger of IOUs, the concrete payment is done outside of the network. Moreover, Ripple offers a FX market for transferring between currencies. The FX is offered directly by Ripple. The idea of the systems is, to always use the cheapest liquidity provider.

Ripple is used by several banks as an alternative for the classic correspondent bank based international money transfer. The implementations I looked at still look experimental.
NameEthereum
Linkshttps://www.ethereum.org
Main application areaprogrammable blockchain (smart contracts)
Characteristicsflexible smart contract implementation
ConsensusProof of Work, Proof of Stake in preparation
Governanceopen source, maintained by a foundation
DescriptionEthereum is the leading smart contract platform with a turing completed virtual machine. This means that you can implement every kind of algorithm in this smart contract. If you hear the first time about smart contract concepts, it's a little bit complicated to understand the universal power of this kind of tool. The members of the foundation call it the “world computer”. If you think of the bitcoin blockchain as a large distributed Excel spread sheet, Ethereum would be like having the ability to script every single cell of your spread sheet. Disadvantage of this flexibility is that Ethereum has a large attack surface as we already experienced by recent attack. The good news is that the consensus algorithm didn't fail yet at any point in time.

It is not recommended to implement complex algorithms in Ethereum. Every execution step costs a predefined amount of gas and is much more expensive than the cost of your own CPU at home. It is easy to prototype your own ideas with Ethereum.

 

Tier 2

NameHyperledger
Interesting linkshttps://www.hyperledger.org/
http://www.ibm.com/blockchain/
Main application areano specific
Characteristicsblockchain tool box
Gouvernanceopen source, Linux Foundation
DescriptionHyperledger is not a public Blockchain like Ethereum or Bitcoin, it is more an blockchain building kit under the roof of the linux foundation. The focus of this tool box is building business blockchain apps in private networks. The most active participant seems to be the IBM, they offer also a lot of useful services and extensions around Hyperledger. The IBM bluemix cloud services offers a low entrance level to the technology.
The tool box concepts makes it little bit complicated to define the main characteristics of hyperledger, because you can implement a lot of different kind of distributed ledgers or blockchains.
NameStellar
Interesting linksstellar.org
Main application areacurrency independent money and security exchange
Characteristicsfast
ConsensusStellar Consensus Protocol
Gouvernanceopen source, stellar.org, nonprofit
DescriptionStellar started as a fork of the ripple network. If you look from a distance to both networks you see parallels in the functionality and features. The participance of the stellar network should be individuals, ripple focuses on institutional partners. The consensus algorithm was also changed in the stellar implementation. Stellar could also become a SWIFT competitor like ripple.
NameQuorum
Linkshttps://www.jpmorgan.com/country/US/en/Quorum
https://github.com/jpmorganchase/quorum
Main application areaprivate blockchain for business apps
Characteristicstrust, speed
Consensusmajority voting
Gouvernanceopen source, JP Morgan
DescriptionQuorum is the shooting star of the last months. JPM extended Ethereum with privacy and a voting consensus mechanism. These two extensions match the requirements in the financial industry pretty well. I am excited to see what will happened with this technology in the next months. Most probably, JPM will come up with new business applications and processes based on their new platform.

 

Tier 3

NameCorda
Interesting linkshttps://www.corda.net/
Main application areaFocus on banking applications
Characteristicsno blockchain, just distributed ledger technology
Gouvernanceopen source, Linux Foundation
DescriptionCorda is not really a blockchain it is a distributed ledger system. It comes from the R3 consortiums. R3 started noisy, now first members already left the group. Corda moved under the hyperledger project umbrella, at the moment Hyperledger and Corda are not technical connected, some function exists in both tool boxes in different implementations.
The focus of corda is to become a distributed backend database for the banking industry. Today in the institutes you find different IT systems which are loose coupled by enterprise bus systems. The vision of Corda is, to bring this systems to the same distributed database. From my point of view it is a nice vision from a childlike architecture view, but it will not be realistic. I think the technology can be used to realize a new class of distributed backend systems, like distributed Master Data Management or distributed Business Process Management systems in decentral organized enterprise structures.
NameMonero
Interesting linkshttps://getmonero.org
Main application areaexchanging coins
Characteristicsanonymization
Consensusproof of work
Gouvernanceopen source
DescriptionMonero's focus is on exchanging the Monero coin. The anonymization level is much higher the in the most other crypto currencies. This could also be useful for legal usage. The ideas behind this crypto are similar to bitcoin, but it’s completely new coded. Monero uses an own protocol which is different to all other blockchain implementations. It’s also not possible to see inside the blockchain without the private key or a special view key. This feature enables also an absolutely private communication between the participants. The transactions will also be splintered and merged, so it is not possible to reproduce a single transaction again.

In general, blockchain is a new technology, using it will feel experimental. You’ll have all problems you can get with new technologies in early stages.

In this post we have not discussed all the tokens based of Ethereum. This would be a good content for a follow-up article. 

KW 47.16 – Weekly Blockchainers Recap

There are lot of news in the BC universe and it’s not easy to achieve a balance between repeating everything and doing nothing. Our target is to log things that we found interesting. Here we go:

One news is overdue: the R3 (what ever it is) is coming down to earth. The first members are leaving the ship. Nobody knows if it is sinking or just pivoting. Goldman and Santander will leave the R3 consortium. If you follow the news, you can also find a lot of articles about their own BC activities. It seems that they didn’t see a benefit of being a part of this consortium. R3 also announced their own open source strategy, so they appreciate that open source is the key for building stable, transparent and secure BC solutions. 

JPM delivers the promissed open source code for Quorom, an Ethereum based blockchain implementation with support for permissioned networks, privacy and a faster consensus algorithm able of processing dozens to hundreds transactions per second. Let us hope that JPM’s  activities will help the Ethereum community to grow faster and become more robust. 

Siemens is also waking up. They started a collaboration with the LO3 startup for a decentralized energy micro trading platform. 

BitBond – the future of Loans

Last week the P2P lending platform BitBond got a license from the German BaFinBitBond is a fine little platform with lot of nice features. It’s unique selling point is that it is completely bitcoin based. You can get loans and invest on a USD and BTC base, but the complete backend is based on bitcoins. This will simplify the backend processes for all participants in a radical way and it can be used by unbanked population from undeveloped regions all over the planet. 

The internal account will be managed only in BTC. Yes, this radical bitcoin p2p implementation will be a barrier for anyone who is not familiar with BTC, but it shows how easy this complicated business can become in the future.

The amount of loans is still rising and the platform has good chances for the disruptive network effect. It also has an open API to integrate the functionality into the own business or application and it gives us an idea about the connected business processe for small business.

Another nice feature is “AutoInvest” for all lazy investors, which are not interested in studying the loans on their own.

Ok, lets look on the other side of the coin. The interest rates are pretty high, up to 30% and the credit risk is also really high. On the platform you can look on the credit portfolios of the investors, they diversify their capital to a lot of loans and do not win in every case. Over all they earn money, but it’s not the holy grail. 

BitBond Team, good luck with your platform, thumb up for your platform implementation and ideas !

KW 39.16 – Weekly Blockchainers Recap

The kind of blockchain news are rapidly changing these days.

  • Two years ago: Bitcoin is some dirty stuff for anarchists and criminals. 
  • One year ago: Hmm, the blockchain behind Bitcoin, it sounds interesting, lets have a look on it.
  • Half year ago: Let’s start some prototyping to find out how to use it for us, if we can’t stop the technical progress let it work in our direction.  
  • And today? I see more and more commercial projects or productive systems using the BC, DLT how ever they call it. It’s really inspiring to be a part of the development of this disruptive technology, let us have a look on some brand new examples: 

KW 33.16 – Weekly Blockchainers Recap

The number of blockchain news post is growing exponentially. Nearly every company or government does some research projects based on blockchain and DLT technologies. Let’s try to filter the stuff wich could be interesting for us blockchainers.  

Last year I saw a well written paper from the world economy forum about fintechs. This year they published “The future of financial infrastructure” witch focused on blockchain. The paper describes in detail a set of financial use  cases and how they can be improved using blockchain tech. It’s one of the best papers we have seen so far. 

The next big thing is Raiden from Heiko Hees. See also International Business Timer. Every time you discuss the opportunities of blockchain and smart contracts with business people, very soon they come up with the scalability issue. Based on my IT project experience, I can tell that there is always a solution for every performance issue. Heiko’s Raiden is the solution for Ethereum.

Finally we have to mention Steem – a blockchain database that supports community building and social interaction with cryptocurrency rewards. You can think of it as Facebook/Reddit like Plattform where content contributors and content curators are monetary rewarded for their work. It is questionable if the model is sustainable or not, anyway it’s the first application of the DLT tech with a nice front-end and with the potential to go viral. 

The Golden Private Blockchain Use Case 

During the last months we have seen a lot of press releases about blockchain projects everywhere, but only few of them are more then just experiments. We also saw many notes about private blockchains as a solution for enterprises. Private blockchains are a good story for consultant companies and their skin deep powerpoint writers with expensive cufflinks. However, we haven’t seen good use cases yet in all these power point slides, just repeating arguments and sales stories. So where is the real private blockchain killer application? More or less every problem addressed by private blockchains can be solved with already existing technologies and software architecture patterns. 
 
Most IT system in enterprises follow the centralized architecture paradigm, e.g.: 
a) MDM (Master Data Management), data from different sources will be collected and consolidated in central databases, then the data will be processed, checked etc. with some algorithms or human interactions and at the end the data will be distributed to different target business applications.
b) Central BPM (Business Process Management) systems will be triggered by an event, it pulls some data from other sources, process them, generate reports, trigger new events etc. 
 

centralsystems.001

  
We can continue and continue to all the different other centralized systems and architecture pattern. We build centralized solutions, because we learned centralized architectures are good, however, in decentralized or silo organizations it is difficult to establish such structures. In this kind of organizational structure, we find very often poorly organized data exchanged via Excel and emails. BPM solutions perform poorly too due to the fact that it is difficult to establish and enforce exactly specified business processes. 
 
Central systems also ignore circumstances of local data aspects, not all data has the same importance for all business applications, very often you need individual data and data rules for single data consuming business app. 
 
How DLT (distributed ledger technologies) and smart contracts instead could help to integrate applications in a decentralized/silo organization where centralized architectures break on the organizational structure?
 
In a DLT-based solution there is no central system. Every business application is equal and can participate in the P2P network by contributing or consuming data from the distributed ledger. How an application contributes or how it consumes data is a local decision of the application itself. For instance, if it needs a specific frontend, it can be implemented in the context of the specific application in need of it.  
central systems2.002
 
This is a new software architecture paradigm which could lead to better scalability, less redundancies and lightweight integration of applications in technologically and organizationally decentralized environments. 
 
Relevant Articles:
 

KW 25.16 – Weekly Blockchainers Recap

Swenden Land Registry
One of the first serious ideas to use blockchains and smart contracts was the land registry use case. We heard about projects in Greece and Honduras. Now Sweden do some research, it has high potential to show the applicability of this approach. 

more projects
During the last weeks we saw more and more interesting Blockchain activities.
Polish Gouvernance 
Dutch Central Bank 
Kazakhstan Central Bank 
– ……
It seems more or less every institution works on this technology.