Companies can reduce risk in blockchain projects by planning, developing and implementing new systems in four steps.
Requirements for blockchain systems
Blockchain-based solutions should typically meet the following requirements:
- Secure and integer (data and system behavior),
- Decentralised and distributed without central servers and middlemen,
- Fast and scalable, as well as
- Open and permissionless, so that new subscribers can connect at will.
No blockchain protocol or distributed ledger technology (DLT) currently fulfills all desired properties.
Bitcoin is secure, decentralised and permissionless. The performance, however, lags far behind conventional databases and payment service providers. In addition, the network consumes a disproportionate amount of energy due to its proof-of-work (PoW) consensus algorithm and is therefore not efficient. As more nodes are added, the situation gets worse. Thus Bitcoin does not scale.
The blockchain protocol Hyperledger restricts the access of participants. Although it is efficient, it loses its openness and only works with central administration instances.
Many large projects are working on a comprehensive solution
There are currently numerous projects researching new distributed ledger technologies that exhibit all the desired properties. So far, no proposed solution has been fully convincing.
Blockchain projects still have to work with temporary solutions until the crypto scene, which is lavishly financed with several billion Euros, has found a comprehensive solution.
Companies should introduce the blockchain step by step, first limiting the openness and decentralization of the systems and then gradually expanding them. From a central test system to a completely open system architecture, the process is divided into four stages:
Stage 0 – A central server simulates the blockchain: The basic system architecture, application prototypes and first use cases can thus be tested without having to consider the full complexity and novelty of the blockchain.
Stage 1 – Permissioned blockchain with few nodes: A permissioned blockchain (e.g. based on Hyperledger) is used for data storage and smart contracts. This type of configuration is already used within industrial consortia or logistics chains.
Stage 2 – Permissioned blockchain with many nodes: A permissioned blockchain could then grow to a point where the organization resembles an open rather than a closed system.
Stage 3 – Permissionless Blockchain: In a permissionless blockchain, all institutional decision-making and administrative processes are replaced by a protocol defined as program code. The software alone guarantees the security of the system.
This step-by-step procedure can only work if it is clear from the very beginning which level of openness should be reached. In addition, each step requires the planning of an orderly transition to the next level.
A more detailed version of this article can be found at https://blockruption.com/2018/08/four-stages-of-blockchain-implementation/?lang=en.