In the webinar series “Now Being Served”, my colleagues and I answered questions about blockchain with the goal of getting blockchain explained in a way that was both precise and relatable.
Do I really need a cryptocurrency to run a Blockchain? This is one of those questions I hear from clients regularly.
It’s not a surprising question, considering how cryptocurrencies like Bitcoin and Ether have dominated recent headlines. So my answer may be surprising: no, you absolutely do not need a cryptocurrency to run a blockchain.
Fellow IBM colleagues have outlined the differences of Blockchain and Bitcoin. Our work at IBM is to establish the value of blockchain for business, and businesses have specific needs that require a different set of blockchain characteristics. So here are some blockchain basics to help build your knowledge — and hopefully, lead you to one day building your own blockchain for business applications.
Blockchain redefines transparency and trust in business
If you and I exchange something of value, we want to know we agree on the details of the transaction, and also that the transaction is final. Instead of you and I keeping separate records — where we could make mistakes, or the records could be altered or lost — what if we recorded that transaction permanently on a distributed ledger that we both have access to? That’s the premise of a blockchain.
You can see why the concept of a shared, immutable ledger would be important for business. But something else is crucial: business blockchains are permissioned networks with known identities of all parties. This means you and I not only know each other as entities, we can also know all others in our network and are granted permission to transact with each other. In this way, full transparency and trust can replace many of the friction points in business today.
Let’s put a finer point on how cryptocurrency applications differ from blockchain for business solutions:
Cryptocurrencies are the incentive for proof-of-work consensus mechanisms to operate — complex mathematical equations that must be solved in order to complete transactions. This results in expensive computing consuming significant amounts of energy and time. Blockchain for business solutions use normal, well-established distributed computing algorithms, producing data consistency and finality without placing undue strain on enterprise computing.
Cryptocurrencies operate on anonymous, permission-less networks. That means anyone can join without revealing their identity — certainly not ideal circumstances for businesses. The permissioned-based blockchain for business model is built for businesses looking to add complete transparency and trust in their interactions with one another.
Cryptocurrencies are not required to trade digital assets or exchange value on blockchain. IBM works with numerous companies that are interested in digitizing economic models, and blockchain is a core way that companies are doing this. Look for more insight from us on this in the days to come.
Blockchain for business presents lots of opportunities for tokens
There are hundreds of blockchain applications currently running or being developed today, each built for specific use cases. Bitcoin and Ether applications are just two of them — there are many ways to use coins and tokens on a blockchain network. While there are built for purpose blockchains out there in the market, no enterprise is limited to just one use case.
Let’s take the example of an insurance company. The majority of your company’s operations may be focused on underwriting, selling, and delivering insurance policies and claims; however, the company participates in many other business networks — supply chains to procure technology, office equipment and even actuarial talent, banking to fund and pay out claims, and regulatory networks to make sure the insurance company is meeting state and federal requirements.
Blockchain has the potential to remake the way business is done. But it’s a massive undertaking, one that can’t be accomplished by any single vendor alone. In fact, it goes against the very nature of blockchain to begin with — redefining trust through a blockchain starts by building it from the ground up with the direction of a diverse group of engineers.
Setting the standard for business blockchains is The Linux Foundation’s Hyperledger Project. It’s where more than 180 different companies are working on a number of different open source frameworks to bring blockchain for business solutions to life. It’s also where IBM is collaborating with clients and developers worldwide to build blockchains for a variety of industries.
Questions like the one from “Now Being Served” are important to answer, because they lead to a better understanding of blockchain — and better ideas on how to build it for business. So keep watching, keep following our latest news, and keep asking questions. We’ll find the answers together.
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