Blockchain in the Enterprise


In this post, Sr. Consultants Farah Deendar and Chike Okor introduce blockchain concepts and enterprise adoption constraints.


So, what is Blockchain exactly?

Blockchain, also called distributed ledger technology (DLT), is a cryptographically safe, secure, decentralized and immutable database. Blockchain is used to create a digital transaction ledger that is shared among a distributed network of computers. Blockchain’s foundation is based on cryptography which provides powerful properties of being decenftralized and immutable with the use of Cryptographic Hash Functions, Public Key Cryptography and Digital Signatures. More information about the building blocks of Blockchain can be found here.

The Blockchain ledger is a write-once-read-many database that is an immutable record of every transaction. If a mistake is made, you must post a compensating transaction to correct it—no updating or deleting is permitted. Blockchain is the technology that powers public networks such as Bitcoin and Ethereum.

Blockchain in the Enterprise:

The use of blockchain results is a more open, transparent, and verifiable system that fundamentally changes the way we think about exchanging value and assets, enforcing contracts, and sharing data. A growing number of enterprises are investing in blockchain as a secure and transparent way to digitally track the ownership of assets across trust boundaries, reimagine shared business processes, and create new models for cross-organizational collaboration.

What do we mean by this?

Blockchain in the Enterprise (i.e., Hyperlegder, Ethereum Enterprise, Ripple, Quorum, etc.) is a distributed ledger with the following characteristics:

  • All the participants and their digital identities are known from one or many trusted organizations
  • Writes and read permissions are roles-based and usually requires the consensus of several participants
  • Blockchain consensus is an economic consensus that invokes multiple algorithms. One such example is the proof of work.

You should know that we have two types of enterprise blockchain:

  • Private: Usually managed by a single organization. Typically, the network participants are internal business units or divisions.
  • Consortium: In this case, the blockchain network is managed by multiple trusted organizations. New participants require a consensus of several participants.

Enterprise Use Cases:

Blockchain’s secure, immutable and distributed ledger properties spur a plethora of potential business uses cases. McKinsey has published several papers on possible blockchain use cases. These papers cite examples in the financial industry where blockchain could be used:

  1. Accelerate clearing and settlement
  2. Improve documentation retention processes
  3. Facilitate ledger consolidation and auditing
  4. Improve the efficiency of back and middle office processes

Other McKinsey papers cite use cases in public sector data management and potential uses cases in creative industries.

A thought experiment:

A group of small and medium-size investors decides to pool resources and invest in a construction project. The project managers create the project schedule and assign costs and timelines to the various parts of the construction project. The investing consortium then gives the go-ahead for the project to begin.

In this scenario, the investing consortium will typically request periodic updates from the project manager. This information is typically stored on disparate systems that would need to be reconciled to give an overall picture of the project. Typically, the creation of such reports requires an investment in time and effort and will be a few days or weeks out of date by the time it is reviewed by the investing consortium.

Consider an alternative scenario where the consortium mandates that all data related to the project be captured on a blockchain. Each member of the consortium would have access to trusted real-time data on the project. This would free the project management from the burden of data collation and give the investors better oversight on the progress made on the project. The internal operations of such a project implementation would also be more efficient; there would be no need for a manager to call the accounts department for information on financial data.

In this experiment, blockchain’s ability to provide immutable transactions along with its enterprise capabilities around establishing trusted identities, consensus algorithms for proof provides trust within the consortium.

Shortfalls of its original incarnation:

The first known implementation of the blockchain was developed by "Satoshi Nakamoto" (a pseudonym). it was created as an integral part of Bitcoin: a peer-to-peer electronic cash system. In Bitcoin, the blockchain is used to address challenges that are unique to electronic cash; these challenges include

  • Permitting anonymity between transacting parties
  • Eliminating the possibility of Bitcoin "double-spend"
    • For additional reading on Bitcoin double spend see here
  • Ensuring a platform that is open to everyone to take part in

The Bitcoin blockchain infrastructure can be perceived as unnecessarily “heavy” in some of these less hostile environments. This extra baggage handicaps the blockchain in several ways:

  • Waste of energy
  • Low performance
  • Lack of confidentiality
  • Lack of governance

Blockchain in Azure:

Before we go there, we want to share our answer to the most frequently asked question. Does Microsoft have its own blockchain ledger? The answer is NO.

Microsoft has been working on blockchain since November 2015 when we were the first major cloud provider to announce a Blockchain as a Service (BaaS). Our vision is to be the worldwide cloud platform leader powering the blockchain-based applications.

As an open, flexible, and scalable platform, Azure supports a rapidly growing number of distributed ledger technologies that address specific business and technical requirements for security, performance, and operational processes. Our Data and AI platform provides unique off-chain data-management and analysis capabilities that no other platform offers. And the vast Microsoft partner ecosystem extends the capabilities of our platforms and services in unique ways that fit specific workload and industry needs.

Azure provides a rapid, low-cost, low-risk, and fail-fast platform for organizations to collaborate on by experimenting with new business processes—and it’s all backed by a cloud platform with the largest compliance portfolio in the industry. More information about Blockchain on Azure can be found here.

Microsoft Coco Framework:

Microsoft is working to address some of the current limitations of enterprise blockchain with a new cross-platform framework designed to make blockchains more scalable, governable, and confidential. Microsoft released the flexible Coco framework whitepaper to accommodate different environments and use cases that Blockchains will be operating in. Microsoft’s Coco framework short for “confidential consortium” is an open source system that enables high scale, confidential blockchain networks. The coco framework achieves this through the use of Trusted Execution Environments (TEE) such as Intel’s SGX and Windows Virtual Secure Mode (VSM), enabling the creation of a trusted network of physical nodes on which to run a distributed ledger. More information on Microsoft’s Coco Framework can be found here.

Conclusion:

In addition to the addressing enterprise scale and performance through Microsoft’s Coco framework, Blockchain on Azure also helps reduce time and cost of POC with the upcoming availability of Azure Blockchain App Builder later this year. Blockchain on Azure also reduces consortium deployment complexity with our marketplace offerings. In conclusion, Azure accelerates blockchain adoption in the enterprise!

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