Written by Dr Oliver Gottmann, FCCA MBA
Consultant, Ellul & Co., Gibraltar
It seems that everywhere we turn, everyone is talking blockchain.What’s happening with your investments – take a look at blockchain; what’s going on with that business – blockchain; how’s your family – blockchain. It’s hard to avoid, difficult to engage in conversation on it, yet even harder not to pick up little titbits of knowledge, particularly around Gibraltar, as the blockchain craze has well and truly taken over the asylum.
But for those with a more entrepreneurial mindset, the real value of all this is in finding out “what can it do for my business?” Imagine having a more automated business or a faster, more secure and incorruptible way of transacting. That is where we are headed and what business owners should be looking to derive from this disruptive technology. It is known as Enterprise blockchain.
Getting your head around the how, what and why is important and a general understanding may result in your salivary glands working and your attention being focused. But a deep dive is needed before making any decisions regarding integrating blockchain into your business.
This is why an understanding of Hyperledger is a useful starting point.
What is Hyperledger?
Hyperledger is a group of projects focused around distributed ledger technology which offers a framework to support businesses and enterprises. It moves away from the typical cryptocurrency-based blockchain models that are currently the hype. Hosted, or managed, by the well-known Linux Foundation, Hyperledger looks to develop blockchain for businesses via collaboration, transparency and open source development.
So, what does that mean?
It means a renowned technology company (Linux – specialists in developing technology-based sustainable projects) have been working on a project to make blockchains that are business friendly by working with other companies (IBM being one) in a fully open manner with the code being freely available to everyone.
Linux AND IBM! Do we have your attention now?
The most attractive feature of Hyperledger is that it offers frameworks with plug and play components. This means businesses can configure the deployment that best suits their needs. The infrastructure has been designed in this way so that developers can build enterprise blockchains for a wide variety of industries.
There are currently five frameworks sitting within the Hyperledger infrastructure which allow for ease of customisation and flexibility. These each have specific features. A summary of each is included below:
Fabric – One of the first frameworks built, it allows for confidential transactions and allocation of responsibilities and access to your private decentralised blockchain.
Iroha – Simple to incorporate into Distributed Ledger Technology (“DLT”) projects. Heavily focused on mobile application development. It complements the other frameworks.
Sawtooth – Uses modules for building and deploying ledgers. Allows the use of various consensus methods.
Burrow – This is a smart contract builder which allows users to create and manage complex smart contracts.
Indy – This allows users to authenticate identities and to ensure secure storage of these identities.
Some of the other key features of Enterprise blockchain (Hyperledger) include:
• There is no need for a cryptocurrency to be connected to the framework.
• It is permissioned blockchain meaning that there is control in place and access is restricted. It’s not a free-for-all for everyone.
• It removes anonymity meaning people are held responsible for their use of and contribution to the framework.
• As with the more common blockchain frameworks, it is auditable, offers an immutable ledger and it is secure, meaning we can review historical activities in detail and it cannot be corrupted or changed.
• As with Ethereum, it offers smart contract features (known as chaincode). Smart contracts being automated protocols triggered by an action, inaction, time or event that enforces the negotiation or performance of a contract.
• Hyperledger can be configured to offer multiple consensus protocols. These being agreements between involved parties on the commitment to allow or disallow a transaction to be entered on the ledger in a blockchain.
Hyperledger v cryptocurrency based blockchain
The cryptocurrency-based blockchain models we are more familiar with have many uses and can fulfil many different roles to make our lives better, but they are not designed for business use. For areas where sensitive information is held, and access needs to be restricted to certain parties only, this model is not suitable.
The key difference between crypto-based and enterprise blockchain is the public versus private feature. Blockchains such as bitcoin and Ethereum are public, so anyone can view the transactions and ledgers, albeit transactions are encrypted. With Hyperledger based blockchains, data is private, and access is restricted. This not only gives the business comfort over confidentiality, but also gives them oversight over who can access, post to, and give consensus to (or approve) anything on the blockchain.
Let us consider the Ethereum blockchain as an example. It is a public blockchain with its own currency, called Ether. It uses a consensus protocol called Proof of Work (“POW”). Its real value is the ability to write smart contracts, code that has actions or rules that are automatically executed. The major issue it faces is scalability and excessive costs (or gas) of transactions, so a change in this system and a move to a Point of Consensus protocol is planned.
Hyperledger, in contrast, offers a permissioned model that is highly scalable, has a variety of modules that can be added and it also has the ability to integrate regulatory requirements into the framework as necessary.
It is a private permissioned blockchain designed for confidential business-to-business (“B2B”) transactions. Participants are selected and registered as such, and have specific responsibilities, one being to run the consensus. There is a smart contract feature called chaincode.
One of its very attractive features is that there is no need for a native currency and so no mining costs, or miners, meaning faster speeds and greater volume potential which is a necessity for businesses. Nor is there any requirement to pay for the transactions like most public blockchains (like gas with Ethereum). However, Hyperledger does offer the ability to create and use tokens if required which can be easily integrated.
Hyperledger is highly flexible and easily tailored to suit the business needs. One feature is that certain transactions can be viewed by certain people only and restricted for others. Let’s take an example:
If I have a supermarket and my fish is coming from a trawler, via a factory and then fishmonger and finally to my store, I want to ensure that each fish is verified as being the correct type I am buying, that I know the date it was caught, when it arrived at the factory and when it got to the fishmongers. With Hyperledger I am able to get each party to verify directly with me and with each other as the fish moves along the supply chain. They can transact and verify with each other and with me, but other information is blocked from them, as per my business requirements. This gives me more comfort over the providence of the fish until it reaches my supermarket and maintains confidentiality.
Healthcare, retail or supply chain management are very good examples of other industries that would benefit greatly from this type of blockchain technology as they can now have one immutable version of the truth in their network.
This is hugely important for businesses that may be dealing with multiple parties in their supply chain or with sensitive information that requires input at various stages from independent parties such as governmental contracts or pharma-care.
What is more, and as stated above, Hyperledger frameworks are maintained by a number of parties, two of which are the Linux Foundation and IBM. Having such large reputable enterprises supporting this project should add comfort and assurance that experts are involved and working to constantly improve the features and functionality of this framework and supporting modules.
Like everything, adopting such technology might not be suitable or the right fit for your business so it’s important that you are not letting the technology and blockchain dictate how you run your business. The blockchain should be used to improve the business or solve a problem. This is an important point and one to be considered.
Hyperledger is growing in its functionality and flexibility on a daily basis and is highly customisable. Over time, more and more industries will start moving toward this technology, of that there is no doubt. As a business owner or decision-maker, understanding the benefits and the associated costs on implementing such technology should be a serious and extensive exercise carried out before making any decisions about integrating into your business.
This enterprise blockchain is permissioned, meaning its managed and normally a private network. Which is different to public networks such as Ethereum, EOS, Tron, Neo, Stellar and so on.
There are a number of Gibraltar-based firms that will be able to help you in your decisions and in designing a strategy, so it is worth investing some time and money to get clarity on what this technology can offer, and whether it’s suitable or not.
However, what doesn’t fit today, may very well fit next month or year. So, watch this space!
Dr Oliver Gottmann FCCA MBA
Oliver is a consultant to Ellul & Co who joined the team in October 2017. A chartered accountant since 2004, he holds an MBA (2009) and completed his doctoral thesis on “The Driving Forces Behind Strategic Decision-Making in the Online Gambling Industry” in December 2017.
With a passion for start-ups and innovation, Oliver brings great energy to the team. His experience in a variety of sectors including funds, online gaming, pharmaceuticals, financial services and audit, amongst other regulated industries, makes him an agile talent able to draw upon a broad array of practical and theoretical knowledge.
Before joining Ellul & Co., Oliver worked with the Gibraltar Financial Services Commission. His experience and qualifications together with his deep interest in blockchain technology makes him an excellent addition to the team in advising on Distributed Ledger Technology licensing in Gibraltar.