Blockchain with Hyperledger Fabric - Second Edition

By Nitin Gaur , Anthony O'Dowd , Petr Novotny and 3 more
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    Blockchain – An Enterprise and Industry Perspective

About this book

Blockchain with Hyperledger Fabric - Second Edition is a refreshed and extended version of the successful book on practical Hyperledger Fabric blockchain development. This edition includes many new chapters, alongside comprehensive updates and additions to the existing ones. Entirely reworked for Hyperledger Fabric version 2, this edition will bring you right up to date with the latest in blockchain. Using a real-world Trade Finance and Logistics example, with working code available on GitHub, you’ll really understand both how and why Hyperledger Fabric can be used to maximum effect. This book is your comprehensive guide and reference to explore and build blockchain networks using Hyperledger Fabric version 2.

This edition of the book begins by outlining the evolution of blockchain, including an overview of relevant blockchain technologies. Starting from first principles, you’ll learn how to design and operate a permissioned blockchain network based on Hyperledger Fabric version 2. You will learn how to configure the main architectural components of a permissioned blockchain network including Peers, Orderers, Certificate Authorities, Channels, and Policies. You’ll then learn how to design, develop, package, and deploy smart contracts, and how they are subsequently used by applications. This edition also contains chapters on DevOps, blockchain governance, and security, making this your go-to book for Hyperledger Fabric version 2.

Publication date:
November 2020
Publisher
Packt
Pages
756
ISBN
9781839218750

 

Blockchain – An Enterprise and Industry Perspective

Blockchain promises to fundamentally solve the issues of time and trust to address inefficiencies and costs in industries such as financial services, supply chains, logistics, and healthcare. Blockchain's key features include immutability and a shared ledger where transactional updates are performed by a consensus-driven trust system, which can facilitate a truly digital interaction between multiple parties.

This digital interaction is not only bound by systemic trust but ensures that the provenance of the transactional record maintains an immutable track record of interaction between parties. This very characteristic lends itself to culpability and non-repudiation and incentivizes fair play. With the blockchain system design, we are attempting to build a system that has implied trust. This trust system leads to reduced risks, and various applied technology constructs—such as cryptography, encryption, smart contracts, and consensus—essentially create gates to not only reduce risk but also infuse added security into the transaction system.

This book endeavors to provide a view into the technology, as well as the skills to bring it into effective use. In addition to being an enhanced version of the original edition of this book, it also focuses on key business-related issues, outlined in the first section of this chapter. The remainder of the chapter will provide an overview of the technology and integrate important business factors and considerations.

We will cover the following topics in this chapter:

  • Our approach to this new edition of this book
  • Defining a blockchain
  • Building blocks of blockchain solutions
  • Fundamentals of the secure transaction processing protocol
  • Applications of blockchain
 

Our focus for the new edition

We, this book's original team of authors, have joined forces again to write this new edition. While this book and many of its chapters are dedicated to a technical audience, we wanted to ensure that this book also addresses the linkages to business models and structures. As an industry, blockchain has been in a constant state of flux, resulting in shifting priorities and evolving use cases by businesses attempting to leverage the technology and monetize the resulting constructs. When we released the first edition, blockchain was a technology associated with disruptive decentralized financial technologies, such as cryptocurrency technologies like Bitcoin and Ethereum, and many other competing blockchain-related frameworks. Hyperledger is one of the family of frameworks aimed to address the requirements of industry-specific permissioned blockchain business networks.

As blockchain technology matures, the industry itself is shifting, and so is its consumption by businesses, where the conversation has shifted from proofs of concept and experimentation to production-grade deployments and scale. So, in this edition, we will discuss issues such as business models, risk models, consortium structures, and governance to illustrate clearly how the challenges and success criteria go beyond mere technology implementation. Regulated industries are contemplating models of coexistence with current systems as blockchain takes center stage, with a promise to flatten business processes across industries and facilitate huge cost savings for all consortium network members in terms of operations and disintermediation costs.

With this shift in conversation, we have collectively updated our material not only to reflect industry requirements but also technology examples, code samples, and core technical artefacts to ensure you are also up to date with both the blockchain rhetoric and the technology stack needed to implement a viable solution. With blockchain evolving into a mainstream technology, the market for this technology and skilled professionals is growing rapidly. It is our goal to help ensure that our audience is upskilled to meet the challenges of tomorrow, while retaining the historical and evolutionary provenance of Hyperledger Fabric as a building block.

We have added content around business considerations, risk models, and overall blockchain protocol commercialization, with a hope that technical and business audiences alike can have a holistic understanding of using the technology and building a technology platform. We have drawn from our collective experience in an effort to relate how business imperatives are closely tied to technology design choices.

These design choices have direct implications for the cost and scalability of the blockchain network design and solution. The design choices include gathering business requirements, risk controls, risk modeling, compliance risk management, and other business-related functions. Business design considerations have a direct impact on network growth and operations, which are embedded in governance tasks such as network management, onboarding, and technical design elements like data obfuscation, data controls, privacy, key management, and so on. As a result, these are very important considerations when launching a blockchain-powered business network. Our attempt will be to address these in detail, arming our audience with the knowledge and skills to apply the right approaches to blockchain projects.

We sincerely hope you benefit from and enjoy these updates.

 

Defining the terms – what is blockchain?

According to NISTIR 8202 (https://nvlpubs.nist.gov/nistpubs/ir/2018/NIST.IR.8202.pdf),

Blockchains are tamper evident and tamper resistant digital ledgers implemented in a distributed fashion (i.e., without a central repository) and usually without a central authority (i.e., a bank, company, or government). At their basic level, they enable a community of users to record transactions in a shared ledger within that community, such that under normal operation of the blockchain network no transaction can be changed once published. National Institute of Standards and Technology Interagency or Internal Report (NISTIR) 8202: Blockchain Technology Overview

A blockchain supporting a cryptocurrency is permissionless, in the sense that anyone can participate without a specific identity and the ledger is publicly visible to anyone. Such blockchains typically use a consensus protocol based on proof of work (PoW) and economic incentives. In contrast, permissioned blockchains have evolved as an alternative way to run a blockchain with a group of known, identified participants.

A permissioned blockchain provides a way to secure the interactions among a group of known entities that share a mutual business goal but don't fully trust each other, such as businesses that exchange funds, goods (supply chain), or information. The entities in permissioned blockchains can choose to make their ledgers public (viewable by anyone) or private (scoped to participants in the permissioned blockchain). For the remainder of this book, we assume that permissioned blockchains also imply that ledgers are not publicly viewable. A permissioned blockchain relies on the identities of the peers, and in so doing can use traditional Byzantine Fault tolerant (BFT) consensus (or a flavor of BFT or any leader-based consensus protocol).

Blockchains may execute arbitrary, programmable transaction logic in the form of smart contracts, as exemplified by Ethereum (http://ethereum.org/). The scripts in Bitcoin were a predecessor of the concept. A smart contract functions as a trusted distributed application and gains its security from the blockchain and the underlying consensus among the peers.7

Discerning permissioned from permissionless blockchain is vital for enterprises looking to utilize the blockchain platform. The use case dictates the choice of technology, depending on consensus systems, governance models, data structure, and so on. With permissioned blockchains, the idea is to apply traditional technology design (such as three-tier or n-tier models) and IT management disciplines (such as ITIL and system management design principles) but in an incrementally better way, which can be significant. In the diagram that follows, you can see how a consortium of banks could use Hyperledger, a type of permissioned blockchain, for clearing and settlement without relying on a central clearing house:

https://cdn-images-1.medium.com/max/1600/1*EN1XjOiZ29RibHXbD9b-Ew.png

Figure 1.1: How a Hyperledger blockchain can change an organization's infrastructure (Source Hyperledger. Used under Creative Commons Attribution 3.0 Unported. https://creativecommons.org/licenses/by/3.0/)

The core difference between true decentralization versus distributed infrastructure with managed participation is more about governance and rules of engagement on the network. This core difference leads to a new (IT) economic model paving the way to discerning between a utility-based compute model (large, open public networks) or a consortium-based compute infrastructure (consortium-based permissioned networks). This leads to a never-ending debate around permissioned versus permissionless blockchain, and while this chapter will not address the debate, blockchain can present a way to either transform or disrupt current businesses and business models. Most use cases in regulated industries embark on permissioned blockchain models. This is due to regulatory requirements and the economic viability of transaction processing. Whereas permissionless blockchain provides a platform for new business models, such as peer-to-peer (P2P) transactions and disintermediation-led models, by definition, permissionless blockchain architecture relies on a very compute-intensive compute model to ensure transactional integrity. Regardless of the choice in blockchain models, blockchain provides a lot of possibilities for transformation and disruption.

Blockchain has extraordinary potential as a technology platform. In the enterprise, blockchain can provide:

  • A design approach that keeps transaction data, value, and state inherently close to the business logic
  • Secure execution of business transactions, validated through a community, in a secure process that facilitates the trust and robust transaction processing that are foundational to blockchain
  • An alternative, permissioned technology that conforms to existing regulations

Blockchain promises to solve longstanding industry concerns—and this is where its potential can really be seen, with issues like modernizing financial and trade systems and speeding up securities and trade settlements.

 

Design considerations for blockchain solutions

In this section, we'll look at the core building blocks for blockchain solutions and then examine some additional capabilities that should be considered.

Four core building blocks

Blockchain solution proposals typically include the following four building blocks:

  • A shared ledger: The shared ledger appends only the distributed transaction record. Bitcoin blockchain was designed with the intent to democratize visibility; however, with blockchain, consumer data regulations also need to be considered. Using a properly configured SQL or NoSQL distributed database can achieve immutability or append only.
  • Cryptography: Cryptography in a blockchain ensures authentication and verifiable transactions. Blockchain design includes this imperative because of the computational hardness assumption and a focus on making encryption harder for an adversary to break. This is an interesting challenge with Bitcoin blockchain because of the economic incentive and its system design. When you're working in a less democratic or permissioned business ledger network, considerations around cryptography change.
  • Trust systems or consensus: "Trust systems" refers to using the power of the network to verify transactions.

    Trust systems are central to blockchain systems; they are at the heart of blockchain applications. We think trust system is the preferred term over "consensus system" because not all validation is done through consensus. This foundational element of trust dictates the overall design and investment in a blockchain infrastructure. With every new entrant in the blockchain space, the trust system is modified, forming variations that are specialized for specific blockchain use cases.

    Trust, trade, and ownership are staples of blockchain technology. For intercompany transactions, the trust system governs transactions for trade between participating companies.

    There's still much work needed to define the best trust system for specific use cases, like P2P and sharing economy models with B2B models.

  • Business rules or smart contracts: Smart contracts are the business terms that are embedded in a blockchain transaction database and executed with transactions. This is the rules component of a blockchain solution. It is needed to define the flow of value and state of each transaction.

The following use diagram gives us a good idea of these concepts:

Figure 1.2: Blockchain building blocks

The four building blocks are generally accepted and well understood. They have existed for decades prior to blockchain. Shared ledgers are an evolutionary change, similar to the move to computer-based spreadsheets, but the underlying business rules stay the same.

Additional capabilities to consider

What else should be included in blockchain proposals, especially those within enterprises? The following is a non-exhaustive list of other capabilities to consider:

  • Auditing and logging: Including auditing and logging in a blockchain solution can help address regulations for the purposes of non-repudiation, technology root cause analysis, fraud analysis, and other enterprise needs.
  • Enterprise integration: It's also worth considering how the solution will be integrated into the enterprise:
    • Integration with the incumbent systems of record (SoR): The goal here is to ensure that the blockchain solution supports your existing systems, such as CRM, business intelligence, reporting and analytics, and so forth.
    • Integration as a transaction processing system: If you want to preserve the SoR as an interim approach to adopting blockchain, integrating it as a transaction processing system makes sense.
    • Design with the intent to include blockchain: If you intend to share some or part of your data with other enterprises to achieve your business goals, consider designing with your existing system's architecture in mind, as that will accelerate enterprise adoption of blockchain solutions with appropriate data governance. This is because the current data and application architecture will be able to adapt to blockchain-driven transaction processing.
  • Monitoring: Monitoring is an important capability for addressing regulations and ensuring high availability, capacity planning, pattern recognition, and fault identification.
  • Reporting and regulatory requirements: Being prepared to address regulatory issues is also very important, even for interim adoption of a blockchain as a transaction processing system. It's recommended that you make connectors to your existing SoR to offload reporting and regulatory requirements until blockchain is enterprise aware, or the enterprise software is blockchain aware.
  • Enterprise authentication, authorization, and accounting requirements: In a permissioned enterprise world (unlike permissionless Bitcoin blockchain), all blockchain network participants should be identified and tracked. Their roles need to be defined if they are to play a part in the ecosystem.

Let's move on to look at the fundamentals of the secure transaction processing protocol.

 

Fundamentals of the secure transaction processing protocol

We mentioned previously that cryptography is one of the core building blocks of a blockchain solution. The fundamental security of the Bitcoin blockchain is the elegant cryptographical linkage of all major components of the ledger. Specifically, transactions are linked to each other, mainly through the Merkle tree. A Merkle tree is based on the concept of a tree data structure, where every leaf node has a hash calculated of its data and where every non-leaf node has a hash of all its underlying children.

This method provides us with a way to ensure the integrity of the data, but also provides privacy characteristics by allowing us to remove a leaf that is deemed private but leave the hash, thereby preserving the integrity of the tree. The Merkle tree has its roots incorporated into the block header. The block header includes a reference to the block headers that precede it, as shown in the following diagram:

Figure 1.3: Block headers with references to the preceding block headers

That cryptographically enforced interconnectivity fosters the stability and security of distributed ledgers. At any point, if a link between any of the components is broken, it leaves those exposed to malicious attacks.

Transactions are also cryptographically connected to the rest of the blockchain structure mainly through the Merkle tree. Once a transaction is modified within a block, with all other parts remaining stable, the link between all transactions of the block and its header is broken.

The new resulting Merkle tree root does not match the one already in the block header, hence providing no connectivity to the rest of the blockchain. If we proceed to change the Merkle tree root in the block's header, we will, in turn, break the chain of headers and thus the security model of the blockchain itself.

Therefore, if we only change the contents of a block, the rest of the blockchain components remain stable and secure, especially as the block headers provide the connecting links by including a hash of the previous block header in the header of the next block.

Figure 1.4: Anatomy of a block

 

Where blockchain technology has been and where it's going

Blockchain has already been a business disruptor, and we expect it to significantly transform industries, government, and our lives in the near future.

The great divide

A significant divide exists between the cryptocurrency and Initial Coin Offering (ICO) world, and the world of regulated business. The latter consists of banks and financial institutions working collectively to assess market potential and operational efficiencies.

Both sides of this division have taken advantage of the momentum around blockchain to further their interests. The blockchain ecosystem has challenged the status quo and defied all odds to make a point—often behaving like an adolescent. It is driven by new business models, promises of disintermediation, and interesting technological innovations.

As blockchain has gained momentum, bitcoin value has experienced a comparable rise as an asset class and contributed to the rise of other cryptoassets, such as ether, Bitcoin Cash, and so on. Blockchain momentum also has given rise to alternative finance and fund-raising models, such as security token offerings (STOs), simple agreements for future tokens (SAFTs), and initial exchange offerings (IEOs). These are challenging not only traditional finance structures and business models, but also the regulatory framework that governs the financial infrastructure.

On the enterprise side, there are a growing number of industry initiatives around clearing and settlement to enable faster settlement and interbank transfers, transparency through digitization, symmetric dissemination of information in supply chains, and creating ad hoc trust between Internet of Things (IoT) devices.

There's a common theme here—that blockchain is here to stay. As it continues to evolve and generate innovative solutions for industry use cases, it will keep inching toward maturity and deliver on its promises of efficiency and significant cost savings built on the foundation of trust.

An economic model for blockchain delivery

Blockchain networks, underpinned by blockchain technology, may bring transformation or disruption to industries, but in any case, to thrive, blockchain needs an economic model. If disruption is the aim, investments in technology, talent, and market synergy can be combined with the lure of economic incentives. ICOs, for example, typically rely on tokenomics, a term that describes the economic system of value generation in those networks. The token is the unit of value created by the system or network—either through making a platform for providers or consumers, or through co-creating a self-governing value network in its business model that various entities can use to their advantage for creating, distributing, and sharing rewards that benefit all stakeholders.

The ICO front, largely funded by cryptocurrencies, has defied current fundraising mechanisms in venture capitalism (led by crowdfunding projects). Importantly, the struggle to discern the difference between a security and utility coin is disruptive in principle.

ICOs look to create an economic system built on the principles of decentralization, open governance (or self-governance), and transparency, a system that rewards innovation and eradicates disintermediation. ICOs saw some initial failures and some successes, but they nevertheless provide a preview of the future, where cryptoassets will become a basic unit of value—with valuation and fungibility defined by the network they originate from—fueling an economy built for and around innovation.

On the enterprise front, there's been more focus on understanding the technology and reimagining ecosystems, business networks, regulations, confidentiality and privacy, and the business models that impact blockchain networks in various industries. Enterprises looking to explore blockchain want to see quick proof points, use cases that can demonstrate results quickly and help them innovate with blockchain.

Blockchain is helping industries move to a more symmetric dissemination of information by providing built-in control of transactional data, provenance, and historical context. This can lead to more efficient workflows and transform business processes. Many early projects, however, didn't focus on the core tenets of blockchain (which we discuss in some detail later in this chapter), leading to disintermediation, decentralization, and robust self-governance models. There's a good reason for it, though: industries and conventional businesses tend to be focused on their current business agendas, models, growth, and, above all, regulatory compliance and adherence. This emphasis on current business operations means they're not naturally inclined toward disruptive models.

Learning as we go

With any new technology, there is always a learning curve. As blockchain evolved and we began to work with regulated industries, we quickly recognized that, in such industries, there are important design considerations to address—things like identity, confidentiality, privacy, scalability, and performance. These elements can have significant cost implications when it comes to designing blockchain networks, as well as the business models that govern these networks. These challenges have not only been interesting to solve; they've also had a positive effect on conventional, regulated industries and businesses by re-energizing innovation in these organizations and inviting the best talent to join in tackling these challenges. Businesses are recognizing that ecosystems and networks driven by blockchain technology will contribute to progress and success.

Permissioned networks (regulated, conventional, and enterprise business networks) may also need to begin uncovering an incentive model to motivate organizations to join a platform that promotes the idea of creation, distribution, and the sharing of rewards benefitting all stakeholders. The economic incentives behind tokenomics can't be blindly adopted by a lot of conventional businesses and industries, but that doesn't mean those industries shouldn't start the journey to explore possible business models that would enable value creation and elevate some desperately needed modernization efforts.

The promise of trust and accountability

Blockchain technology promises to be the foundation for a secure transaction network that can induce trust and security in many industries that are plagued with the systemic issues around trust and accountability. From a technological point of view, blockchain facilitates a system of processing and recording transactions that are secure, transparent, auditable, efficient, and immutable. These technological characteristics lend themselves to addressing the time and trust issues that plague current-day distributed transaction systems.

Blockchain fundamentally shifts the multitier model to a flat-tier transaction processing model. This carries the promise to disrupt industries fundamentally by disintermediation, inducing efficacy in new system design, or simply creating new business models.

Disintermediation indicates reducing the use of intermediaries between producers and consumers, such as by investing directly in the securities market rather than going through a bank. In the financial industry, every transaction has historically required a counterparty to process the transaction. Disintermediation involves removing the middlemen, which, by definition, disrupts the business models and incentive economies that are based on mediation. There's been a wave of disruption in recent years as a result of digital technologies, which have, in turn, been driven by marketing insights and the desire for organizations to provide a richer user experience.

Blockchain is a technology that aims to catapult this disruption by introducing trade, trust, and ownership into the equation. The technology pattern represented by blockchain databases and records has the potential to radically improve banking, supply chains, and other transaction networks, providing new opportunities for innovation and growth while reducing cost and risk.

 

Blockchain in the enterprise

The following figure shows a number of blockchain use cases. The variety suggests that there are a lot of application-specific considerations for whether and how to employ blockchain solutions. Let's talk about the principles that should guide the use of blockchain in an enterprise.

Why would an enterprise want to apply blockchain technology to one of its systems or applications?

Figure 1.5: Blockchain use cases in various industries

What applications are a good fit?

Organizations will need to establish criteria for use during the application design process to help them assess where they can best apply blockchain technology. The following are some examples of criteria that could help an enterprise determine which applications or systems would benefit from it:

  • Applications that adhere to trade, trust, and ownership: As described previously, these three tenets—trade, trust, and ownership—are fundamental to any blockchain system. Trade and ownership refer to the flow of assets and transfer of ledger entries, while trust pertains to the otherwise trustless nature of a transaction system.
  • Applications that are fundamentally transactional in nature: There is often debate about why we can't achieve the benefits of blockchain from a distributed database, that is, a NoSQL or a relational database. But a multi-party transaction is what makes an application suitable for blockchain. There need to be long-running processes with numerous microtransactions that will be verified and validated by the blockchain-powered transaction system. Databases can still be used for persistence or replication to fit enterprise systems, however. Other considerations include a small dataset size that could increase over time, logging overhead, and so on.
  • Business networks that are comprised of non-monopolistic participants: This third criterion addresses distributed versus decentralized computation models. Blockchain trust systems can work within any model; however, the trust aspect of a blockchain business network comes from multi-party participants with non-monopolistic participation (the consortium permissioned network model). Oligopolistic participation might be acceptable (the private permissioned network model), but it's essential to devise a trust model that assures the prevention of centralized control, even with rational behavior of the participants. Many internal use cases do not adhere to this principle and constitute more distributed application models. (Models are discussed in Chapter 2, Exploring Hyperledger Fabric.)

For enterprises trying to understand or determine where to employ blockchain meaningfully, there's a simple approach for thinking through use case selection. An appropriate use case for a sustainable blockchain solution will achieve long-term business objectives and provide a strong return on technology investment.

This starts with an enterprise problem—an issue big enough for the enterprise to expend resources/time—and the recognition of cohorts that have the same problem. When companies realize that an enterprise problem is also an industry problem (such as securities lending, collateral lending, and so on), they've found a use case where the promise of blockchain has the most potential.

While organizations are determining the benefits of various aspects of blockchain for their enterprise applications, they also need to recognize the fragmentation of the whole blockchain landscape. There are numerous innovative approaches available for solving a specific challenge with blockchain. A lot of vendors offer variants of the trust system specialized to address particular use cases, and they've defined the use cases that will benefit most from blockchain in a given industry, for example. Such specialized vendors often promise a fast solution to meet consumer demands for quick digital interactions.

The tenets of blockchain can be instrumental in delivering rapid consumer-driven outcomes—such as decentralized, distributed, global, permanent, code-based, programmable assets, and records of transaction. We should exercise caution about thinking of blockchain as a hammer to solve every enterprise application challenge, but it can be of use in many transactional applications.

Now, let's discuss how blockchain is perceived in the enterprise and some of the challenges that arise with enterprise adoption of the technology. In the following section, we'll focus on three areas that help set the tone for blockchain in an enterprise context.

Enterprise blockchain business evaluation considerations

In this section, we'll consider important factors in making enterprise-level business decisions about blockchain and its implementation.

A few thoughts on blockchain business models

The following list outlines some important elements related to business models and related design imperatives:

  • Business models are an important consideration, as the right business model will dictate the technology design and platform choices not only to seed the network, but also the robust design needed for growth.
  • Business model design should provide a platform for business negotiation, contracting vehicles, and other business activities, such as procurement, shared services, legal services, administration, and so on. Business design includes a clear separation of blockchain network functions from business and other technology operations.
  • A well-thought-out business model for blockchain networks provides an important avenue for business continuity, funding and sourcing models, and overall growth driven by the economic and financial structure of the business network powered by the tenets of blockchain technology.
  • A well-crafted business design restores balance and smooth interactions between various entities that compete with some network participants and need to cooperate and co-create with some other network participants. The co-creation element of a blockchain network is essential for the sustained longevity and growth of the business of the blockchain network.
  • Last, a blockchain business network can be a business in itself. A platform that facilitates co-creation and new synergies needs to be managed, operated with defined SLA levels, and have a robust governance structure that not only attracts new participants, but sustains the confidence and business benefit of its founders and existing participants.

Business growth and innovation

We see innovation and micro-innovation everywhere—be it from large companies such as Amazon and Netflix, a smaller start-up ecosystem focused on challenging the status quo, or open source frameworks such as Hyperledger. With access to technology, talent, and digital tools, enterprises small and large are rethinking their business models with a focus on embarking on a journey that has scale built into the business design.

Most businesses go through several stages on this journey:

  • Creating the engine of growth: Creating a business model that's well received by the market or target constituents
  • Creating a well-oiled network: Establishing iterative processes to optimize operations
  • Scaling the business: Growing the business by effectively repeating the repeatable parts

To achieve successful growth and innovation, enterprises employ people, technology, and resources to perfect the business at every stage. When we talk about a business "that has scale built into the business design," we mean to imply a new approach that not only relies on employing people, technology, and resources, but also is inclusive of a co-creative approach, in which users, customers, and ecosystems become co-creators to create more value, growth, and innovation.

How do growth and innovation relate to a blockchain-powered network?

Let's attempt to link the value creation of a blockchain network to co-creation and platform thinking: as blockchain networks evolve and grow, and as new participants are added or removed, the dynamics of the network change and several bilateral and multilateral relationships emerge. Today, these relationships are largely driven by static smart contracts and do not capture the essence of blockchain-powered markets.

Now, let's define these two models:

  • A platform thinking approach to building a business involves figuring out ways in which an external ecosystem of businesses, developers, and users can be leveraged to create value. Common examples include Twitter, Facebook, YouTube, and even Wikipedia.
  • Co-creation is a concept that brings different parties together (for instance, a company and a group of customers) to jointly produce a mutually valued outcome. Co-creation brings the unique blend of ideas from direct customers or viewers (who are not the direct users of the product), which in turn gives a plethora of new ideas to the organization.

In a true, digitally driven marketplace, the blockchain-powered network ensures that dynamic marketplace relationships and interactions are reflected in a systemic and intelligent way. As we design blockchain networks for industries, we're seeing interesting new business models emerge, leading many organizations to rethink their current business models, the competition, and the overall market landscape.

We're beginning to see network design consist of participants with varied interests focused on a singularity of the assets at the nucleus of the blockchain-driven business network and ecosystem. All of this leads to new partnerships and co-creation. In essence, the blockchain-powered business network has the potential to amalgamate the platform thinking approach and co-creation to exponentially increase value creation in the business transaction network.

Considerations for evaluating the economic value of blockchain entities

How do we value various entities involved in building a blockchain-based business network? There are technology providers, business owners, participants, consortium operators, and many other niche players, ranging from token issuers to blockchain technology players and the business that is using these services to either transform an industry or disrupt it. The following aims to provide an evaluation framework for such an analysis:

  • Business solution:
    • Problem domain: The business problem we are solving, the industry landscape, and evolution through innovation
    • Addressable market: The overall cost of the problem domain, that is, the cost of the problem itself and its economic impact on the industry segment
    • Regulatory and compliance landscape: The regulatory landscape that can help or impede the adoption of new technology-led business models
    • Competitive frameworks/alternatives: The other frameworks and entities trying to solve the issue with or without distributed ledger technology (DLT)/blockchain
  • Technology design and architecture:
    • Consensus design: Leads to trust systems and economic viability of blockchain network
    • Blockchain components: Shared ledger, crypto elements, smart contracts, and trust system
    • Blockchain deployment infrastructure: Cloud, geo-specific deployment, technical talent (or access to it), SLAs, and so forth
  • Monetization strategy:
    • Token-based model: Operation fees — write to the blockchain-powered business network's distributed database
    • Token as medium of exchange: Lend or sell the token as a "step-through" currency
    • Asset-pair trading: Monetizing margins
    • Commercialization of the protocol: Technology services, which include cloud, software lab, and consulting services
  • The power of the network (also called network effect): Extrapolating the power of the network and the exponential power of co-creation models, leading to new business models and resulting economic value

Blockchain investment rubric

It is vital for an enterprise to establish an investment rubric as a control and finish risk mitigation technique. An investment rubric is a layered abstraction that represents the investment criteria and landscape. The rubric evaluation criteria have inputs, output, and continual analysis. The inputs are generally assumptions that drive the model, such as technology design, architecture, talent acquisition, compliance costs, cost efficiency versus new business opportunity models, and so on. The output, on the other hand, is the projected performance metric measured against stated input objectives. The investment rubric can also serve as a model, which can be used to evaluate multiple sets of performance metrics based on different assumptions.

This investment rubric is a guide and evaluation tool for blockchain projects. The continual assets of the rubric will enable us to define the merits of a potential investment and objectify the decision and justification of the investment. The rubric is a sort of financial modeling that employs various business valuation techniques such as the following:

  • Net present value (NPV): A popular valuation technique used by the financial services industry to compare the delta of present value of cash inflow and cash outflow over a period of time.
  • Benefit-cost ratio (BCR): The popular cost-benefit analysis, which defines the overall relationship between the costs employed on the project and the overall benefit to the business.
  • Internal rate of return (IRR): In contrast to NPV, this valuation technique relies on calculating the profitability of the investment. This technique is used to determine the rate of return on the investment, as opposed to cash flow.
  • Governance, risk management, and compliance (GRC): Analysis that provides a holistic investment and risk profile, which is not considered at the proof of concept phase—a stage with limited experimentation.

Devising the comprehensive investment profile and model is a significant step in communicating to investors, partners, and stakeholders the extent and depth of analysis with a clear defensible plan for project execution, deployment, and subsequent risk mitigation embedded at every layer of the rubric. The investment rubric can be used as an important tool for modeling and analysis with a feedback loop. It serves as a scoring guide of sorts to evaluate the intended investment objective and stated outcome. The idea behind this approach is to have a progressive development model that includes risk mitigation by continual tweaking models to achieve desired objectives. An effective rubric starts with proof points at early stages of technology experimentation and extends to more serious efforts around assessing business models and establishing a minimum viable ecosystem, while testing risks, ROI, and financial and governance models along the way. Used properly, a rubric provides new learning and incremental successes at every stage; it enables us to apply and tweak valuation and risk models, establish autonomic (sense and response) governance policies, and thereby grow and scale the blockchain-powered business ecosystem.

How does the enterprise view blockchain?

Radical openness is an aspect of blockchain as a digital trust web, but in the enterprise, it's vital to consider the impact and implications of radical openness.

A public blockchain can operate with extreme simplicity, supporting a highly distributed master list of all transactions, which is validated through a trust system supported by anonymous consensus. But can enterprises directly apply the model of the trustless system without modifying the fundamental tenets of blockchain?

Do organizations view this disruptive technology as a path to their transformation, or merely a vehicle to help them improvise their existing processes to take advantage of the efficiencies the trust system promises? No matter what, enterprises will want the adoption of blockchain to be as minimally disruptive to the incumbent system as it can be, and that won't be easy to achieve! After all, the design inefficiencies of the incumbent system are what have compelled the enterprise to consider this paradigm shift. A lot of the concepts and use cases for blockchain are still distant from enterprise consumption.

The first industry to experiment with and adopt blockchain was the financial services sector, as it has been facing down the fear of being disrupted by another wave of start-ups. Like many industries, it is also driven by consumer demands for faster, lower-cost transactions.

Financial services have a well-defined set of use cases, including trade financing, trade platforms, payment and remittance, smart contracts, crowd funding, data management and analytics, marketplace lending, and blockchain technology infrastructure. The uses for blockchain we've seen in this industry will likely permeate other areas like healthcare, retail, and government in the future.

Integrating a blockchain infrastructure for the whole enterprise

Any enterprise adoption of blockchain should have the goal of disrupting incumbent systems. Thinking about integration with enterprise systems of record is one way to work toward this. In this manner, an enterprise can implement blockchain-driven transaction processing and use its existing systems of record as an interface to its other applications, such as business intelligence, data analytics, regulatory interactions, and reporting.

It's vital to separate the infrastructure for enterprise blockchain technology from the business domain that uses chain technology to gain a competitive advantage. Blockchain can be seen as an enterprise chain infrastructure that's invisible to business, operating behind the scenes, while promoting interprise synergy between various business-driven chains. The idea is to separate the business domain from the technology that supports it. A chain application ought to be provisioned by a business domain that has a suitable trust system. The trust system, as I've stated repeatedly, is central to any blockchain endeavor; therefore, it should be appropriate to the needs of a given business application. The cost of the infrastructure and compute requirements will be dictated by the choice of trust system available to an enterprise.

By separating out the blockchain technology infrastructure, designing an architecture around a pluggable trust system, using trust intermediaries, and a design that promotes flexibility and a modular trust system, the business can focus on the business and regulatory requirements, such as AML, KYC, nonrepudiation, and so forth. The technology infrastructure for blockchain applications should be open, modular, and adaptable for any blockchain variant, thereby making the blockchain endeavor easy to manage.

Interprise synergy suggests driving synergies between numerous enterprise blockchains to enable inter- and intra-enterprise chain (interledger) connections. In this model, the transactions would cross the various trust systems, giving us visibility into the interactions of enterprise governance and control systems. Fractal visibility and the associated protection of enterprise data are important to consider when looking at these interactions between business units and external enterprises.

An invisible enterprise chain infrastructure, as illustrated in the following diagram, can provide a solid foundation to evolve enterprise connectors and expose APIs to make incumbent systems more chain aware. Interprise synergy will flourish due to conditional programmable contracts (smart contracts) between the business chains:

Figure 1.6: An interprise synergy enterprise chain infrastructure

How can an enterprise know if it is ready for blockchain? More importantly, when considering blockchain consumption, should its focus be on integration with incumbent transaction systems, or an enterprise-aware blockchain infrastructure?

To take full advantage of the promise of enterprise blockchain, an integrated enterprise will need more than one use case and will need to drive interprise synergy. The most successful blockchain consumption strategy should focus on technology initially and then consider integration with existing enterprise business systems. This will facilitate collective understanding and accelerate enterprise adoption of blockchain, hopefully on the path of least disruption, leading to seamless adoption of blockchain technology.

 

Enterprise design principles

As stated previously, blockchain technology promises to be the foundation for a secure transaction network that induces trust and security in industries that are plagued with systemic issues around trust and accountability. It aims to generate market and cost efficiencies.

In the past few years, as blockchain technology has come to maturity, we've focused on how enterprises and businesses can use the technology to relieve pain points and herald new business models. Organizations that have begun to see blockchain's potential are now beginning to reshape business networks that are burdened by the systemic costs of archaic processes, paperwork, and technology.

Business drivers and evolution

In the recent past, organizations would run internal business systems and IT infrastructure out to the internet to harness the collaborative potential of interconnected and accessible systems. Blockchain technology is taking this to the next level, offering true digital interaction facilitated by trusted business networks. In the internet era, successful enterprises adopted and adapted to technological challenges, whereas in the blockchain era, business, rather than technology, is the driver for proliferation.

While blockchain technology is interesting on its own, there are a lot of other mechanics of a business network that ought to be evaluated as well, including:

  • Consensus models: Which trust system is most fitting for your business network?
  • Control and governance: What entities are permitted to do what? Who will own the investigative process if there's a system anomaly?
  • Digital asset generation: Who creates an asset in the system? Who governs it?
  • Authority for issuance: In a system that's truly decentralized, the notion of authority does not hold together. So, in a blockchain network, who would be responsible for governance, culpability, and eventually regulations?
  • Security considerations: How will the network address enterprise security, including new security challenges imposed by a shared business network?

We imagine a purpose-built blockchain network that's focused on a plurality of business domains—for example, mortgages, payments, exchanges, clearing, and the settlement of specific asset types. In an enterprise context, we visualize a centralized network in which like-minded business entities share in a consensus consortium. There are several practical reasons to back this idea of a centralized network, including the following:

  • The use of domain-specific business language, which leads to the construction, management, and governance of smart contracts as proxy business representations
  • A defined asset type, which leads to governance, management, and valuation (for exchange, fungibility, and so on) of the digital representation of assets
  • Appropriate regulation, given that every industry and business network is regulated separately, and therefore the burden of adhering to regulations and other related costs can be shared in the business network
  • Other related business functions such as analysis, analytics, market data, and so forth

We've now covered the business drivers for enterprise blockchain, so next, let's consider what can ensure the sustainability and longevity of a blockchain network.

Ensuring the sustainability of blockchain-based business networks

Blockchain-based business networks are continuing to evolve and grow, and as they do, there will be no turning back on core issues such as trust models, data visibility, and exploiting a network for competitive advantage.

Focusing on sustainability can seem paradoxical because it promotes open collaborative innovation, while at the same time locking down constructs such as consensus or trust systems and the governance systems for managing assets, smart contracts, and overall interaction in a multi-party transaction network. Blockchain system design needs to take all of this into consideration.

A business network with a successful system design needs to align well with the blockchain tenets of trade, trust, and ownership enabling transactionality in a multi-party scenario. Without building on these core tenets, business networks may not realize the promise of blockchain technology in a sustainable way.

There are seven design principles to support and sustain growth in a blockchain business network:

  1. The network participants need to have control of their business.
  2. The network has to be extensible so that participants have the flexibility to join or leave the network.
  3. The network must be permissioned but also protected, to safeguard competitive data while facilitating peer-to-peer transactions.
  4. The network should allow open access and global collaboration for shared innovation.
  5. The network must be scalable for both transaction processing and encrypted data processing.
  6. The network has to be able to accommodate enterprise security and address new security challenges.
  7. The network needs to coexist with established systems of record and transaction systems in the enterprise.

In the next section, we'll focus on design principles.

Design principles that drive blockchain adoption

In any enterprise, blockchain adoption is driven by three principles: the business blueprint, the technology blueprint, and enterprise integration. The following are indispensable things to consider when choosing a blockchain framework according to these three principles:

  • Business blueprint: Blockchain promises to create a business network of value based on trust. To do this, it's vital to understand how various blockchain frameworks handle network interaction patterns, inefficiencies, and vulnerabilities.
  • Technology blueprint: If technology is to align with business imperatives, organizations need to make appropriate technology and architecture choices for their needs. Transactions per second (TPS), enterprise integration, external system integration, and regulatory and compliance requirements may all be taken under advisement here. These decisions are part of the technical due diligence necessary to budget properly for blockchain adoption.
  • Enterprise integration: Integrating blockchain into the enterprise systems, especially an adjacent system, is an important business and technology consideration (because downstream transaction systems affect critical business systems), as well as a cost point. Based on my experience, if organizations don't focus on adjacent system integration early in the planning, it can impede adoption, because it has a significant cost impact on blockchain projects.

In the following sections, we'll cover these design considerations in a bit more detail.

 

Business considerations for choosing a blockchain framework

Numerous criteria come into play when organizations are evaluating whether to adopt blockchain to address their pain points. Here are some considerations from a business perspective:

  • Open platform and open governance: The technology standards a business chooses will set the stage for enterprise blockchain adoption, compliance, governance, and the overall cost of the solution.
  • Economic viability of the solution: Whichever blockchain framework an organization chooses should provide cost alignment to its existing business models, charge backs, compute equity, and account management. This flows into ROI.
  • Longevity of the solution: As organizations aspire to build a trusted network, they'll want to ensure that they can sustain the cost and operation of the network so it can grow and scale to accommodate additional participants and transactions.
  • Regulatory compliance: Compliance issues are closely tied to transaction processing and can include events like industry-specific reporting and analysis for business workflow and tasks, both automated and human-centric.
  • Coexistence with adjacent systems: A blockchain network needs to be able to coexist with the rest of the enterprise, network participants, and adjacent systems, which may have overlapping and complementary functions.
  • Predictable costs of business growth: Business growth depends upon predictable metrics. Historically, a lot of industries have focused on transactions per second, but that measurement differs from system to system based on system design, compute costs, and business processes.
  • Access to skills and talent: The availability of talent affects costs, as well as maintenance and the longevity of a blockchain solution as the industry and technology evolve with continued innovation.
  • Financial viability of technology vendors: When choosing vendors, it's vital to think about their viability when it comes to long-term support and the longevity of your blockchain solution. You should examine the long-term vision and the sustainability of the vendor or business partner's business model.
  • Global footprint and support: Blockchain solutions tend to involve business networks with a global reach and the related skills to support the network's expansion with minimal disruption.
  • Reliance on technology and industry-specific standards: Standards are critical not only in helping to standardize a shared technology stack and deployment, but also in establishing an effective communication platform for industry experts to use for problem solving. Standards make low-cost, easy-to-consume technology possible.

Blockchain vendors offer various specializations, including:

  • Variant trust systems, such as consensus, mining, PoW, and so on
  • Lock-in to a single trust system
  • Infrastructure components that are purpose-built for particular use cases
  • Field-tested design through proofs of concept

The technological risk of a vendor not adhering to a reference architecture based on a standardized technology set is a fragmented blockchain model for the enterprise.

From a business point of view, an open standards-based approach to blockchain offers flexibility, along with a pluggable and modular trust system, and therefore is the ideal option. This approach keeps an enterprise open to specialized blockchains like Ripple, provides a provisioning layer for the trust system, and offers a separate business domain with the technology to support it.

 

Technology considerations for choosing a blockchain framework

When organizations consider the technology implications of blockchain, they should start with the premise that it is not just another application. It's a production network that involves risks and costs to ensure correct upkeep and maintenance.

Here are some important things to ponder when evaluating blockchain's technological impact.

Identity management

Identity management is a complicated, involved topic, especially in regulated industries where identities must be managed and have significant business consequences, such as around activities like know your customer (KYC), anti-money laundering (AML), and other reporting and analytics functions. This section describes and discerns between the identity of enterprise participants and the identity of the end users that are the customer base of the participants on the network. By identifying the enterprise or entities that join the network, we are using identity as a permissioning mechanism to identity an enterprise and relying on enterprise to manage end user identity as a client service mandate:

  • Permissioning is the concept of certification and key management; these enable an entity to be permissioned and identified while transactions are completed. The use case, industry, and business model can define permissioned, that is, the certificate and key management, be it decentralized or distributed or centralized by a consortium network operator.
  • End use identity, which is maintained by a participating entity in the blockchain network, is the mapping of the LDAP/user registry to the certificates or keys for the sake of tracing (know your customer, as well as know your customer's customer).

Other identity management considerations include:

  • An LDAP or existing user registry won't go away and has to be considered as a design point. This is because there has typically been significant investment and security policies in place for mature authentication and authorization systems.
  • Trust systems are at the heart of blockchain technology and must pave the way for trust with identity insertion (for use cases that require transactional traceability).
  • Identity is necessary both on the blockchain and for the blockchain. This implies we not only need to identify the direct participants on the network, but also indirect participants who process transactions as the client base of the direct participants.
  • Identity acquisition, vetting, and lifecycle need to be accounted for. Identity acquisition is a responsibility of the onboarding entity, which is either a consortium or an operating entity of the network for direct participants and the participants that manage the relationship with indirect participants.
  • Identity management should align with trust systems based on use cases. The identity is very much linked to the trust system of blockchain, including consensus voting and also digital signatures for transaction endorsement and processing.

Scalability

Scalability is both a business and a technology consideration, given the way downstream transaction systems can affect critical business systems. Technology choices for scalability—for example, database choices for the shared ledger, adjacent system integration, encryption, and consensus—bring about a system design that can accommodate the predictable costs of growth in network membership or transactions.

Enterprise security

There are four layers of enterprise security to think about:

  • The physical IT infrastructure layer, which includes use case-specific issues like Evaluation Assurance Level 5 (EAL5), network, and infrastructure isolation requirements.
  • The blockchain middleware layer, which includes requirements for crypto modules, encryption levels, encryption on data storage, transfer and data at rest, and the visibility of data between participants in the network.
  • The blockchain consensus (trust system layer), which is central to blockchain and necessary to guarantee basic data store properties. If there are more players in the network, they have to bring capital equity to scale. This is about building a shared data store with enterprise data qualities at a lower barrier to entry. Consensus, even minimal consensus, is necessary to ensure this on the architecture in place. There's now a divide between cryptocurrency-based trust systems and non-cryptocurrency-based trust systems. The former model, such as PoW/PoS, isn't sustainable for enterprise use cases aspiring to create permissioned blockchains.
  • The application security that uses blockchain.

Let's explore development tooling next.

Development tooling

Considerations for development tooling include an integrated development environment, business modeling, and model-driven development.

Crypto-economic models

A crypto-economic model refers to a decentralized system that uses public-key cryptography for authentication and economic incentives to guarantee that it continues without going back in time or incurring other alterations. To fully grasp the idea of blockchain and the benefits of cryptography in computer science, we must first understand the idea of decentralized consensus since it is a key tenet of the crypto-based computing revolution.

Decentralization with systemic governance

The old paradigm was centralized consensus, where one central database would rule transaction validity. A decentralized scheme breaks with this, transferring authority and trust to a decentralized network and enabling its nodes to continuously and sequentially record transactions on a public block, creating a unique chain—thus the term blockchain. Cryptography (by way of hash codes) secures the authentication of the transaction source, removing the need for a central intermediary. By combining cryptography and blockchain, the system ensures no duplicate recording of the same transaction.

Blockchain system design should preserve the idea of decentralized digital transaction processing, adapting it into a permissioned network, while centralizing some aspect of regulatory compliance and maintenance activity as needed for an enterprise context.

Enterprise support

Having enterprise support for blockchain is important for the same reasons as the reconsideration of estimation effort. Remember that blockchain should not be thought of as just another application. It's a production network that involves risks and costs for upkeep and maintenance, and it won't be able to simply use existing applications for development, infrastructure, and services.

Use case-driven pluggability choices

To make sure your blockchain solution can allow for use case-driven pluggability choices, consider the following issues.

Shared ledger technology

The use cases, design imperatives, and problem you're trying to address through blockchain will all help determine the choice of shared ledger and database technologies.

Consensus

Consensus guides the trust system and drives technology investment in blockchain application infrastructure—and therefore is at the heart of blockchain. Also, there isn't one consensus type that fits all use cases. Use cases define the interaction between participants and suggest the most appropriate trust system through consensus models.

Consensus is a way to validate the order of network requests or transactions (deploy and invoke) on a blockchain network. Ordering network transactions correctly is critical because many have a dependency on one or more prior transactions (account debits often have a dependency on prior credits, for example).

In a blockchain network, no single authority determines the transaction order; instead, each blockchain node (or peer) has an equal say in establishing the order, by implementing the network consensus protocol. Consensus, consequently, ensures that a quorum of nodes agree on the order in which transactions are appended to the shared ledger. Consensus, by resolving discrepancies in the proposed transaction order, helps guarantee that all network nodes are operating on an identical blockchain. In other words, it guarantees both the integrity and consistency of transactions in a blockchain network.

Consensus algorithms are grouped into three classifications:

  • No-master: PoW
  • Multi-master: BFT or Practical Byzantine fault-tolerance (PBFT)
  • Single-master: HA manager/Raft

Crypto algorithms and encryption technology

Choosing a blockchain system design may be guided by crypto library and encryption technology as well. An organization's use case requirements will dictate this choice and drive technology investments in blockchain application infrastructure. Alternatives to consider include:

  • Asymmetric: RSA (1024-8192), DSA (1024-3072), Diffie-Hellman, KCDSA, elliptic curve cryptography (ECDSA, ECDH, ECIES) with named, user-defined, and Brainpool curves
  • Symmetric: AES, RC2, RC4, RC5, CAST, DES, Triple DES, ARIA, SEED
  • Hash/message digest/HMAC: SHA-1, SHA-2 (224-512), SSL3-MD5-MAC, SSL3-SHA-1-MAC, SM3
  • Random number generation: FIPS 140-2 approved DRBG (SP 800-90 CTR mode)

As previously stated, use cases will define the interaction between participants and will suggest the most appropriate trust system using consensus models.

 

Enterprise integration and designing for extensibility

Designing a blockchain network to coexist with the existing systems of record in an organization is important as a cost consideration. Integration should be through both business and technology issues, since downstream transaction systems impact essential business systems. In working with many enterprises, I've found that integrating blockchain with the adjacent systems has a significant cost impact on their blockchain projects. It really needs to be addressed early in the planning stages, so as not to adversely affect enterprise adoption.

It's also important to think about operational issues. By safeguarding the elements of trade, trust, and ownership—and the inherent properties of blockchain such as immutability, provenance, and consensus—a trust system promises to help eliminate redundant and duplicate systems and processes. These duplications cost an organization significant resources, leading to slower transaction processing and associated opportunity costs. One goal with blockchain adoption should be to address the central pain point of the existing process. The aspiration is for a transparent ledger that increases trust, saves time and significant costs, and provides better customer service.

As for network extensibility, designing for extensibility means taking future growth into consideration as you plan the implementation. Extensibility measures a system's ability to extend and the level of effort that will be required to implement extensions. Extensibility is important with blockchain business network design in order to accommodate not only for the dynamic nature of business (with all its regulations, competitive pressures, and market dynamics), but also for network growth (the addition of regulators, market makers, disruptions, service providers, and so on).

The following are some design considerations to help ensure network extensibility:

  • Flexibility with membership: A blockchain network may start with a finite group of participants and roles, but new participants could later want to join the network, and others may want to leave. So, you have to consider the mechanics of membership changes, including access to (shared) data. The member type is also an important thought when designing for extensibility, as the roles and type of members may change over time.
  • Compute equity: This is a fairly new concept, and trust systems based on it are different from those based on cryptocurrency. Compute equity is a chargeback model of how much you dedicate compute resources and what you get out of it that mimics cryptocurrency resource models. The types of participants and their business interests in the network are determinants of long-term sustainable infrastructure costs and maintenance. For instance, cost models of regulators may differ greatly from the cost models of the primary beneficiary of a blockchain-powered business network.
  • Shared business interests: Blockchain networks promise specific advantages for businesses, such as reduced risk, a reliable and predictable transaction network, lower compliance costs, and so on. But these shared interests can lead to other operational issues, like data sharing and ownership as entities join and leave the network. Since regulations around data ownership evolve, as do industry requirements for the durability of data, these should be evaluated carefully when you design a blockchain system.
  • Governance: Governance includes managing technical artifacts like technology infrastructure and governing data and smart contracts in a blockchain network. Layering governance in the following categories is recommended:
    • Blockchain network/technology governance
    • Blockchain data governance
    • Blockchain smart contract governance
    • Blockchain transaction management governance

When designing for extensibility, the goal should be to ensure that the blockchain network has sustainable operational elements and business growth elements. For example, in a sustainable model, every participant could deploy the chaincode that governs its own business process as it accepts and deals with digital assets, while also putting business participants in control of changing business processes, policies, and regulatory requirements.

 

Other considerations

There are a few other considerations to keep in mind apart from the previously mentioned aspects. They are briefly explained in the following sections.

Consensus, ACID properties, and CAP

A consensus model will never go to 0 because when NoSQL became the standard, various NoSQL systems solved their problems by understanding the CAP theorem, and the RDBMS enterprise community held steadfast to their ACID properties. Blockchain technology components and operational models aim to serve primarily as a transaction system. The distributed nature of the infrastructure and transaction processing tends to put the CAP theorem in high gear. It suggests that between the three desired properties of a transaction system—consistency, availability, and partition tolerance—at any given point, only one or two can be achieved. In the blockchain context, the CAP theorem implies that in the presence of a network partition, you must choose between consistency and availability. On the other hand, ACID properties—atomicity, consistency, isolation, and durability—constitute a set of properties of database transactions that are intended to guarantee validity even in the event of errors, power failures, and so forth. The technology design needs to consider the CAP and ACID principles when devising a system that can deliver industry and use case requirements.

CAP stands for consistency, availability, network partition tolerance:

  • C – Consistency: Consensus guarantees only one truth of what happened and in one order.
  • A – Availability: The fact that all calls to the blockchain are asynchronous allows the invoking application to make progress while ensuring consensus and durability. (Chaining also guarantees this.)
  • P – Network partition tolerance: Consensus again prevents split-brain with conflicts when things get back together after a network partition.

ACID stands for atomicity, consistency, isolation, durability:

  • A – Atomicity: The chaincode programming model is an all-or-nothing behavior that allows you to group activities together. It either all happens, or it doesn't.
  • C – Consistency: I think the new world of NoSQL fudges this one. This means the same as the "C" in CAP.
  • I – Isolation: Isolation indicates that two transactions are serialized, which is exactly what the block construction and chaining do.
  • D – Durability: The chaining and replication all over the network ensure that if one or more nodes go down, data won't be lost. This is why everyone wants to bring a node and why those nodes should not be co-located.

Attestation – SSCs are signed and encrypted

In secure service containers (SSCs), the software, operating system, hypervisors, and Docker container images cannot be modified. Certificates may be included in the SSC so that they can prove themselves to be genuine to a remote party. For example, including an SSL certificate when building SSCs helps ensure that you're speaking with a genuine instance, since the SSL certificate always stays protected (encrypted) within the SSC.

Use of HSMs

According to Wikipedia (https://en.wikipedia.org/wiki/Hardware_security_module), a "hardware security module (HSM) is a physical computing device that safeguards and manages digital keys for strong authentication and provides cryptoprocessing." These modules traditionally come in the form of a plug-in card or an external device that attaches directly to a computer or network server.

It can be a real challenge to administer a high-security device like an HSM with sufficient security and controls. In fact, today's standards mandate certain methods and levels of security for HSM administrative (and key management) systems.

 

Summary

Adopting blockchain in the enterprise requires a balancing act. Organizations not only have to run, manage, and maintain their existing infrastructure, they also need to help pave the way for this new computational model that promises to bring transformation.

In regulated industries, organizations could face a dual impact on the cost of compliance, since even a new technology platform needs to adhere to established regulatory frameworks and proven technology architecture standards and design. Enterprises considering blockchain can look toward a pragmatic approach by adopting a doctrine of layered defense, combining multiple mitigating security controls to help protect their resources and data. With a layered defense approach, digital assets, smart contracts, and ledger data are guarded.

In Chapter 2, Exploring Hyperledger Fabric, we will introduce the Hyperledger Fabric project—including the architecture, components, and features of Fabric—and how transactions are processed in Fabric.

 

References

  1. Androulaki, Elli, et al. Hyperledger Fabric: A Distributed Operating System for Permissioned Blockchains. (https://arxiv.org/pdf/1801.10228.pdf)
  2. Buterin, Vitalik. Visions, Part 1: The Value of Blockchain Technology. Ethereum Blog. (https://blog.ethereum.org/2015/04/13/visions-part-1-the-value-of-blockchain-technology/)
  3. Cohen, David, and William Mougayar. After The Social Web, Here Comes The Trust Web. TechCrunch. (http://techcrunch.com/2015/01/18/after-the-social-web-here-comes-the-trust-web/)
  4. Ghalim, Yacine. Why we should drop the whole "Bitcoin vs blockchain" discussion. Medium. (https://medium.com/@YacineGhalim/why-we-should-drop-the-whole-bitcoin-vs-blockchain-discussion-e3e38e9a5104#.yi53vmyv5)
  5. Know More: Blockchain—Overview, Tech, Application Areas & Use Cases. MEDICI. (http://letstalkpayments.com/an-overview-of-blockchain-technology/)
  6. Nakamoto, Satoshi. Bitcoin: A Peer-to-Peer Electronic Cash System. (https://bitcoin.org/bitcoin.pdf)
  7. National Institute of Standards and Technology Interagency or Internal Report (NISTIR) 8202: Blockchain Technology Overview. National Institute of Standards and Technology (NIST). (https://csrc.nist.gov/publications/detail/nistir/8202/final)
  8. Unlocking the blockchain: A global legal and regulatory guide—Chapter 1. Norton Rose Fulbright. (http://www.nortonrosefulbright.com/knowledge/publications/141573/unlocking-the-blockchain-a-global-legal-and-regulatory-guide-chapter-1)

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