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Blockchain as a Service

Author: Daniel Travaglia

What you can do with blockchain? Take a pause for a moment and think about what you learned so far on the blockchain by reading our blog. After so many articles, you might have realized that blockchain is a disruptive technology, a tool that might completely change the way companies operates nowadays. Being an immutable ledger that enables data integrity, blockchain might finally facilitate the hard job for businesses of keeping up with new trends (customization, traceability and sharing economies to name a few) that are continuously challenging some of the most well-known industries. Think about the most disparate of them: financial, food, and fashion. The latter have very different business challenges, but in an increasingly digitized world, they have one thing in common that they absolutely need in order to carry out business: trust. Blockchain aims at providing it through a combination of the following arguments: decentralized structure, public, and secure transactions and math.

You may be wondering, given the potential of such technology, whether we will see real blockchain applications at a point in time? Is there evidences that businesses are incorporating blockchain in their business model? Bitcoin became increasingly popular after the surge in value in the financial market in 2018. However, many companies at that time had already started studying possible applications of its underlying technology (the Blockchain) in other industries outside the financial world. 

With the explosion of ICOs in 2017, a total amount of approximately $1B was collected from startups and companies. People were actually showing interested in the underlying project through direct investments in the token market, which in turn had the effect of attracting more and more funds. Such behavior was clear evidence that people started appreciating the fascinating opportunities that blockchain was bringing up to the light in so many different industries. However, not long after, some studies claimed that nearly 80% of the projects launched represented scams. Since then, people’s confidence in the technology potential dropped significantly, while most of the valid projects that survived until now are still struggling to see the light. You may be asking yourself what are the reasons for such a drop back and why companies are still reluctant in adopting Blockchain within their core activities. The potential reasons we identified for such a downturn are represented by the following ordered steps that a company faces when designing a blockchain solution:

  1. Centralization of power: most companies nowadays still operate with a structure that tends to centralize decision-making. With the introduction of the Internet and new related technologies, companies are starting to realize that decentralization could bring positive benefits, some of which are essential in order to survive in increasingly competitive markets

  2. Information System integration: a company cannot pretend that blockchain’s benefits can be observed simply by plugging it into the current information system. The integration of blockchain technology requires a redefinition of a company's information system. Blockchain represents a paradigm shift in the way of conducting a company's business, very often carried out through the centralization of decision-making power.

  3. Costs -> redesigning the information system of a company requires upfront and maintenance costs that not all businesses can afford. For this reason, even if a company has already thought of a possible blockchain solution for their business, it might not have enough funds to sustain the project.

  4. Expertise -> blockchain is a combination of different areas of mathematics and computer science which are very difficult to master. Before taking on such a project, a company must be sure to have enough expertise to implement and further maintain the information system infrastructure

You may be wondering whether there ways for companies to overpass these complications? Over the last few years, some cloud services have collaborated with major players in the Blockchain space to set up services with the aim of overpassing the issues we listed before. These services are called “BaaS” (Blockchain-as-a-Service), which in practical terms are “third-party cloud-based infrastructure to build and manage blockchain apps”. The logic behind BaaS is similar to that of “SaaS” (Software-as-a-Service), as they allow users to build, host and operate blockchain apps and leverage on agile and operational infrastructure on the cloud. 

How does this work in practice? As we have seen before, implementing blockchain technology is costly, requires expertise for implementing and maintaining it up and run, but also needs an important infrastructure review. BaaS allows, given all the requirements, to set up all the necessary infrastructure and technology, separating all the technical requirements with the company’s core activities in exchange for a fee. The major players in the fields are Microsoft-ConsenSys with the Azure Cloud platform, Amazon through its Amazon Web Services platform and the R3 consortium, that implemented the Corda ledger to handle distributed financial transactions. According to Investopedia, these services might be the drivers for the widespread adoption of blockchain technology.

A natural consideration that could arise at this point is: how does this solution get close to the vision of Satoshi Nakamoto in the famous paper “A Peer-to-Peer Electronic Cash System” where he highlights the need of a purely decentralized system in order to grant data integrity? This is more than a legitimate question. In Italy, we have a say that properly fits the situation here: “all that glitters is not gold”. Such expression here serves the purpose of highlighting an important aspect of what we have described so far. By outsourcing the blockchain solution, a company is trusting a central authority (either Microsoft, Amazon or R3) to maintain its infrastructure up and running. Moreover, nodes are represented by decentralized computers distributed on the globe, but still belonging to one single company. In practical terms, this means that the effectiveness of a blockchain solution (“traceability” for instance) might be still dependent on the trust that people have towards a single company (or a “middleman”) rather than trusting verified mathematical algorithms working on purely distributed systems where nodes are represented by independent agents. This is still very far away from the vision that Satoshi introduced us in order to obtain data integrity and tamper-proof ledgers.

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