Markets and Trends

How Blockchain Plays into Digital Transformation

By 2022, 70% of orgs will have accelerated digital technology use. Explore how blockchain can support enterprises' digital transformation with IDC's Lucas Mearian.
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As enterprises continue their march toward hybrid cloud and cloud-native apps as part of their digital transformation (DX), they will inevitably have to decide if and where blockchain can play a role.

While enterprise adoption of the distributed ledger technology (DLT) is still in the early stages, with most projects being pilots or proof of concepts, there’s little doubt blockchain will be disruptive across industries.

Based on a peer-to-peer (P2P) topology, blockchain markedly increases transaction transparency for everyone or just a select group of partners. It increases cross-border transaction performance, data resiliency, and security all while lowering the cost of doing business. And, like cloud services, blockchain introduces a mostly OpEx versus CapEx cost model.

While that all sounds great, blockchain has also not been fully vetted in production environments; that will take years of trial and testing, but to date, things look promising and a who’s who of enterprises are rolling out pilots and proof of concepts.

Exploring Blockchain’s Evolution

So, what is blockchain? In simple terms, it’s a digital, distributed ledger of transactions or records, and it is immutable. It’s a write once-append many technology.  DLT allows new transactions to be added to an existing chain of transactions through a secure digital signature. When combined with P2P storage architecture, it can create a network of geographically dispersed storage nodes, even paying node operators for use of their excess disk space.

By 2021, prominent in-industry value chains, enabled by blockchains, will have extended their digital platforms to their entire ecosystems, thus reducing transaction costs by 35%, according to IDC’s 2019 Predictions for Worldwide Digital Transformation. This year, worldwide spending on blockchain came in around $4.1 billion, 50% more than in 2019.

Along with a group of start-ups, over the past six years, cloud service providers have begun rolling out blockchain products aimed at proving everything from distributed data storage to transaction networks.

The aim of blockchain-enabled storage services is to challenge traditional cloud storage on price, performance, and reliability. The claim by providers is that traditional, centralized cloud storage offerings are less secure against targeted attacks as blocks, files and objects are spread across fewer server nodes. Conversely, a decentralized platform such as blockchain is vastly more resilient to server outages and other disruptions and virtually impregnable to outside attacks.

How Service Providers Are Utilizing Blockchain

Last year, Microsoft began offering blockchain-based storage through its Azure cloud service, charging $0.05/GB/month. Azure Blockchain is a fully managed blockchain service. It enables users to grow and operate blockchain networks and eliminates the need to build, manage, and grow the underlying network themselves.

Amazon also launched its Managed Blockchain service based on the opensource Hyperledger Fabric and Ethereum specifications. Also, a fully managed service, Amazon Managed Blockchain is aimed at providing blockchain networks that span multiple AWS accounts; that enables users to deploy decentralized apps to the network and execute transactions and share data with others on their network without a central authority. There’s no need to manually provision hardware, configure software, or setting up networking and security components. An API allows network participants to add or remove members.

Amazon’s pricing starts at $0.30 per hour, per node. The hyperscaler also runs a peer node storage service that maintains a user’s blockchain ledger and applications. Peer node storage is charged in GB-per-month increments.

Amazon has no lack of established players using its blockchain service, companies in a wide array of markets. They include Verizon, Accenture, DTCC, Liberty Mutual, and GE Aviation.

Arguably the most mature and prominent services is IBM’s Blockchain Platform, which is the basis for a large number of global proof of concepts involving supply chain management and cross-border financial services transactions.

Last year, IBM began offering Cloud Pak, collection of pre-integrated development and deployment tools and services that customers can install and utilize quickly on Red Hat OpenShift public and private cloud environments.

Cloud Pak for Applications – one of five products in the suite – enables helps organizations build, deploy, and run applications, including decentralized cloud-native applications. The applications can use the blockchain tools, infrastructure services, containerization, and microservices architecture, to provide greater visibility and consistency across multi-cloud environments.

Along with established technology vendors, more than a half dozen start-ups are developing or have launched decentralized backup, archive, and file-sharing services based on blockchain’s DLT and P2P protocols. Some of these new services not only aggregate unused drive capacity from datacenters, consumer computers, or both, but, in some instances, can act as a form of edge computing by only using storage resources closest to a customer’s regional location.

The companies that have already launched or are well along in developing object storage services enabled in some way by blockchain include BloqCloud, Cryptyk, Filecoin, Sia, ScPrime, and Storj Labs, and 0Chain.

The Promise of Blockchain

For businesses, blockchain holds the promise of transactional transparency – the ability to create secure, real-time communication networks with partners around the globe to support everything from supply chains and payment networks to secure mobile communications and healthcare data sharing.

Combined with smart contract protocols (self-executing contracts), the distributed storage services also issue cryptocurrency payments to storage node operators — those who lease out their underutilized drive capacity through the P2P distributed network. To become a node on a P2P network, operators simply agree to install a piece of code on a consumer-grade computer or business-class server that they want to participate in the storage network. At the same time the application is adding the computer’s drive capacity to the network, the node installers will also enable the setup of a digital wallet to store the cryptocurrency they’ll be paid for leasing their system’s storage and network capacity.

Some of the early blockchain-enabled storage companies are focused on offering a cloud service with a user-friendly interface similar to Dropbox; others plan to continue to use developer-friendly APIs for the near term with an eye more toward developers and IT professionals.

Most of the decentralized cloud platforms accept excess capacity from consumer-grade drives in home computers and business-class hard drives and SSDs in datacenters. One provider, Cupertino, California-based 0Chain, is developing two services, one of which is an enterprise-class file storage service that relies solely on capacity from channel partners, including AWS and Oracle Storage Service. Essentially, only 0Chain’s software is used by customers on the front end, providing blockchain’s native cryptography and immutability, while traditional cloud capacity is accessed on the back end.

While best known as the platform through which Bitcoin and other popular cryptocurrencies are created, blockchain is fast being adopted by leading enterprises. Fortune 500 financial services firms and financial tech firms are rolling out blockchain proof of concepts for use in cross-border financial transactions. JP Morgan Chase, for example, launched its JPM Coin network, which enables the cross-border transfer of cash-backed cryptocurrency between JP Morgan and its partners.

Blockchain in Action

Blockchain has found increasing adoption as an immutable network for supply chains. Leading produce suppliers, global shipping companies, and commodities suppliers have adopted it for its ability to create an immutable audit trail.  

For example, Walmart has required its produce suppliers to join its Food Trust blockchain network. The blockchain distributed ledger technology (DLT) enables end-to-end traceability of vegetables back to the farm where they were grown. Why is that important? Think back to 2018 and 2029 when there were E. coli outbreaks related to romaine lettuce. Grocers were forced to pull all of their lettuce from shelves because there was no way to track the contaminated lettuce back to specific growers. Blockchain changes that.

Packages of lettuce can be shipped displaying a secure QR (Quick Response) codes that are integrated on the backend with a blockchain-based tracking app. Grocers and consumers alike can literally trace the bag of lettuce from farm to shelf using a blockchain-based immutable ledger.

Hype around this still relatively new technology is real because blockchain DLT, in essence, represents a new paradigm for how information is stored and shared; tech vendors and enterprises, not surprisingly have rushed to learn how they can use DLT to save time and admin costs.

While blockchain isn’t going to replace established public or private cloud storage offerings or push aside traditional corporate relational databases anytime soon, it does open new doors for the movement and storage of transactional data inside and outside of global enterprises.

More than 70% of all companies across industries consider blockchain to be part of their digital transformation strategy now or in the future, according to IDC’s Blockchain Spending Quick Look Survey published in November, 2020.

About 83% of survey respondents indicated they’re currently using blockchain, they plan to use it, or they’re evaluating it. That number is up from 62% of respondents in last year’s survey. Spending on blockchain initiatives is expected to remain about level with those in 2019.

On average, about 87% of those same survey respondents indicated they plan to increase or maintain their spend on blockchain as it relates to infrastructure as a service (IaaS).

How industries are using blockchain generally relates to the market they’re in. Most use it for identity management, regulatory compliance and managing goods and assets. Financial services and manufacturing are the two most prominent marketplaces using blockchain, but as the technology matures, it will find inroads into virtually all markets.

For example, telecommunications companies are using it as part of their DX strategy as 5G begins rolling out around the world to ensure secure connectivity between mobile devices through its decentralized transaction ledgers.

Blockchain adoption is expected to be steady, as the changes it brings gain momentum. Conceptionally, Blockchain is TCP/IP applied to the world of business and transactions, according to Karim Lakhani, a principal investigator of the Crowd Innovation Lab and NASA Tournament Lab at the Harvard Institute for Quantitative Social Science.

“In the ’70s and ’80s, TCP/IP was not imaginable to be as robust and scalable as it was. Now, we know that TCP/IP allows us all this modern functionality that we take for granted on the web,” Lakhani said in an interview last year. “Blockchain has the same potential.”

Want to learn more about blockchain’s potential? Read our new white paper, “Blockchain Decentralized Storage: A Nascent Market with the Potential to Offer Cheap, Fast, and Secure Services”.

Lucas Mearian

Research Manager, Infrastructure Systems, Platforms and Technologies Group