KuppingerCole Report
Advisory Note
By Anne Bailey

Demystifying the Blockchain: What Makes a Blockchain Useful to a Firm?

Blockchain technology – as the hype advertises – can be a value-adding solution for businesses and individuals. However, it is necessary to separate blockchain’s functionality from its fame before a firm can find an appropriate use case. This report deconstructs the main features that make blockchains unique from traditional database software and identify the ways that blockchain can be used to address the preexisting issues in a database.
By Anne Bailey
aba@kuppingercole.com

1 Executive Summary

Blockchain technology – as the hype advertises – can be a value-adding solution for businesses and individuals. However, it is necessary to separa ...

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2 Highlights

  • Blockchain adds value to an enterprise when its strengths in decentralization, chronological and immutable data storage, and automatized actions are ...
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3 Blockchain Definition and Characteristics

Blockchain is a tool to be leveraged, not an innovation to be worshiped. As with any tool, blockchain should be applied according to its function. But ...

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3.1 The Public Ledger

The “public ledger” is an updated version of the standard financial ledger. Traditionally, one party records transactions on a ledger, independent ...

One solution is to have a shared database that is used by all members in a supply chain, or by all parties to a transaction. This results in the datab ...

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3.2 Blockchain Consensus

“Consensus” is foundational to blockchain technologies. If there is no central authority to judge that a transaction is correct, there must be agr ...

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3.3 The Immutable Ledger

One of the largest value-added aspects of the blockchain is to create a ledger that cannot be tampered with. This means that the record of transaction ...

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4 The Blockchain Taxonomy Matrix

There are multiple blockchain protocols that have reached a moderate level of maturity, the most well-known being the Bitcoin protocol. Each has a dif ...

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4.1 Security and Privacy Axis

Authentication refers to the manner in which a blockchain protocol trusts a node to participate. The system can either be open or employ some authenti ...

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4.2 Level of Decentralization Axis

The level of decentralization refers to the unique blockchain architecture of decentralized authoritative nodes. Some protocols operate in a completel ...

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5 Consensus Mechanisms

The unique combination of the seven features mentioned above distinguishes the major blockchain protocols from each other, and makes each protocol sui ...

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5.1 Proof of Work

Proof-of-Work (PoW) is the most well known consensus mechanism because it is what enabled Bitcoin to achieve its reputation as a decentralized, immuta ...

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5.2 Proof-of-Stake

Proof-of-Stake (PoS) also requires a cryptocurrency in order to function, but with a different incentive for nodes to expend computing power. The PoS ...

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5.3 Proof-of-Authority

The Proof-of-Authority (PoA) mechanism is based on the reputation and identity of nodes, and does not require the use of cryptocurrencies at all. Inst ...

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5.4 Byzantine Fault Tolerance and Variations

The Byzantine Fault Tolerance (BFT) mechanisms and its many variants take their name from a metaphorical puzzle, which cryptography has tried time and ...

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5.5 Pluggable and Dynamic Consensus

Pluggable consensus, and its updated offering of dynamic consensus, is a customizable option that allows an enterprise to choose the most appropriate ...

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5.6 Strong Federations

Blockchain has proved to be a launching point for other attempts at perfecting the digital decentralized ledger. Blockstream operates what it calls €...

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5.7 Tangle

IOTA is working to develop a distributed ledger solution that does not rely on a chronological layout. IOTA is called the “blockless blockchain” a ...

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5.8 Privacy Considerations

Businesses that hope to integrate blockchain into their processes must consider the feasibility of implementation. This includes managing the volatili ...

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6 When to Choose Blockchain

Blockchain is a powerful solution to the right problem. To decide if blockchain would effectively address the challenges that a business faces, use th ...

In situations where no party should have more power than the others, decentralized management can add value to a system. Blockchains are databases of ...

The ability for a running records of all transactions to be viewable but tamper-proof helps in some business cases, but not all. Sometimes this blockc ...

When all of its other features are stripped away, a blockchain is a ledger of transactions. A transaction could be any exchange of information, items, ...

Data stored on a blockchain is grouped in sequential order. In combination with a blockchain’s immutable status, this can provide assurance that eve ...

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7 Use Patterns

Blockchain adds value to an enterprise when its strengths in are put to work. While there are many possible individual use cases, a few patterns emer ...

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7.1 Distributed and Decentralized

Typical cases where distributed and decentralized oversight structures add significant value to a firm’s processes are in the deployment of smart co ...

Smart contracts can be executed on open or permissioned blockchains, but permissioned networks offer more restricted access to sensitive data. Protoco ...

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7.2 Ledger Functionality

The ledger functionality of blockchains allows transactions or events to be recorded and stored accurately. Situations which take advantage of this ch ...

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8 Recommendations and Conclusion

Blockchains do have the capacity to offer significant improvements for the way enterprises communicate with and trust each other. As with any solution ...

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Copyright

©2019 KuppingerCole Analysts AG all rights reserved. Reproduction and distribution of this publication in any form is forbidden unless prior written permission. All conclusions, recommendations and predictions in this document represent KuppingerCole´s initial view. Through gathering more information and performing deep analysis, positions presented in this document will be subject to refinements or even major changes. KuppingerCole disclaim all warranties as to the completeness, accuracy and/or adequacy of this information. Even if KuppingerCole research documents may discuss legal issues related to information security and technology, KuppingerCole do not provide any legal services or advice and its publications shall not be used as such. KuppingerCole shall have no liability for errors or inadequacies in the information contained in this document. Any opinion expressed may be subject to change without notice. All product and company names are trademarksTM or registered® trademarks of their respective holders. Use of them does not imply any affiliation with or endorsement by them.

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