In my previous column on TDAN.com, I reviewed key technologies in vogue now and promised to dig deeper into data management’s role in each of those technologies. To recap, I identified Blockchain technologies, Internet of Things (IOT), Artificial Intelligence / Machine learning, Augmented reality/Virtual reality/Mixed reality, and Cloud computing. As you are well aware, each one of these is a fairly broad topic and lots of sub-topics underneath it. In this article, I’d like to dig into blockchain technology and role of data management in it.
First, let’s get the basics out of the way. I introduced blockchain technology, which we all know is at the heart of bitcoin and other virtual currencies, is an open, distributed ledger that can record transactions efficiently and in a verifiable and permanent way. Bernard Marr, in his Forbes article ‘A complete beginner’s guide to blockchain’ simplifies even further as follows. “A blockchain is a distributed database, meaning that the storage devices for the database are not all connected to a common processor. It maintains a growing list of ordered records, called blocks. Each block has a timestamp and a link to a previous block.” Blockchain is all about distributed data with properties like ‘unalterability’, ‘traceability’, ‘permanency’, ‘validated by peers’, ‘transparent recording’, and ‘authenticated’. As part of our company’s charter of advising clients on data strategy, data management, and data governance, my focus is always on data lineage, data quality, and trust in data to ensure that data analytics delivers business value. As blockchain enables all key ingredients we need in establishing ‘golden records’ of data, I started falling in love with blockchain technology.
Why do I Believe that Blockchain is a Friend of Data Management?
Data management, in its essence, is about getting secure access to a clean, reliable, and traceable data to facilitate business decisions. For selected domains like customer data or product data etc., we’d like data management to deliver us a ‘single source of truth.’ Let us now see how blockchain plays into these key data management concepts.
Blockchain Enables Trusted Data
Blockchain enables a single source of data in distributed fashion with its authenticated peer-to-peer network with each node having a copy of ‘master data’ or ‘single source of truth.’ Master Data Management (MDM) projects identify three different approaches: Centralized, Registry, or hybrid of centralized and registry approaches to enabling ‘single source of truth.’ Blockchain, by its very design, enables a distributed ‘MDM’.
Blockchain Delivers Data Lineage by Default
One of the key challenges in data management is establishing data lineage, or in other words, tracking data once it is created as to where it moves and how it is transformed as it moves through various stages. As linking to previous ‘blocks’ of data is at the heart of bitcoin technology and this solves ‘data lineage’ problem of data management.
Blockchain is Built on Verifiability
Blockchain provides a distributed and permanent record of transactions that can be encrypted to provide different levels of access to viewers, and new transactions are added and verified according to protocols that prevent duplication and ensure consensus. With its peer-to-peer concept, blockchain ensures verifiability of data among its peers.
Does it mean blockchain is the panacea for data management? Not by any means. There are some caveats. As there is no central authority in blockchain, managing data storage can be an issue. As the trusted blocks of data need to be stored at every node, it can easily run into storage issues quickly depending on your data sets. Performance issues and costs associated with performance is another topic that needs to be managed carefully with blockchain. The differences in validation of transactions and implementation of public/private keys could show variations in how blockchain will or will not deliver its intended benefits. Some of these cons point blockchain to certain niche areas where traits such as audit trail, traceability, immutability, and increased level of security are paramount. That is why it is no wonder that the early adopters of blockchain technology are banks, payment service providers, and insurance companies.
Use Cases for Blockchain Technology
In this fascinating article ‘Why blockchain will transform the financial services industry’ from Roland Berger GmBH, the author identifies the following 4 key use cases in financial institutions and insurance companies.
Use case # 1: Blockchain-enabled remittance transactions between two authenticated parties. Key ingredients required for this use case are: smart contracts, authentication, peer-to-peer networks.
Use case # 2: Enabling trade finance. Trade finance requires banks and financial institutions to finance a trade between a buyer and a seller (could be domestic or international). Key ingredients required in this area are: time-stamping of transactions, immutability of transactions, and traceability.
Use case # 3: Reducing costs and time in Security trading. Security trades involves multiple intermediaries and as a result increased time in closing transactions. Blockchain can reduce time and cost in these areas. Key ingredients in this area are disintermediation and shortening time to complete transfer of assets.
Use case # 4: Improving efficiency in insurance industry. The age-old insurance industry relies on sharing lot of documents and mutual trust among involved parties. Key ingredients in this area are establishing mutual trust and efficient ways of sharing and transferring critical documentation.
Additional Use Cases
Does it mean only financial institutions can benefit from blockchain? Not really. Mckinsey argues in this article that government institutions can also benefit from key concepts of blockchain technology by “digitizing records, managing them in a secure infrastructure, and allowing these government agencies to make some of these records smart.” These agencies, in turn, can share this data with third parties once pre-defined conditions are met using concepts behind blockchain technology. Healthcare is another ripe area for blockchain technology. Some use cases in this area are: patient’s control of their own health records and relevant access, patient identification and matching, and coordinating patient care among trusted collaborators. Wherever there is a need for trusted, traceable, and secure access and management of data, blockchain technology can play a vital role as long as we address some of the performance and storage issues addressed earlier.
Blockchain technology has snuck upon us quite rapidly over the last few years. Of course, lot of credit goes to cryptocurrencies such as bitcoin and ethereum because of their meteoric rise in value over the last year or so. For me, the technology has the promise of delivering long-lasting benefits irrespective of what happens to the value of cryptocurrencies. For data management specifically, blockchain’s key concepts of traceability, immutability, permanency, trusted peers, and lineage naturally have a great fit. As such, I am watching this area closely and I believe all data management professionals should as well.