Get up to speed on blockchain

The distributed ledger technology is winning new converts in the

enterprise even as some experts question its efficacy

In this package:
*Blockchain: Overhyped buzzword or real-deal enterprise solution?
*FAQ: What is blockchain and how can it help business?
*Blockchain powers Brooklyn microgrid for solar energy re-sale

Credit: Thinkstock

Copyright © 2017 IDG Communications, Inc. All rights reserved.

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Blockchain: Overhyped buzzword or real-
deal enterprise solution?
IT vendors are rolling out blockchain-based capabilities, often in response
to high levels of customer interest

Lucas Mearian / Computerworld

While blockchain is among the hottest technologies in the enterprise security, data storage and
file-sharing arenas, many experts question its use or even whether it's really as secure as billed.
As marketplaces struggle with how best to deploy the distributed ledger technology, IT
vendors are beginning to test it in their products -- in some cases, as a reaction to customer
inquiries rather than a proactive move.

"It's a very hot topic right now," said Zulfikar Ramzan, CTO of RSA Security, a subsidiary of the
Dell EMC Infrastructure Solutions Group. "We are definitely getting a lot of inbound inquiries
around blockchain and its implication within enterprise environments. I think it's driven largely
by the fact that when there's a new technology out there, to some degree people want to be
buzzword compliant with the latest and greatest."

Ramzan said his customers are asking about blockchain for audit logging and or verifiable logs,
which is viewed as a reliable way of tracking what happened in an organization to satisfy
regulatory auditors. Other RSA customers are interested in it for user authentication to ensure
users are accessing the correct digital records at the right time.

"We're examining how blockchain can be used in that context," Ramzan said. "I think it's a very
nascent technology. I think it's an area that has gotten a lot of hype, and now it's a question of
whether that hype can be converted into reality."
Blockchain and Bitcoin
Blockchain is a decentralized electronic, encrypted ledger or database platform -- in other words,
a way to immutably store digital data so that it can be securely shared across networks and users.
While the technology has grown in popularity, mainly because it's the basis for the wildly hyped
cryptocurrency and payment platform Bitcoin, many experts are still not sure exactly how it
works.

Even the founder of Bitcoin, Satoshi Nakamoto, is a shadowy figure and no one appears to
know with certainty who he is or if the name is a pseudonym for a group of developers.
Nakamoto, however, holds one million bitcoins, or the equivalent to $1.1 billion.

Angus Champion de Crespigny, blockchain leader at Ernst & Young, called the technology
"overhyped" and said many business applications touted as beneficiaries of its use have
regulatory or operational issues that can be difficult to solve via one technology alone.

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"We're seeing interest in using it to propagate security policies and identity access management,
but it's early days. We're seeing more vendors producing business specific products, which is
really what's needed," de Crespigny said.

One problem facing blockchain's use, de Crespigny said, is a 'rip and replace' mentality now
popular in enterprise environments, which may not be economical.

"We do see identity management, however, as a real beneficiary, [since it] can help establish
single customer views [and] streamline onboarding," de Crespigny said. "It's a technology
paradigm, similar to saying relational databases: there are many different ways to implement it
and different strengths and weaknesses to each implementation. Similarly, [that's true] with the
different flavors of private and public blockchains."

The real power of blockchain, de Crespigny said, is in public environments such as Bitcoin, but
the environment is immature. "It's not to say there aren't benefits within enterprises, particularly
when they work across legal entities."
Decentralization a feature, not a bug
One conundrum facing blockchain adoption is the technology's sheer complexity, which comes
from it performing every function without a centralized source of management.

"Blockchain's strength is in creating a decentralized, distributed ledger. If you're in an enterprise

environment, in many cases you don't need that decentralization. You can achieve the same
objectives in a centralized fashion and it's much easier if you use a single point of trust," Ramzan
said.

"That's partly what we're trying to help our customers understand. They understand the benefits
of blockchain," Ramzan continued. "They have the why, but they don't necessarily have the
understanding of the how or the what. Our goal is to help them make a determination [about
whether] this is a better way to achieve their ends."

For many, blockchain's complexity -- stemming from its decentralized structure -- is reason
enough to give organizations pause in adopting it.

"It's difficult to understand the way it performs encryption," said Serguei Beloussov, CEO of
leading data backup provider Acronis. Beloussov has a PhD in computer science and has co-
authored more than 200 U.S. technology patents.

"I have several very smart computer scientists who tell me it's major overkill. And, if it's
overkill, then it's secure but it's a way of securing something that's unecessary," Beloussov said
in an interview. "Then I have several computer scientists who tell me it's really not secure -- they
believe you can penetrate it."

For his part, Beloussov believes blockchain - while extremely complex, is by its very nature
secure.

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Acronis embraces blockchain
In February, Acronis for the first time introduced blockchain technology in its True Image
2017 data backup software. The blockchain platform is also used as a data certification and
verification element in True Image's ASign application -- an electronic document signing or
notary service.

Within a couple of months, Acronis also plans to introduce blockchain for data verification in its
Acronis Backup 12 Advanced, its core backup product for small and mid-sized businesses.
Currently, the company is running a public beta test on Backup 12.

"We deal with data management, effectively we're backup, but eventually data management
software, and data management software needs to make sure that the data is immutable and you
can control access to data in some smart way," Beloussov said. "So it's about controlling access
to data in a smart way."

Beloussov sees Bitcoin's use of blockchain technology as its most basic capability -- as a way to
make digital objects unchangeable. But eventually he sees it having merit as a way to efficiently
create smart contracts.

For example, HealthCoin is a blockchain-based database that can be used by physicians and
other healthcare providers to confirm that patients are following treatment regimes to avoid
complications from long-term diseases such as congestive heart failure and diabetes.

That HealthCoin network creates a marketplace for employers, healthcare plans, hospitals and
life insurers to financially reward employees for taking part in proven prevention methods.
Employees' actions can be tracked through wearables and rewarded with the Healthcoins, which
are placed in a digital wallet.

Blockchain allows a set of users on unrelated servers to control digital records, which it calls
blocks, in a distributed manner. Each block has a timestamp and is linked to a previous block,
creating an unbroken chain -- meaning each block is its own unchangeable record linked to that
user.

Blockchain can only be updated by consensus between participants in the system, and when new
data is entered, it can never be erased. The blockchain contains a true and verifiable record of
each and every transaction ever made in the system.

A constantly evolving technology

Like the internet itself, blockchain's capabilities are continually evolving with new features or
add-on applications. Since it is not regulated by a single control center as there might be with a
system administration, there's no single point of failure. In an enterprise, theoretically, there
would be no need for an IT professional to monitor security on a blockchain database.

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There are several general uses for blockchain platforms. There are public blockchains, which
allow anyone to see or send transactions as long as they're part of the consensus process.

There are consortium blockchains where only a pre-selected number of nodes are authorized to
use the ledger. For example, a group of banks and their clearing house might use blockchain as
part of the trade clearing process where each node is associated with a step in the verification
process.

And, then there are private blockchains, where the ability to write to a ledger is restricted to a
single organization.

Acronis' version of the distributed database software is based on Ethereum, a custom-built

platform that was introduced in 2013 by developer Vitalik Buterin. At the time, he was just 19.
The Ehtereum platform was originally used for verifying online payments, but its capabilities
grew under the Swiss nonprofit Ethereum Foundation.

In January, a report from Accenture claimed blockchain technology could reduce infrastructure
costs for eight of the world's 10 largest investment banks by an average of 30%, "translating to
$8 billion to $12 billion in annual cost savings for those banks."

The savings, according to Accenture, would come in replacing traditionally fragmented database
systems that support transaction processing with blockchain's distributed ledger system. That
would allow banks to reduce or eliminate reconciliation costs, "while improving data quality."

In February, Accenture, J.P. Morgan Chase and Microsoft were among 30 companies that
announced the formation of the Enterprise Ethereum Alliance, aimed at creating a standard
version of the platform for financial transaction processing and tracking.

"Given the tremendous cost of data reconciliation -- which is part of every aspect of the capital
markets industry -- it's no surprise that we've seen a significant amount of investment in
blockchain technology, David Treat, managing director for Accenture's financial services
industry blockchain practice, said a statement. "But, as with any emerging technology,
understanding what these investments might yield is a challenge."

Copyright © 2017 IDG Communications, Inc. All rights reserved.

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FAQ: What is blockchain and how can it
help business?
The distributed ledger technology has enormous potential for firms
that figure out how best to use it
Lucas Mearian / Computerworld

Blockchain sounds like a way to keep boats anchored, which isn't a bad analogy, considering
what the technology purports to do.

While some IT experts herald it as a groundbreaking way of creating a distributed, unchangeable

record of transactions, others question the nascent technology's usefulness in the enterprise,
which has traditionally relied on centrally administered databases to secure digital records.

Even so, companies are moving fast to try and figure out how they can use it to save time and
money. And IT vendors are responding to customers calls for information, with some already
looking to include it as part of their services.

What is blockchain? First and foremost, Blockchain is a public electronic ledger -- similar to a
relational database -- that can be openly shared among disparate users and that creates an
unchangeable record of their transactions, each one time-stamped and linked to the previous one.
Each digital record or transaction in the thread is called a block (hence the name), and it allows
either an open or controlled set of users to participate in the electronic ledger. Each block is
linked to a specific participant.

Blockchain can only be updated by consensus between participants in the system, and when new
data is entered, it can never be erased. The blockchain contains a true and verifiable record of
each and every transaction ever made in the system.

Why is blockchain suddenly getting so much buzz? In a word, Bitcoin. Bitcoin is a wildly
hyped cryptocurrency, a method of transacting payments over an open network using digital bits
and encryption. It was the first ever decentralized one when it was created in 2009.

The term bitcoin was first... well, coined in 2008 when Satoshi Nakamoto wrote a paper about a
"peer-to-peer version of electronic cash [that] would allow online payments to be sent directly
from one party to another without going through a financial institution."

OK, so what exactly does blockchain do? As a peer-to-peer network, combined with a
distributed time-stamping server, blockchain databases can be managed autonomously. There's
no need for an administrator. In effect, the users are the administrator.

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What industries are using it? According to Angus Champion de Crespigny, Ernst & Young's
Blockchain Leader, the technology is seen has being well suited to propagate security policies
and identity access management.

The fact that each blockchain record contains a unique cryptographic hash that is used to track
that block, as well as others in the associated chain, means the data cannot be modified, making
it perfect for record keeping and auditing purposes.

Financial services (see Bitcoin) has been the first industry to jump on board the blockchain
wagon. But other industries -- such as healthcare -- have been quick to explore its use, too.

For example, IBM Watson Health and the U.S. Food and Drug Administration are exploring the
use of blockchain for secure patient data exchange, including sensitive electronic medical
records, clinical trials and data culled from mobile devices and wearables.

While it's still early days, de Crespigny noted that more vendors are producing business-specific
products, "which is really what's needed."

How can it help those industries? Blockchain eliminates huge amounts of recordkeeping, which
can get very confusing when there are multiple parties involved in a transaction, according to
Saurabh Gupta, vice president of strategy at IT services company Genpact. "Blockchain and
distributed ledgers may eventually be the method for integrating the entire commercial world's
record keeping," Gupta said in an email to Computerworld.

Genpact, for example, just released a service for finance and accounting that leverages
blockchain-based smart contracts to capture all terms and conditions between a customer and an
organization for an order.

Accenture recently released a report that claimed blockchain technology could reduce
infrastructure costs for eight of the world's 10 largest investment banks by an average of 30%,
"translating to $8 billion to $12 billion in annual cost savings for those banks."

The Bank of England is considering ways that it can use blockchain for payments, clearing and
settlement.

In another example, Acronis introduced blockchain technology in its True Image 2017 data
backup software. The blockchain platform is used as a data certification and verification element
-- a type of electronic document signing or notary service.

Are there drawbacks to using it? The same thing that makes blockchain attractive, its
distributed nature, also makes it a potential security threat. In the enterprise, centralized control
can translate into security. With blockchain, which is decentralized, the technology works best
when information sharing is a necessity across multiple, often disparate, parties.

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Central control, as in a single administrator, can also be a double-edged sword since a single
point of control is also a single point of failure, according to Serguei Beloussov, CEO of
Acronis. While Beloussov himself believes blockchain is secure, he has several computer
scientists on his staff that believe it's not -- and say it can be penetrated.

Then there's Satoshi Nakamoto. That could be one person's name or a pseudonym for a group of
developers -- no one appears to know for sure. But Nakamoto holds 1 million bitcoins, or the
equivalent to $1.1 billion. That has led some in Beloussov's company to speculate that the whole
thing could be a giant Ponzi scheme, though there's no evidence to indicate that.

Has the encryption ever been broken? No. "That's not how this sort of thing will get broken.
It'll get broken because of some insecurity in the software," said Bruce Schneier, a cryptographer
and security expert. Schneier was referring to the fact that there are many versions of blockchain,
such as Ethereum, a custom-built platform that was introduced in 2013 by then 19-year-old
developer Vitalik Buterin. Additionally, vendors such as Microsoft and IBM have introduced
blockchain capabilities in their software and services.

Alex Tapscott, the CEO and founder of Northwest Passage Ventures, a venture capital firm that
invests in blockchain technology companies, said while no system is "unhackable," blockchain's
simple topology is the most secure today.

"In order to move anything of value over any kind of blockchain, the network [of nodes] must
first agree that that transaction is valid, which means no single entity can go in and say one way
or the other whether or not a transaction happened. To hack it you wouldn’t just have to hack one
system like in a bank… you’d have to hack every single computer on that network, which is
fighting against you doing that."

The computing resources of most blockchains are tremendous, Tapscott pointed out in an online
interview, because it’s not just one computer but many computers. For example, the Bitcoin
blockchain harnesses anywhere between 10 and 100 times as much computing power compared
with all of Google’s serving farms put together.

"So again, not unhackable, but significantly better than anything we’ve come up with today,"
Tapscott said.

Are there different blockchain permutations? Yes. There are several general uses for
blockchain platforms. There are public blockchains, which allow anyone to see or send
transactions as long as they're part of the consensus process There are consortium blockchains,
where only a pre-selected number of nodes are authorized to use the ledger. For example, a
group of banks and their clearinghouse might use blockchain as part of the trade-clearing where
each node is associated with a step in the verification process.

And there are private blockchains, where the ability to write to a ledger is restricted to a single
organization.

Copyright © 2017 IDG Communications, Inc. All rights reserved.

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Where does it go from here? Regardless of who developed it, businesses should always take a
pragmatic approach when adopting any new technology, according to Gupta.

"You can't ignore it, but you can't just blindly adopt a new technology. The key is to see if it
makes sense for your business problem," Gupta said.

Blockchain is emerging from concept to reality as products that use it are just now coming to
market.

There are, however, more than 15 blockchain distributed ledger platforms being developed in
parallel, with specialist applications on top of them, according to Gupta. The industry will need
some standardization to encourage widespread adoption.

"Such challenges are common with new technologies," he said, "and even with this concern,
blockchain is seeing a lot of interest."

Blockchain used to power Brooklyn

microgrid for solar energy re-sale
LO3 Energy's 'TransActive Grid' is a blockchain platform for the project; it
timestamps each energy transaction as a chain of secure blocks
Lucas Mearian / Computerworld

Residents of the Park Slope area of Brooklyn are now able to sell power generated from rooftop
solar panels via a microgrid enabled by a blockchain ledger that records every transaction made
with a local utility.

The physical microgrid, set up by Siemens Digital Grid Division, includes network control
systems, converters, lithium-ion battery storage and smart electric meters. In case of another
hurricane like Sandy in 2012, residents on the microgrid would continue to have power for a
time even during a blackout as they could switch over to battery reserves.

A microgrid is a form of distributed energy generation that can function independently from
the traditional, centralized regional power grid; it can enable towns, small cities or corporations
to develop their own energy sources and power storage systems (via lithium-ion or flow
batteries), distribute that energy and even sell excess power back to local utilities.

The Brooklyn Microgrid blockchain database is a web-based bookkeeping system that uses
cryptographic technology to save energy data in a way that is both inexpensive and forgery-
proof, the companies said.

Copyright © 2017 IDG Communications, Inc. All rights reserved.

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The Brooklyn Microgrid enables residents to sell energy back to the local utility -- a process
known as "net metering" -- and it allows those without solar panels to purchase green power
credits from their neighbors. The blockchain platform for the microgrid is enabled by Brooklyn-
based energy startup LO3 Energy.

Blockchain is a decentralized electronic, encrypted ledger or database platform -- in other words,

a way to immutably store digital data so that it can be securely shared across networks and users.
The basis for cryptocurrency Bitcoin, blockchain allows a group of users to transact without an
intermediary, like a bank or utility.

"Intermediaries are centralized, which makes them vulnerable. They are costly. They slow things
down. They capture data about parties in the transaction, which could undermine their privacy,"
Alex Tapscott, the CEO and founder of blockchain investor Northwest Passage Ventures, said
in an interview.

Blockchain technology will enable what Tapscott calls the "second generation" of the internet,
where not just emails, documents and Websites are shared, but literally anything of value can be
shared between disparate users because it's more secure and there's no single point of failure.

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LO3/Siemens
A technician installs a smart meter.

"Money, financial assets, titles and deeds, intellectual property can be moved, stored and
managed securely and privately, and where trust isn't established by an intermediary but rather
through mass collaboration, cryptography and clever code," Tapscott said. "And as a result, this
new platform's going to have a tremendous impact on basically every industry, business and
institution in the economy and in society."

LO3 Energy's "TransActive Grid," which is the blockchain platform set up for the microgrid,
timestamps each transaction as a chain of secure blocks, which means every energy transaction is
documented.

Using the blockchain-enabled microgrid, the 50 or so homeowners, which include brownstones,

apartment houses, schools, a gas station, a fire station and factory buildings, can now trade very
small amounts of green electricity without any intermediaries, LO3 Energy said in a statement.
Prices can be determined by automatic auctions oriented toward the top price per kilowatt-hour
that an energy consumer is willing to pay.

The Brooklyn Microgrid not only receives energy from rooftop solar, but also from the nearest
conventional power plant. So homeowners without solar panels can get credit for "green" energy
from their neighbors' PV panels, which is what consumers have historically been buying when
they choose energy generated from renewable sources.

The Brooklyn Microgrid's goal is to have 1,000 participants by 2018. It also plans to install more
battery storage units and even more extensive solar panel systems.

"All of this will be supported by the Siemens Digital Grid Division's Microgrid Management
System, which will make it possible to establish a self-sufficient power supply for the microgrid
in the event of a city-wide blackout," LO3 Energy said.

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