25 Nov 2015

Using private blockchains to minimise infrastructure costs

Erkki writes*

Blockchain technology was introduced some years ago as the technical cornerstone of Bitcoin. The idea behind the blockchain is to publicly record and verify transactions and balances in the Bitcoin network - a kind of public ledger if you will (more in the Bitcoin whitepaper [pdf]). Since its beginning the cryptocurrency scene has offered a steady flow of new and innovative fintech solutions. Some of these have used the Bitcoin blockchain as their base and build services on top of that. However, despite of being an immense technical innovation, Bitcoin suffers from a number of serious technical and security issues. Hence, a large number of software professionals, and hobbyists, have taken up the task of building new and improved blockchains. Originally these second generation blockchains were used to create a kind of ‘Bitcoin 2.0’ - a better version of a decentralized, and trustless, public cryptocurrency.

Private blockchains have a similar technological base as public ones. The difference is that they are only available privately. This means that anyone can implement their own currency for their organizations as a means of value transfer and data storage. These innovations have not gone unnoticed in financial institutions and industrial conglomerates which are now developing their own blockchain solutions. To further elaborate how it all works lets take a look at Mijn, a project that offers private blockchain solutions to institutions.

Mijn is based on a (public) second generation cryptocurrency called NEM. It offers multiple services on top of the NEM blockchain, from which the most important ones will be discussed next. Besides of offering a private currency, its users can create custom assets that can be linked to company equity, inventory, customer loyalty points, and many other things. To complement the assets and the currency, one can create smart contracts that can be used to automatically manage information and agreements directly on the Mijn Blockchain. Security-wise it comes with significant improvements because of its base on NEM (see NEM Technical Reference [pdf]. Some of these features include multi-signature accounts and restricted access to determined nodes - features that are imperative to hierarchically structured institutions. No doubt these improvements are technically impressive, but how can they be used to reduce infrastructure costs?

The peer-to-peer network model of Mijn offers significant improvements on traditional infrastructure. The blockchain operates in a way that it can be kept up with normal consumer hardware, reducing the hardware costs. For the same reason there are no reasons for backups or data redundancy because everything is already backed up in a distributed way. The maintenance and development of the system is also relatively simple because it is done through a simple JSON API letting the developers work on their preferable language. Ultimately, this leads to a zero-downtime system that is resistant against network failures and malicious attacks.

Bottom Line: The distributed networks of private blockchains offer new possibilities and reduce costs when it comes to structuring an organisation’s IT networks.

* Please comment on these posts from my microeconomics students, to help them with unclear analysis, other perspectives, data sources, etc.

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