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Blockchain will change the World?!

What can we do with #blockchain?

What does blockchain provide us?

How to apply blockchain?

Can we afford not to answer these three fundamental questions?

Introduction. There is a widely accepted perception that the potential impact of blockchain for society is huge and a game changer for many industries. Almost all major #banks are involved in some kind of research on blockchain. There is something going on. We apply Socratic questioning; a good question is more valuable than a good answer. Three related good questions are proposed that must be answered well before we can do any new and valuable things with blockchain. Because, without good research questions good R&D is not possible.

What can we do with blockchain? The first question is well answered in more detail by some visionary authors who describe the new things, products and services, and the impact on business and society on many areas. In financial and government services there are the promises of a better production of existing services. In short, “doing the same things in a better way”. There is also a new dimension, “doing totally new things” using disruptive business models. There are plenty of these examples based on social media. Blockchain is closely related to social media, communication and to documents, as will be shown in later blogs. So it is reasonable to expect that blockchain may have an impact in all these areas.

There are more urgent reasons to apply blockchain. Experts agree that the world financial system of transactions is a geopolitical battlefield for state sponsored cyber crime. Blockchain promises a radically new way to realize resilience to cyber crime and a reduction of costs due to a reduction of complexity. A much more resilient and robust world financial transaction system can be and must be realized.

What does blockchain provide us? This question is answered today by a number of good articles on the inner construction and working of blockchain, mainly for #bitcoin(s). This is fine and we can trust our fellow engineers and cryptographers to provide us good solid blockchain platforms. However, this is not our prime interest, we are interested in what blockchain provides us as a black box, without knowing its inner construction and working. Some authors state that it is “trust-less authenticity”, or “trust-less consensus”, or use comparable terms. Since this is new and enables those new services, the trust-less authenticity is the new paradigm. So, the term ‘blockchain’ refers here to ‘trust-less authenticity’. The new paradigm is enabled using good software engineering and cryptography but these are not the new paradigm; they provide us the new paradigm trust-less authenticity. What trust-less authenticity is must be understood and described well enough (very well). Then, and only then, we can make any good use of it from an engineering perspective, for example building robust and fault tolerant world financial systems. So far any good specifications have not been found in the literature. To answer this question well, we need a high quality conceptual specification of blockchain’s trust-less authentication. This is a subject for later blogs.

How to apply blockchain? The third question is about the application of blockchain’s trust-less authenticity – and we must understand this first – as a key component to construct and produce the new services and new financial service providers. No good answers to this engineering question have been found in the literature so far. The answer consists of three major parts and a conclusion.

The first is that we have existing services (products) that we would like to produce in a better way. We also see that a range of totally new services is possible. We must start by describing the functional qualities of our services ‘well enough’. What is the value of our service to our customers, as seen by our customers? We must ask them because it is highly subjective. We need this functional specification because we must check, validate, that our actual production meets these functional specifications. If our actual production does not match the functional requirements, it will not provide the desired value for the customers, and we are in deep trouble with a dissatisfied customer.

The second part is that we must specify the construction of the services in an appropriate way. The term ‘appropriate’ is not vague; it means also a truthful, coherent, concise, consistent and comprehensive specification. Without a good specification of the construction of the services we are not able to find out how toproduce the services in new enterprises. As said already, we must check, validate that if we construct our service in this way, it meets the functional requirements for the customer.

The third part is the observation that services are produced by enterprises. An enterprise must be well designed to produce the services, based on the construction specifications of the service. Example: an automotive production line is very carefully designed and tuned to produce a specific car type. If another type of car must be produced, the production line must be redesigned, adapted, tuned in many places. If the production line must produce radio’s, the whole production line must be redesigned from scratch. These enterprises must be specified also in an appropriate way, otherwise we cannotconstruct these enterprises and let them operate well in production.

These answers show that if we use the special qualities of a new component in our services, blockchain’s trust-less authenticity with all of its benefits, the construction of our services must be totally redesigned from scratch. We produce the same service, same functional specifications, but in a different way. And, if we produce services in a totally new way, we must redesign and rebuild our enterprises also from scratch. The conclusion is that the application of blockchain typically demands a totally new (re)design, from scratch, of the construction of the services and therefor theconstruction of the financial service enterprises. In other words; if you want to apply blockchain well, it is better to redesign the services and rebuild the whole enterprise from scratch.

Is this about #Fintech? Yes and No. Yes, because it is innovative, based on two new paradigms (one is blockchain – trust-less authenticity) and the benefits will probably most visible in financial services. It’s most valuable benefit for society is likely a robust and fault tolerant world financial system. No, this is not some new potentially disruptive financial service. It is how to apply blockchain well, better than state of the art technologies, using better engineering.

Can we afford not to answer these three fundamental questions? The three questions are interconnected and are also umbrella questions for many more detailed questions – see below. Without an appropriate answer the next question cannot be answered. So, without three appropriate answers we cannot deliver the new services. To provide appropriate answers to the three questions we need also better engineering methods for enterprises and their supporting IT systems, which is in the domain of the discipline of enterprise engineering, based on another new paradigm.

Blockchain will #change the World..?! No, not if we continue the old way of doing things. Looking at the state of the art in IT systems development [much literature] in for example financial services, we observe that these IT systems are too expensive, have been developed over many years using trial and error methods, resist agility, are increasingly difficult to maintain and have a limited functional value (business-IT alignment). If we continue to work in this way, we will realize similar bad results. 

If, as some visionaries are rightfully saying, we are going to machine to machine financial services in production chains, then we need really much better engineering.

Future blogs. The following future blogs discuss the answers to the three fundamental questions, based on good engineering. Subjects include:

• How to build more robust and fault tolerant financial enterprises and their information systems? “Keeping the cyber criminal out”, enhanced by “Once the cyber criminal is inside, make sure he cannot do much harm”.

• What is trust-less authenticity (precisely)? What does it guarantee? How and when is it created? By whom? How should blockchain be embedded in business procedures?

• What is business procedural risk or systemic risk. What are the causes? How to identify, mitigate or eliminate procedural risk, at design time or in production?

• What is total factual knowledge of the enterprise operation – containing digital fingerprinting, total audit knowledge, communication and commitments made, documents produced?

• What do the new blockchain platforms provide us, and what not?

• How to specify new blockchain based services in an appropriate way? For whom? Customer’s identity?

• How to engineer enterprises, addressing governance, risk, compliance (GRC), efficiency and effectiveness issues?

• How to construct IT systems that support the operation of enterprises and support the new blockchain platforms?

• What is communication between human actors and how does it relate to commitments, intentions, contracts, obligations, rights, permissions, authorizations and delegation? What are social media and chatbots doing?

• What are ‘documents’; what do they contain, represent, do, how are they designed and produced?

• How does enterprise engineering support the application of blockchain’s trust-less authenticity?

• What is the enterprise operating system? How does it work? What does it do? How is blockchain supported?

The new discipline of enterprise engineering is based on the (quite) new paradigm of communication and commitments between human actors in social systems, enterprises. It is ‘solid’ engineering, just like electronics, aviation, mechanical engineering, no place for BS or hype. Enterprise Engineering must provide good answers to these questions.

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The author, Steven J.H. van Kervel, Ph.D. computer science, is with Formetis Consultants BV in The Netherlands. Formetis develops methodologies, tools and software systems for the engineering of enterprises with supporting IT systems, applying blockchain #technology.

Formetis participates in the CIAO! community of scientists and engineers on the field of enterprise engineering.

Formetis seeks partnerships to bring this technology to the real world.

Contact: [email protected]