Launched nine years ago, but with a history running back to 1991, blockchain’s been a long time comin’. And, let’s be honest, it’s still not really arrived. What’s the problem? Well, it’s surely not the basic principle.

Blockchain technology is simple. It parcels up a financial transaction, title agreement, asset acquisition or disposal, or whatever, into a discrete block of data. Each block has a unique identifier. They’re chained in strict chronological order; each succeeding block must refer to the unique identifier of its predecessor. The clever bit is that the chain doesn’t just exist in one place. Anyone who wants to be an active node on a blockchain must host their own copy of the whole shooting match. A new block is crypto-validated (that’s even cleverer) and then added to everyone’s blockchain record, usually over the internet. So, the entire ecosystem surrounding a blockchain sees one single, verified version of the truth.

Changing an earlier block for nefarious purposes would take staggering computer power to access and interfere with every single later block – in the process, breaking all their unique identifiers – right across the entire network of blockchain copies. There is no alternative. No one’s yet found a way around it.

The advantages are many. Not least, you no longer need an intermediary like a bank or a lawyer to verify both ends of the transaction, record the agreement and store the outcome somewhere. A blockchain does that securely for all participants. That’s its raison d’être. Applying equally to most of the world’s intermediary-enabled business and government models, Bill Gates said in 2016, “Banking is necessary, banks are not.”

So far, so good. So, what’s not to like?

Well, a topical McKinsey report (Higginson, Nadeau and Rajgopal, 2019) uncloaks the elephant in the room. It says that the financial services industry spends around $1.7 billion annually on experimentation, but McKinsey concludes, “The bottom line is that despite billions of dollars of investment, and nearly as many headlines, evidence for a practical, scalable use for blockchain is thin on the ground.”

The report points out that competing technologies have emerged, with higher transaction speeds and increased transparency through bank collaboration. Occam’s Razor (the problem-solving principle that the simplest solutions tend to be the best) leads the report to say, “… blockchain’s payments use cases may be the wrong answer.” McKinsey’s work with financial services leaders over two years suggests they’ve started to have doubts and, “… some financial institutions have begun to recalibrate their blockchain strategies.”

Nevertheless, there are live blockchain solutions out there, but mainly in discrete areas like asset ownership, global shipping contracts and trade finance. Supply chain, identity management and public records experimentation has also shown positive results.

Returning to Occam’s Razor and the financial services industry, McKinsey goes on to speak of “… a growing sense that blockchain is a poorly understood (and somewhat clunky) solution in search of a problem.” The report also talks about “… technical impediments, for example in respect to blockchains’ data storage capacity.”

On that last point, the size of the Bitcoin blockchain (where the hype started) was said to have reached 160GB in February 2018, was up to 185GB by September 2018, and is still growing at the same linear rate of around 3.5GB per month. There are reported to be nearly 10,000 nodes on the Bitcoin network, each of which must host a full blockchain copy. That’s one heck of a lot of distributed data.

McKinsey’s report may not be well received in some quarters and, remember, it’s just one view amongst some more bullish commentaries. Whatever the outcome of the blockchain debate, safehouses will be needed for those massively growing data volumes.

In a transformational future, where public or private blockchains might replace centuries-old paper practices, it would be impossible to turn that digital tide once it was running. The blockchains’ data would continue expanding virtually forever. The strength and security of the places where it lived would be paramount.

That’s where Telehouse with its global reach comes in. Whatever the individual blockchain applications being considered today, serious thought must be applied to their integrity in tomorrow’s world. We’re keeping a close eye on developments and already thinking about optimum distributed blockchain architectures revolving around a range of outcomes.

Talk to a Telehouse expert, call 0207 512 0550 or email [email protected]