Will Blockchain Shakeup Telecom?
If you want to boost your company’s stock price, tell the world you are building a blockchain application. When Kodak announced a blockchain service to facilitate photographers getting paid for their work, their stock jumped 200% overnight and has since leveled off for a still very significant 60% gain. The hype of course is driven by the cryptocurrency boom. The terms Bitcoin and blockchain are practically synonymous.
So, what is so special about blockchain, and can it bring any of this specialness to telecom applications?
Without getting into a technical description of blockchain (there are no shortage of YouTube videos for that), in my opinion there are three attributes that must satisfied to consider building a successful blockchain application:
- There is an asset that undergoes transactions, the results of which are recorded digitally (ownership, value, location, quality, membership, etc.).
- There is a community of users – with varying levels of trust (zero to some) – who have a mutual interest in the veracity and immutability (non-hackability) of these transactions.
- The pros and cons of using a distributed peer-to-peer solution to validate and keep track of these transactions outweigh using a centralized solution.
This last point is essential, in that there is no middle-man or any centrally located database. In fact, blockchain is a form of what is also called a “distributed ledger” technology. What many people don’t realize, however, is that there a range of ways that blockchains or distributed ledgers can be implemented. The selected method should fit the particular needs of the application. The table below outlines the two major categories, termed permissionless and permissioned access.
Bitcoin is the poster child for permissionless access. The asset is digital money, and anyone in the entire world can buy and sell Bitcoin or transfer it to buy and sell other goods. The middlemen eliminated are banks and similar institutions like credit card companies. Because it is open to anyone, Bitcoin assumes a zero level of trust, which requires a transaction validation (or consensus) process that is extremely robust. The consequence of this is that this process is slow, consumes huge amounts of energy, and cannot scale. Some of these problems are the subject of research, but so far there is no magic bullet that solves the inherent implementation constraints placed on permissionless access blockchains. So while the capacity for disruption is huge, this must offset painful implementation costs.
The fundamental difference of permissioned access blockchain applications is that they are not open to anyone. While these applications still use a distributed blockchain ledger, there exists a centralized authority that controls who has permission to read and write to this ledger. This creates a system of semi-trust, which results in a simpler validation/consensus process that can scale efficiently. Companies that operate in a consortium among themselves for tracking manufactured goods, transaction records, or digital assets, can benefit from this blockchain type. These applications can even extend to individual end-users (e.g. the owner of a manufactured good, like a car) so long as they are permitted access. The benefits are fast processes with highly reliable information, that avoid multiple checks and reconciliations. So while permissioned blockchain applications are easier to implement and produce streamlining benefits, on the flipside, by their nature they don’t have the same capacity for disruption as permissionless applications.
As far as I can foresee for now, the telecom industry will only benefit from permissioned blockchain applications that make existing intercompany processes more efficient. An example is a recent proof-of-concept by PCCW and Colt of a blockchain payments settlements application. While these types of applications are certainly a good thing, they don’t have the same breathtaking interest or stock moving ability as Bitcoin. For this to occur in telecom, someone will need to figure out how to make an instance of a telecom service itself as an asset, transferable to anyone. Then we will see some real excitement.