WEBINAR Blockchain: Time For A Reality Check Martha Bennett, Principal Analyst November 19, 2015. Call in at 10:55 a.m. Eastern time

Agenda Introduction: blockchain in the headlines A brief history of Bitcoin and blockchain From Bitcoin to blockchain fever Potential use cases for blockchain Blockchain hype versus blockchain reality Recommendations

Image source: Dilbert by Scott Adams (http://dilbert.com/)

Understanding Cryptographic hashes are used to encode transactions, which are added to the last block. The chain is replicated until the majority of participating computers has achieved consensus. Transactions cannot be refuted or altered, but the chain can be subverted if somebody manages to gain control over more than 50% of the compute power in the network. The system is transparent, but pseudonymous. The Bitcoin blockchain was specifically designed to avoid regulation and central authority.

Bitcoin mining today Image source: KPLU 88.5 (http://www.kplu.org/)

Watch out . . . The Bitcoin blockchain isn’t suitable for small and/or frequent transactions: max. rate = 7 transactions/second. The Bitcoin blockchain protocol isn’t Turing complete. There’s plenty of potential for fraud unless a user is tech savvy and interacting directly with the blockchain. Lost or stolen Bitcoins aren’t retrievable, and there’s no mechanism for recovering keys. Bitcoin and KYC/AML compliance don’t go together. The transparency of a public blockchain makes it unsuitable for certain types of transaction.

Regulatory uncertainty Watch out . . . The Bitcoin blockchain isn’t suitable for small and/or frequent transactions: max. rate = 7 transactions/second. The Bitcoin blockchain protocol isn’t Turing complete. There’s plenty of potential for fraud unless a user is tech savvy and interacting directly with the blockchain. Lost or stolen Bitcoins aren’t retrievable. There’s no mechanism for retrieving keys. The transparency of a public blockchain makes it unsuitable. for certain types of transaction. Regulatory uncertainty

It’s all about (the) blockchain January 2015: IBM and Samsung demonstrate devices interacting independently with each other, leveraging blockchain-based smart contracts, using an early version of Ethereum. Reason for using Ethereum: It’s Turing complete During the year, a steady flow of publicity: Venture capital and innovation funds invest in blockchain start- ups. Banks and other financial services players talk about their own blockchain-related activities. Software vendors and service providers publicize their capabilities.

Selected use cases for blockchain Financial services: Trading and settlement Person-to-person payments Currency exchange and remittances Non-financial use cases: Proof of ownership and/or origin of any digital or physical asset Authentication and authorization, proof of identity Smart contracts Voting

True potential or snake oil? The promise of blockchain technology: Transactions of any kind that are Faster. Cheaper. Irrefutable. Fraud-proof. Not proven yet Yes, if implemented appropriately Image source: Ethereum (https://www.ethereum.org/) It’s early days!

There’s no shortage of offerings Bitcoin exchanges, merchant services, wallets, ATMs, key vaults Blockchain infrastructure and protocols Platforms and APIs Capital markets and trading Money transfer and payments Smart contracts Buyer beware: “Blockchain” on the label doesn’t guarantee blockchain in the can.

Not all blockchains are the same Most of the initiatives that have been launched are either based on hybrid or private blockchains. Example Everledger: private back-end (Eris-based), with “hooks” into the Bitcoin blockchain Example Nasdaq: Linq is a private blockchain Some of the initiatives that have been in the headlines may not be (or aren’t) using blockchain technology at all — “blockchain-inspired.” Internal cryptocurrencies provide valuable experience, but are only a small first step.

Terminology — not just semantics When is a blockchain no longer a blockchain? Example: Company proclaims to have solved speed issues by eliminating blocks. It’s become fashionable to use the term “ledger.” In the digital world, what’s the difference between a ledger and a database? A “distributed ledger” isn’t the same as a “replicated ledger.” “Consensus” doesn’t have to be blockchain- based.

Key questions you need to ask How does your technology work? Demand detail! What makes it “blockchain”? How does it scale? What about regulatory compliance? How is trust established? Can trust be revoked? How? Can it interoperate with other permissioned blockchain networks? If so, how?

Consider these warning signals Private blockchain or system of trusted partners What aspects of blockchain are used, and why? How is trust established, maintained, or revoked? The blockchain solution is positioned as being faster and/or cheaper. What are the proof points? It’s not obvious why blockchain is the best way of addressing a particular issue. The vendor pretends regulations don’t exist.

Forrester recommendations Track blockchain-related developments. Evaluate hands-on where appropriate. Unless a solution is already proven, approach with a five to 10-year timeframe. Start with the use case, not the technology. Whenever blockchain is proposed, ask for proof of due diligence on what alternatives were evaluated, and why they were rejected.

Further reading “Blockchain — Don’t Believe In Miracles” Forrester report The report contains a number of external references in the endnotes.

Q&A

Martha Bennett +44 7768 896 540 mbennett@forrester.com Twitter: @martha_bennett Blog: http://blogs.forrester.com/martha_bennett