My colleague Peter Day raised this question in his recent post on blockchain governance. As a first step towards answering that question, in this post I’ll be exploring “proof of” mechanisms along the dimensions of anonymity and efficiency and how the characteristics of each mechanism could be applied in an enterprise space.
This is where blockchain started and probably what most of us are most familiar with in BitCoin and other crypto currency implementations of blockchain. Proof of Work awards the right to write the next block based on completion of some verifiable effort. In the case of BitCoin that effort is the completion of complex math problems, but we could imagine a scenario where the right to write the next block would be awarded to someone who moved bucket of water up a hill or chopped a cord of firewood.
What these examples have in common is that they are real physical work, although in the case of BitCoin you have to play out how the math problems get done to see that the real physical work is the creation of heat through the use of the electricity powering the chips that are doing the math. As the math problems required to write the next block for BitCoin have gotten more and more complex, the physical implications of the work have become much easier to see. Serious crypto currency mining operations now require so much electricity and generate so much heat that we are seeing mining operations locating in places like Iceland where geothermal electricity is abundant and cooling is eased somewhat by lower ambient temperatures.
While you may not have a datacenter in Iceland, any IT manager who has run a high performance-compute datacenter knows how expensive it can become to power and cool the workload. We normally endure these costs because we are doing something interesting for the organization like calculating actuarial tables, predicting the weather or finding cures for cancer. It’s harder to justify spending enormous amounts of electricity to validate shipping inventories or perform other business to business transactions, but these are exactly some of the uses to which blockchain has been applied in the enterprise.
Why bother if it is so much work? It’s a great question, and to answer it, we need look no further than the original requirement that led to the creation of BitCoin, anonymity. If you don’t want to have to know who you are transacting with, Proof of Work is a great model. Doesn’t matter who you are as long as you did the math. That creates many possible new ways of interacting in much the same way that an earlier economic invention, cash, suddenly made it possible for parties to trade goods and services without having to know much of anything about each other.
Before implementing a Proof of Work based blockchain in the enterprise space, ask yourself, is anonymity a requirement? Most of what we do in an enterprise actually depends on identity and the surety of it, so a solution that prioritizes anonymity of efficiency seems like a bad fit.
Return to the New Signature blog next week to discover more about blockchain as we explore proof of stake. Also, if you are local to the Washington, D.C. area, you can take part in our upcoming free blockchain event, “Monetizing Blockchain for the Enterprise” on May 2. Register now!