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The right tool for the job – that should be the mantra of any IT department, but all too often unnecessarily complicated technologies are chucked at problems in an attempt to seem innovative (see also: AI). And more often than not, the simplest way to solve a problem is often the best – cheapest, easier to implement and maintain, and less prone to failure.
That’s true for blockchain, a complex system that has specific use cases. Apply it unnecessarily, and projects fail – hurting the technology’s reputation.
Thanks to its complex nature, blockchain is best saved for where it really works rather than forced into tasks that don’t suit it – perhaps for marketing purposes or to attempt to look tech savvy.
“Some misuses of blockchain are being driven by hype or pressure to innovate,” says Phil Mataras, Founder and CEO of permanent cloud network AR.IO. “This can drive confusion for the projects that are using blockchain appropriately and create a lack of understanding in the marketplace.”
And misuse could mean that projects or implementations are more likely to fail, cost more or become difficult to maintain. Mataras adds: “Despite its capabilities, blockchain, when not used strategically, adds unnecessary complexity.”
But Sebastian Pfeiffer, Managing Director of Impossible Cloud Network, notes the real innovation is using this tool appropriately. “Understanding when to apply blockchain and when to go with a traditional system can be the difference between innovating and being complex,” he says. “The key is to be strategic about its use.”
So don’t give in to hype pressures and use the right technology for the job – even if it doesn’t tick any “now trending” boxes.
While the right tool depends on the project, It may not make sense to use blockchain if it’s only for internal use, if frequent data verification is necessary, or if the entire system isn’t going to be decentralised.
“For example, if a company needs an internal ledger for record-keeping, a centralized database is more efficient and cheaper,” says Pfeiffer.
Pfeiffer points to the application of blockchain in the supply chain, one of the more common use cases for the technology in businesses. It seems an ideal way to build a trusted system “across a complex system with many participants, some of whom may not inherently trust each other,” as a Deloitte report notes. Startups Provenance and Everledger use the blockchain to address such problems, and Wal-Mart has famously rolled it out in a similar way.
So blockchain clearly works for some supply chain challenges, but think twice before doing the same for your company, warns Pfieffer. “Although this is often given as an example, blockchain isn’t necessarily a useful tool for supply chain tracking – while the data on the blockchain is immutable, it’s not trivial to verify where the data actually came from, and blockchain can’t verify this on its own.”
To mitigate these challenges, some implementations attempt to marry the best bits of blockchain with private, in-house systems. Mataras advises against this, saying: “There’s been overuse of blockchain in situations where the entire ecosystem using the data isn’t prepared to operate in a decentralized manner; creating hybrid systems can actually lose most of the benefits of a blockchain.”
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What should you do instead? Look to related technologies – or even traditional tools.
“The less complicated version of blockchain is distributed ledger technologies, where you have a distributed and shared database, but data is not linked and encrypted in blocks,” says Mataras. “You might use something like this when there isn’t a level of trust or privacy needed and collaboration is the priority.”
Back on that supply chain example, it might make sense to use a distributed ledger technology (DLT) rather than a full blockchain. “For example, if there was a need for collaborative supply chain management where many people need real-time visibility into product movement but don’t need the immutability or cryptographic security of blockchain, they may use a distributed ledger.”
And don’t forget the myriad systems already in place in most businesses – they may not be trendy, but they work. “Traditional databases are always an option if there isn’t a clear need for decentralization or immutability,” says Mataras.
“For example, typically, CRMs or inventory-related systems don’t need blockchain’s overhead. Furthermore, traditional cloud storage is an option if provable permanence isn’t required or there isn’t a need for immutable, tamper-proof storage.”
Use blockchain where it makes sense – and if your marketing department disagrees, tell them real tech experts know the difference between a DLT and a blockchain, and when to deploy them strategically.
Blockchain has utility in specific circumstances – and given how complex it can be, perhaps save it for such use cases.
As Mataras notes, blockchain replicates data and organises it into linked blocks that can’t be changed and aren’t centrally managed.
“Because of this design, blockchain is an ideal use case for systems that need immutable, permanent, and transparent data in both entry and storage,” he says. “This might include situations and use cases in the supply chain, government, accounting, or natural resource management.”
Pfieffer says that blockchain is at its most powerful to solve problems that require transparency, decentralisation and verifiability. If they aren’t essential, neither – most likely – is blockchain.
He notes a few other benefits. “In the early stages of establishing a new network or system in crypto, blockchain has the advantage of gathering large groups of people and incentivizing early adopters by rewarding them with tokens.
“Also, this process automatizes economic functions via smart contracts while, on the back end, enabling transparency.”
Blockchain also has the ability to manage payments – one reason why organizations like the European Central Bank are eyeing the technology. “Another good example of the smart use of blockchain technology is applying it to international payments, making them faster and cheaper in comparison to traditional transactions,” says Pfeiffer. “As digital technology cuts out the middlemen, it simplifies and speeds up payments and remittances.”
And blockchain can be used for permanent data storage, Mataras says. “The need for permanent data is growing in almost every sector as more firms recognize the need for infrastructure to support data sovereignty, provenance, and immutability.”
That may become even more common thanks to AI. “Large language models (LLMs) and AI tools create a need for transparent data and open systems where constituents can reasonably understand how that data is used,” Mataras explains.
“Using blockchain as a backend for AI answers the need to store training datasets for verification purposes and guaranteed long-term access. We’re only seeing the connections between blockchain and AI increasing with time.”
While that might sound like buzzword bingo, it’s also an application for blockchain that might have real utility and solve actual problems – and that’s the point of any technology, after all.
