Blockchain. What’s Stored In the Ledger?

In assessing a company claiming that they are revolutionising their industry using blockchain, one must always ask the question:

What are you storing in the ledger?

More often than not, the information the people fronting the project haven’t got a clue. They rely on their tech teams to answer this question. And yet, it is arguably one of the most important questions to get right and to fully understand.

Let’s take a look at bitcoin – the project that started it all. What is stored in the bitcoin blockchain?

For bitcoin, there are two (2) main types of data: data to keep up the chain integrity for each new block and data related to transactions. Chain integrity data is stored with every block and provides the basis for immutability (making the data tamper evident). In the body of the block are records of each of the transactions: Who is sending it, how much they are sending, where it’s going and the fee they paid. 

Bitcoin is pseudonymous meaning that only the wallet addresses for the transaction are recorded on the blockchain. There are no records of anyone’s name, email, telephone or other personal data. The connection to a real person may exist because they are registered on an exchange, or it may be that their identity is not recorded anywhere. 

The reason that these data are stored in the ledger is that it makes up the minimum set of information to create trust across the network. It is part of my Minimum Effective Blockchain (MEB) approach to blockchain design.

When creating a new service that uses blockchain, deciding which data will be stored in the ledger is critical to the success of the project. Putting too much data into the ledger can cause issues by providing too much transparency. Large volumes of data can result in significant performance issues. Putting too little information on the blockchain means that counterparties cannot see enough information to trust one another. 

Deciding which data will be stored in the ledger is critical to the success of the project.

For enterprise blockchain projects (most of which are not blockchain at all, but a variation of distributed ledger technology) there must be an alignment between all of the stakeholders as to what information is going to be stored in the ledger and who will have access to the data.

A critical aspect is that identity information must be carefully managed. In bitcoin, the information may be stored at a regulated exchange, or it may not be stored at all. For an enterprise project, the identity information is most likely to be stored in a single database. The control of that data quickly becomes the focus of great scrutiny. 

Who holds this data? How are they keeping it secure? How will the owner of the database protect the data against unauthorised access? Do we trust the central processing of data? Suddenly, the project has stopped being decentralised and is now rapidly drifting away from being able to justify the need for blockchain.

To maximise the value of using a blockchain or DLT based system to build trust – while maintaining commercial privacy – there is a solution. Share data privately between counterparties, and keep records that a transaction occurred and verifiable proof of what was sent and received. Without getting overly technical, it is possible to store a fingerprint of the data (hash) without storing the data itself. This fingerprint can be written into the ledger with a timestamp and sender and a recipient if there is ever a dispute, either party can check the records.

This concept has the added benefit of being suitable for a public blockchain such as Ethereum.

Another issue is not about how much information is stored on the blockchain, but how to get counterparties to contribute necessary details. 

Transparency isn’t always profitable.

Supply chain transparency has become a significant issue in just the past few years. With NGOs and impassioned consumers wanting to know the provenance of their coffee, T-shirts and their batteries, major brands are ramping up their requirements to provide access to a whole new level of data. Upstream suppliers and raw materials providers are feeling the pressure from the extra costs of maintaining and reporting this information – with little or no change in the prices they can charge. 

Sure. Brands can mandate providing this information or withhold orders, but where is the incentive for the upstream supply chain to provide the data. And with parts of the supply chain having medium or low digital maturity, the challenge is costly in both time and profitability.

One of my favourite quotes when talking about blockchain: “Transparency isn’t always profitable.” Building a blockchain-based system is more about aligning incentives than it is about the underlying technology. The tech is the easy part. As an example: Fair Trade Coffee – Read this excellent article on how Fair Trade as a concept has changed – and not for the better.

Not every member of the coffee supply chain commits to the highest level of ethical sourcing and sustainability. Some only pay lip service to the requirements. Others actively forge documents and falsify their records in the name of profit. What incentive do these people have to become fully transparent if the market price they can achieve doesn’t reflect the additional cost of compliance? Or worse, what happens when compliance results in a lower price for their coffee than the current market-leading them to sell substandard coffee or to break their commitments to the standards intentionally.

We can have all the blockchain technology we want, and it isn’t going to address the problems that not everyone wants to put their data on the blockchain for all to see.

When approaching an enterprise blockchain solution – be it a startup or a new project for your own company – make sure that you can answer the following:

  1. what data are we storing on the blockchain ledger?
  2. what are the incentives for everyone to commit to sharing this data?
  3. are we really decentralised – or should we just be using a database?

Get in touch with us / Twitter @igetblockchain.

Troy Norcross, Co-Founder Blockchain Rookies

Twitter: @troy_norcross