Forrester to CIOs: Blockchain networks are not truth machines

Blockchain networks are not only not truth machines, as noted above, they are also a “game of tradeoffs” that — in order to work — require a high degree of governance. That, CIOs, is according to a recent (and refreshing) report from Forrester Research: “Blockchain technology, A CIO’s Guide to the Six Most Common Myths.”

Written by analyst Martha Bennett, a blockchain and business intelligence expert in the research firm’s CIO practice, the report lays out common misconceptions about blockchain-based networks, including claims of immutability, decentralization and transparency. The piece ends with some common sense advice to CIOs on how to navigate the blockchain hype.

And, hype it is. Blockchain, a type of distributed ledger technology for maintaining a tamper-proof record of transactional data, has been heralded as a transformative force that will revolutionize everything from banking and healthcare to the seafood industry.

Much of the appeal of blockchain networks is in their inherent ability to prevent fraud and ensure the provenance of goods, digital and physical. And to some degree, this primary claim to fame is correct, says Bennett: Blockchain transactions are hard to mess with and when they are messed with, it’s obvious; plus, the “trackability” of blockchain networks may also work as a deterrent to fraud, she said. But they cannot prevent fraud. Truth machines, blockchains are not.

“Just because it’s on a blockchain doesn’t mean it’s true. If somebody makes a false declaration or issues a fraudulent certificate or prescription and enters this into a blockchain-based system, it’s still fraud. Or if somebody registers ownership of a property, the system can’t tell whether this really is the rightful owner,” Bennett asserts.

Guaranteeing the provenance of physical goods can’t be done by blockchains alone, Bennett argues, but  will require “off-chain” mechanisms in conjunction with regulatory and enforcement measures.  “As long as the incentive to commit fraud is greater than the likelihood of being caught, let alone punished, blockchain-based networks cannot provide proof that your tuna fish has been ethically caught or your coffee really is organic.”

Indeed, many of the mechanisms and policies that will make blockchain networks transformative — for consumers and enterprises — have yet to be designed and will require unprecedented levels of cooperation and collaboration among public and private sectors and a variety of industries, Bennett said.

Her main advice for CIOs is that blockchain-based networks in the enterprise will involve tradeoffs. One compromise will be between the blockchain’s virtue of transparency and the enterprise’s need to limit visibility of some data. Participants in blockchain networks will have to create governance models that satisfy confidentiality requirements but ensure that the information not open to everyone is nonetheless valid.

Another piece of advice won’t come as surprise to CIOs: The technology will be ready long before businesses, governments and regulators catch up. And finally, as with so many automation technologies, the focus so far has been on how blockchain networks can improve upon existing business processes. The real value will come in using blockchain to reinvent business as usual.