January 29, 2019
What is a Corporate Blockchain?
By Ariel Zetlin-Jones, Associate Professor of Economics, and Bryan Routledge, Associate Professor of Finance at the Tepper School of Business
The original version of this story was published in the IBM Blockchain Pulse blog.
We have this image in our head of an overworked Chief Technology Officer summoned to the boss’s office and told to produce a corporate blockchain but without all that dodgy cryptocurrency. We imagine this CTO is puzzled. We certainly are. What is a corporate blockchain?
Here is our take: A corporate blockchain is a database system or ledger distinct from those owned by any company. Cryptography allows this database to maintain any required privacy or secrecy. A blockchain token associated with the database provides incentives for perpetual maintenance (mining). This token, however, could be illiquid and more like an airline miles program than a currency. Finally, corporate blockchains require some centralized control at the edges where the database interfaces with the real world. To see why we put these pieces together, let’s examine a hypothetical corporate blockchain for tracking student grades — we’ll call it GradeChain.
Who owns your blockchain?
As faculty, student grades are important records. Currently, grades are stored by a Learning Management System (LMS) in a centrally controlled database. Users have different access permissions on the database. Professors can assign grades. Students can only access their own grades.
To be a blockchain, we argue, it is not enough to tweak LMS protocol to incorporate the chained data structure of a blockchain. This leaves the LMS owning the IP, the platform, and access. Vitalik Buterin noted in a similar context that this is “…totally not the point.” One worry, and perhaps the point being missed, is that grades (data) are tied to a company that could shut down, change focus, change fees, and so on. Perhaps for this reason, grades are transferred from the LMS to the university registrar for permanent storage. A blockchain, then, should not be “owned” but yet should store grades with privacy and permanency.
Asymmetric cryptography used in blockchains can achieve privacy. Professors use a student’s public key to encrypt their grades. Encrypted messages containing grades are stored on all copies of the ledger. Only the student with the appropriate private key can decrypt the message and see their grade. Similarly, professors digitally sign encrypted grades with their private key. Users can verify an encrypted message’s authenticity with the professor’s public key. There are many additional features one could add here — making grades viewable by student advisors or employers, and so on. All of these are variations on cryptography.
Your blockchain in action
A challenge for blockchain, particularly corporate blockchains, happens at the boundary of the blockchain and outside world. Here, we need some mechanism to attach students’ public keys to classes and tag the professor’s public key. And, we are going to need a system to help professors who lost their keys — that will happen. Perhaps the role of the university registrar here is that of oracle. The need for a single database of public keys is different in spirit from the Bitcoin blockchain. We are uncertain whether this is a concern or a sensible compromise for a corporate blockchain.
To achieve permanence in the blockchain, the ledger must be self-sustaining. We need incentives for minersto maintain copies of the ledger, monitor (listen for) new grades, validate information, create new blocks, and achieve consensus. Without a third party that monitors or checks miners’ work, it is important that these incentives are provided as part of the blockchain.
GradeChain could provide these incentives by creating GradeCoin that miners would earn for adding blocks of information. The ledger would then have to store these balances along with grade information. To work, GradeCoin must have value but it need not be a fully liquid currency.
One possibility is that GradeCoin is a utility token that only provides a service inside the blockchain — students use GradeCoin to calculate their GPA. Perhaps, GradeCoin is convertible into course credit. Here, we need to be careful not to undermine grades as a signal of student understanding of course material. This GradeCoin has the look and feel of airline miles rewards convertible to status or perks inside a closed system.
Alternatively, or additionally, GradeCoin could be exchangeable for a limited set of goods and services outside the blockchain. For example, GradeCoin could be used for wait-list priority for electives courses, tickets to football games, or coffee at a local cafe. Again, note the similarity to airline miles that are used for more than airline purchases, like rental cars or hotel stays. However, as an oracle is needed to register students to classes, the value of exchangeable GradeCoin would rely on real world entities — say, the local café — who offer redemption. Allowing even more liquidity is feasible by requiring miners to listen for and record transfers or sales but need not be necessary.
Potential for corporate blockchain
Corporate blockchains that capture the innovative aspects of blockchain are a set of protocols that are not “owned” by any single entity and exploit cryptographic methods to ensure privacy and secrecy of corporate data. While this requires some careful engineering, this is doable. Additionally, the ledger needs an on-ledger token for incentivizing ledger maintenance. Here, there seems like scope for utility tokens more closely resemble illiquid airline miles instead of liquid currencies.
Is a corporate blockchain better than a centrally controlled database? For now, we leave that for our overworked Chief Technology Officer to ponder.