Peter Kent - Cryptocurrency All-in-One For Dummies

This chapter is all about assessing blockchain technology and developing a project plan. It puts the later chapters about the Bitcoin and Ethereum blockchain platforms and applications into context.

Here, you see how to assess the three different types of blockchain platforms (public, permissioned, and private, which we introduce in Chapter 1of this minibook), what’s being built on each type, and why. This chapter shows you a few tools that can help you outline your project, predict obstacles, and overcome challenges.

There’s a lot of buzz surrounding blockchains and the cryptocurrencies that run them. Some of this buzz just stems from the fluctuation in the value of cryptocurrencies and the fear that blockchain technology will disrupt many industry and government functions. A lot of money has poured into research and development because stakeholders don’t want to be made obsolete and entrepreneurs want to explore new business models.

When it comes to finding an opportunity for blockchain technology to add value to an organization, often the question arises, “Where do blockchains add value, and how are they different from existing technologies?”

Blockchains are a special type of database. They can be utilized anywhere you would use a normal database — but it may not make sense to go through the trouble and expense of using a blockchain when a normal database can do the job.

You really see value in using some form of a blockchain when you want to share information with parties you don’t fully trust, your data needs to be audited, or your data is at risk of being compromised internally or externally. None of these questions are simple, and the correct solutions can be difficult to ascertain.

This section helps you to narrow down your options.

Blockchains come in a lot of flavors. Although you will find one that matches your needs, the trick is in finding it! Mapping your needs to the right blockchain can be overwhelming. Whenever you have lots of options and often conflicting needs, consider using a weighted decision matrix.

A weighted decision matrix is an excellent tool for evaluating the needs of a project and then mapping those needs to possible solutions. The key advantage of the matrix is to help you quantify and prioritize individual needs for your project and simplify decision making. Weighted decision matrixes also prevent you from becoming overwhelmed by individual criteria. If used properly, this tool allows you to converge on a single idea that is compatible with all your goals.

To create a weighted decision matrix, follow these steps:

1 Brainstorm the key criteria or goals that your team needs to meet. If you aren’t sure of the criteria you need to consider when evaluating your blockchain project, here are a few things to keep in mind:Scale and volumeSpeed and latencySecurity and immutabilityStorage capacity and structural needsYour team will have its own list of objects and priorities. These are just a few to consider while evaluating the correct platform to use to meet your needs.

2 Reduce the list of criteria to no more than ten items. If you’re having a hard time refining your list of needs, consider using a comparison matrix tool.

3 Create a table in Microsoft Excel or a similar program.

4 Enter the design criteria in the first column.

5 Assign a relative weight to each criterion based on how important that objective is to the success of the project.Limit the number of points to 10 and distribute them between all your criteria — for example, 1 = low, 2 = medium, and 3 = high priority. If you’re working in a team, have each member weight the criteria separately.

6 Add up the numbers for each objective and divide by the number of team members for a composite team weight.

7 Make any needed adjustment to weights to make sure each criterion is weighted correctly.

Congratulations! You now have a ranked list of criteria you need to meet to be successful with your blockchain project.

You can easily get lost building a blockchain project that doesn’t have a clear goal or purpose. Take the time to understand where you and your team would like to go and what the final objective is. For example, a goal might be to trade an asset with a partner company with no intermediary. This is a big goal with many stakeholders.

Build back to a small project that is a minimal viable use case for the technology that clearly articulates added value or savings for your company. Along the same lines as the earlier example, a smaller goal would be to build a private network that can exchange value between trusted parties.

Then build on that value. The next win might be building an instrument that is tradable on your new platform. Each step should demonstrate a small win and value created.

Three core types of blockchains exist: public networks like Bitcoin, permissioned networks such as Ripple, and private networks like Hijro.

Blockchains perform a couple of straightforward functions:

They move value and trade value quickly and at a very low cost.

They create nearly permanent data histories.

Blockchain technology also allows for a few less-straightforward solutions, such as the ability to prove that you have a “thing” without revealing it to the other party. It is also possible to “prove the negative,” or prove what is missing within a dataset or system. This feature is particularly useful for auditing and proving compliance.

Table 2-1lists common use cases that are suited for each type of blockchain.

TABLE 2-1Common Uses for Different Types of Blockchains

There may be exceptions depending on your project, and it is possible to use a different type of blockchain to reach your goal. But in general, here’s how to break down different types of networks and understand their strengths and weaknesses:

Public networks are large and decentralized, and anyone can participate within them at any level — this includes performing tasks like running a full node, mining cryptocurrency, trading tokens, or publishing entries. These networks tend to be more secure and immutable than private or permissioned networks. They’re also often slower and more expensive to use. They are secured with a cryptocurrency and have limited storage capacity.

Permissioned networks are viewable to the public, but participation is controlled. Many of them utilize a cryptocurrency, but they can have a lower cost for applications that are built on top of them. This feature makes it easier to scale projects and increase transaction volume. Permissioned networks can be very fast with low latency and have higher storage capacity than public networks.