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The IT Benefits of Blockchain, Part 1: Data Storage

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Raise your hand if you’ve heard of blockchain!

Given that Gartner cites blockchain as one of the most hyped technologies in recent memory and “the most-searched term on [its website] throughout most of 2017,” I’m betting that many of you have at least heard of blockchain. (Full Gartner research is available to clients.)

But here’s the real test: Keep your hand raised if you actually know how blockchain works and how your business can take advantage of blockchain.

My guess is that there are very few hands left in the air.

Fortunately, that’s the whole point of this two-part series on the benefits of blockchain for IT.

the benefits of blockchain: data storage
You’ve probably been told that blockchain is going to change everything. In its current state, I find that statement to be overblown. But it’s true that in the near future, blockchain has the potential to change how many parts of business and society function.

Though you might not need to implement blockchain now, you’ll definitely be using it in the future. Familiarizing yourself with blockchain and the ways you could use it in your business now will make you more competitive in the future.

Enterprise businesses are generally less flexible when it comes to implementing technological changes quickly, so your small or midsize business will find itself at an advantage compared with your corporate counterparts when it comes to experimenting with blockchain and figuring out its business value.

This week, I’ll discuss the (potential) benefits of blockchain for data storage, and next week, I’ll move on to blockchain for cybersecurity.

First, a glossary of blockchain terminology

Below are some vocabulary words to keep in mind when reading this and other articles discussing blockchain and distributed storage.

  • Cryptocurrency: One of the most hyped results of blockchain technology; for our purposes, we’ll just describe it as a digital currency.
  • Distributed ledger technology (DLT): Replicated, shared, and synchronized digital data, viewable by the public with no central administrator. DLT is not blockchain technology, but blockchain uses DLT.
  • Farmer: An individual or organization that offers extra storage space on a P2P network, hosting data, often in exchange for cryptocurrency
  • IPFS (InterPlanetary File System): A way to connect devices via the same file systems. If you watch the HBO show “Silicon Valley,” it’s essentially a real-life version of the distributed web that Pied Piper is trying to create.
  • P2P network: Instead of being controlled by a single organization or cloud computing entity, a peer-to-peer network is shared and distributed among various individuals and organizations.
  • Redundancy: Creating multiple copies of data to counter data loss, theft, and degredation.
  • Sharding: The logical partitioning of databases—essentially breaking your data up into smaller pieces.
  • Smart contracts: Automated agreements stored on blockchain. They can be used to automate business transactions, but it’s important to note that the developers who create these contracts aren’t necessarily qualified to oversee business contracts.
  • Swarming: Collectively storing shards in a large group of nodes. This works similarly to a CDN (content delivery network), by which data is retrieved from the nearest, most convenient node, making data retrieval more efficient.
  • Uptime: An important measure for any type of network, uptime refers to how long a machine or network has been running and available. This is measured by percentage, and you’ll often see it referred to by how many “nines” are included. For example, “five nines” is equal to 99.999% uptime. Most service providers guarantee at least 99.9% uptime, and popular cloud computing solution AWS offers at least 10% service credit for less than 99.9% uptime.

How does data storage on the blockchain work?

Blockchain has been around since 2008, but it’s only caught the public’s attention in recent years, reaching peak popularity and hype in late 2017.

Google Trends data for popularity of blockchain
Google Trends data showing the popularity of “blockchain” as a search term from its first-known usage in 2008 to May 2018 (Source)

As you can see from the chart, the dust around blockchain hype is starting to settle, which means we can stop discussing blockchain in overly glowing terms and start discussing why it’s an exciting concept for data storage and how it has the potential to change your business.

So you want to store your data, or some of it, using some sort of blockchain technology. How would that work?

Blockchain

Your data is sharded, encrypted, duplicated, and distributed across a P2P network. This P2P network is composed of farmers, who often receive cryptocurrency compensation for hosting data on the network.

To ensure that your data is available when you need to access it—and to prioritize node uptime, which is sometimes an obstacle for P2P networks—some distributed storage companies require farmers to pledge collateral, which you can claim if your data is unavailable or, worst-case scenario, lost. This collateral is often guaranteed and triggered by a smart contract.

The data is added to the blockchain, rendering the data tamper-proof, as each block is connected to other blocks in the chain. The data exchanges are added to a distributed ledger so that they’re viewable and traceable.

A brief explanation of blockchain’s tamper-proof nature is that a hacker would have to change so many things in a chain in such a short amount of time that illegally accessing data on a blockchain—especially without getting caught—becomes a huge investment in time, money, manpower, and brainpower.

Next, let’s take a look at why people think distributed storage and blockchain technology have such huge potential for business.

3 reasons blockchain technology is exciting for data storage

People are pretty glowing about the potential impact blockchain could have not just on business but on the world. Gartner, for one, alleges that blockchain technology has the potential to change “every aspect of how society, industry, companies and citizens operate and interact.” (Full research available to Gartner clients.)

However, most of the publications that make these statements often follow them up with a qualifier such as, “… of course, none of these blockchain-based technologies or platforms will be ready for effective use until 2045.”

Though you might have to wait for some of these blockchain solutions to be fully viable, that doesn’t mean you shouldn’t experiment with blockchain-based data storage solutions at all. By studying up now, your business could become the blockchain optimization expert, telling other organizations how blockchain impacted your day-to-day.

Below, I’ll discuss three reasons why you should be excited about the potential effects using blockchain for data storage could have on your small business. But I encourage you to be cautious in expecting a lot from blockchain-based offerings in the near future.

1. The potential cost savings

On a very practical note, distributed storage is much cheaper than maintaining servers to store your own data or popular cloud storage solutions such as AWS.

This is largely because distributed storage companies don’t have to maintain the giant server farms that cloud storage solutions do. Instead, they compensate individual farmers for the extra space they’re not using on their own servers or devices.

Current offerings on the market are charging nearly ten times less per terabyte than companies such as AWS.

2. A harder-to-hack system

To be clear, storage on the blockchain isn’t inherently safer than centralized cloud storage, but techniques such as sharding, in addition to the decentralized nature of distributed storage, make it harder for bad actors to access or steal your data.

Using sharding and encryption to distribute pieces of your files across nodes makes stealing your data more difficult. And even if a hacker gains access to a single node, they’ll only have a piece of your whole file. Then, they’d have to find and decrypt all the other storage nodes to piece your files together.

This is doable, but it’s obviously much more complicated, time-consuming, and expensive than hacking into a centralized database.

3. Automation through smart contracts

One of the most exciting implications of blockchain technology is the ability for businesses and individuals to cut out the middlemen in terms of data oversight.

This is partially because blockchain relies on recording all transactions and exchanges on a shared, public ledger. Everyone can see and verify everything that’s happened.

However, another blockchain-related technology that could change the way people do business is smart contracts, which have the potential to essentially automate certain transactions and exchanges.

To be clear, though, the coders creating these contracts aren’t legal professionals, so just because they’ve coded a contract doesn’t necessarily mean, at this time, that it will stand up in a court of law.

Should you switch to a blockchain-based storage solution?

In short: no.

Going back to some of Gartner’s predictions about blockchain, the world is currently in “Phase One” of blockchain adoption for any purpose. During Phase One, there will be much “irrational exuberance and few high-profile successes.”

Here are a few reasons why blockchain’s not quite ready for large-scale use for your data storage needs.

1. It’s not scalable

The market evidence shows that few blockchain storage solutions have had “high-profile successes.” Although there are a handful of promising companies out there looking to monetize distributed storage models based on blockchain technology, most of them are running into issues when it comes to scalability.

Though their tech works with individual consumers, it has yet to be proven when it comes to handling business data, especially on a larger scale as more businesses try out their platforms, transmitting and exchanging larger data sets.

2. It’s not user-friendly

Regardless of the scale at which these companies can store data effectively and safely, blockchain hits another snag with usability. When businesses hold on to data, it’s largely for the purpose of analyzing it in some way to glean business insight and create value.

Traditional database management systems currently offer quite a few ways to analyze your stored data, whereas blockchain-based storage methods are severely lacking in this regard. Especially in an era when companies are frequently encouraged to make data-based decisions, this situation is less than ideal.

3. It’s not necessarily more secure

Finally, even the basic idea that distributed storage is more secure holds up only to a certain point.

Jumping off of the fact that data stored using a distributed method isn’t easily usable, sacrificing usability for security falls through when you consider the fact that your data is only technically secure while it’s in storage.

If you want to edit your data, you have to reassemble and decrypt it, effectively “unsecuring” it for the time being. And if you want to share your data with a third party, you still have to send it their way, trusting that it won’t get intercepted during transmission and that they, in turn, will store it safely.

Keep your eye on blockchain tech for data storage for the future

In the current moment, blockchain has been used to respond to a lot of security and transparency issues with centralized storage, whether it’s on the cloud or on your own servers. But it’s not quite there yet.

However, I’m not encouraging you to forget about blockchain for data storage entirely.

By 2025, the business value of blockchain is expected to reach nearly $200 billion, and a chunk of that will be related to data storage. But Gartner also predicts that nearly all of the blockchain platforms implemented through 2021 “will require replacement within 18 months to remain competitive and secure, and to avoid obsolescence.” (Full research available to Gartner clients.)

To take advantage of that business value, you need to keep your eye on blockchain while still taking the instability of the market into account.

My suggestion would be to form a “blockchain committee” of sorts, including members from IT and relevant business development teams, that can stay on top of blockchain for business trends.

I’d even suggest that you experiment with some of the current industry leaders in blockchain-based data storage so you’re not left playing catch-up when the technology or business platforms become more mature.

Some solutions to look into (in no particular order):

Regardless of what you decide to do about blockchain and data storage now, when you do decide to try blockchain out, you absolutely need both IT- and business-savvy people—who are also knowledgeable about blockchain—on board.

To start building your own blockchain knowledge, I suggest looking into the following resources:

Have you experimented with blockchain and data storage? What were the results? Any lessons to share? Let me know in the comments below.

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About the Author

Kelsie Anderson

Kelsie is a writer and researcher for Capterra. She has a background in English and French literature, so she can read pretty good. When she's not reading and writing about software trends, she enjoys reading about literally anything else, dabbling in comedic pursuits, and settling Catan.

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