Author: Anthony Nadalin (Microsoft)
It seems that 2016 has been declared by some to be the “Year of the Distributed Ledger (Blockchain)” within the financial and technical industries, as the efficiencies and decentralization offered by Bitcoin’s underlying technology have made quite an impression on the mainstream. Many financial industry members have already started internal experiments and development projects to test integration of distributed ledger technology into their operations in the future. Many countries also have legislation that requires data to be physically maintained in the country. That cuts across the ability to use a ledger that can be distributed around the world.
As such, Microsoft has been involved in creating a blockchain-as-a-service (BaaS) solution – a product styled as a kind of 'sandbox' where partners can interact with different technologies, from smart contracts to blockchain-based tax reporting services, in a low-risk environment.
When industry gets aligned around a common cause, it's much easier to develop standards as everyone is working towards the same end game. However, at this time, the industry is pretty spread out as the distributed ledger technologies are still very much in flux. When it comes to the topic of standardizing distributed ledgers, things get very complicated, and it extends beyond just seeing it as an interoperability challenge, as there are serious technical, business and legal considerations to address.
While distributed ledgers offers potential benefits, like resistance to control from single parties or bad actors, and global persistence of transactions, implementations can also face issues with scaling and survivability guarantees. For instance, data will be persistently available only if a set of servers holding the replicas continue to operate, meaning that the people running those servers must have an economic incentive to keep running them. Otherwise “permanent” could easily be replaced by “decommissioned”. Key rollover is another security-critical problem that needs to be solved.
However, having interoperability between the different distributed ledgers around the world would be key to unlocking their potential. In the long run, standards will be useful to rigorously describe how distributed ledgers can interoperate. But the time for standardization is in the future, after an incubation period during which business cases are explored, proposals and prototypes are developed and shared, and a way forward is identified that has clear support from key users and implementers.