The Fraunhofer Institute in Bayreuth is developing applications based on blockchain technology with its partners from industry and the public sector. We asked what scientists and companies expect from the technology.

The Fraunhofer-Gesellschaft is a rather special institution, probably unique to Germany: A collection of institutes that see themselves as an interface between research and industry. On the one hand, the numerous Fraunhofer institutes in Germany make research applicable for companies, but on the other hand, they carry the needs of industry into science.

In the Business Informatics Project Group at the Fraunhofer Institute for Applied Information Technology (FIT) in Bayreuth, researchers are also working on blockchain technology. In typical Fraunhofer fashion, this arose from the interest of doctoral students and professors on the one hand, and from the demand of companies for information on and innovative possible applications for the new technology on the other.

We spoke with a researcher, Johannes Sedlmeir, to find out what specifically interests the Fraunhofer Institute and its partners in blockchain and what their view of the industry and technology is.

The classic motive for blockchain

blockchainSedlmeir came across blockchain technology while working for the Ministry of Transportation and got stuck on the topic. He started by learning about the underlying technical components of blockchains.

He then carried out several projects, for example with an automobile manufacturer, which also focused on the possible uses and performance of private blockchains. The result is, among other things, a scientific paper and a framework to test, for example, the maximum possible number of transactions per second.

Today, the doctoral student, who originally studied mathematics and theoretical physics, is primarily concerned with the compatibility of software architectures based on blockchain technology and scalability and data protection requirements.

But what specifically do business partners expect from blockchain? Sedlmeir explains that they hope to be able to “digitize and automate cross-organizational processes.” This would, of course, also work without blockchain. But this would generally make companies dependent on centralized platforms, which they want to avoid. With blockchain, they hope, they can cooperate without having to trust a platform operator. Actually, a very classic motive: cut out the middle men – remove the middlemen.

The most pronounced interest here is in supply chain management. For many companies, it would be appealing to make the supply chain transparent and validatable for all involved, but again they are reluctant to become dependent on a platform. Also of interest to many is the decentralization of what is, after all, a very centralized and over-complex energy market. Or “roaming between different providers of charging stations for electric cars.”

Projects often crumble on contact with reality

So there are several fields where there is a lot of interest in using blockchain technology. Just take a look here, in how many different industries they already offer bitcoin coupons. The blockchain projects are endless! However, so far it has often remained at feasibility studies and prototypes. “Something productive has not yet emerged in my eyes, with a few exceptions. You could say companies are still playing with blockchain and exploring possible areas of application.”

Part of the reason for the slow pace of implementation into production is the problems with the technology that the institute and its partners have encountered time and again: How do you create a governance structure that allows companies to agree on standards? What data do you want to give out and what data don’t you want to give out? How can companies maintain privacy while still allowing the data to be verifiable or reckoned with in smart contracts? And, of course, how do you scale a blockchain to the performance level the industry needs?

Under these problems, various projects have already “crumbled in contact with reality.” Sedlmeir cannot name any real success stories from Germany in the industry; he points to MediLedger, a private blockchain that helps an association of pharmaceutical companies in the U.S. fight drug counterfeiting. Here, the challenges of blockchains regarding sensitive data are addressed with zero-knowledge proofs; the architecture is close to that of Zcash, more here.

Currently, however, most projects fail due to the high complexity of reconciling transparency and privacy. Most companies first try a “permissioned” blockchain like Hyperledger Fabric. This makes it easier to manage the challenges associated with sensitive data and performance issues because the number and type of participants can be controlled; however, this approach usually does not completely solve these problems either.

The future belongs to public blockchains

blockchainsSedlmeir acknowledges the advantages of open blockchains; he even thinks that private blockchains may not even have a reason to exist in the long term. However, from a business perspective, the problems of open blockchains currently outweigh the benefits, from uncontrollable access to low scalability to dependence on open source developers.

The researcher is convinced, however, that these problems can be solved. Then “things will emerge that cannot be dreamed of at the moment. However, since everything is very complex and even experts often don’t understand everything, there will be a wave in which the wheat will be separated from the chaff. You could already see this with the umpteenth blockchain project and just as with the ICO hype.”

One of the technologies he’s excited about is zero-knowledge rollups, like those already in use on Ethereum. “They allow aggregation and verification of many transactions with little storage and overhead, potentially solving the scalability problem, but also partially or even entirely overcoming privacy challenges.”

But so far, for the researchers at the Fraunhofer Institute and their partners in the business community, blockchain has primarily had an indirect impact. It is “a fundamental driver for the further development of cryptography. I am not aware of any other topic that has triggered such a huge demand for technologies such as public key infrastructures, digital signatures, zero-knowledge proofs, multi-party computation or homomorphic encryption. Blockchain has made the omnipresent use of cryptography in everyday life that cryptographers once dreamed of a reality.”

In addition, many corporate employees have learned about technologies that have been around for decades for the first time through their exposure to blockchain. You can learn more about blockchains here. So far, this makes blockchain less of a technology that is being directly put to productive use, and more of an inspiring and enlightening technology around which innovations from the last few decades, including cryptography and distributed computing, are being put into practice.

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