A Beginner’s Guide to Blockchain as a Service
Enter the Blockchain-as-a-service business model and cloud-based deployments. Though these business models are not a panacea for all business challenges, they have succeeded in making IT transformation simpler and less risky for organizations whose core competencies remain in fields other than IT.
The emergence of Blockchain technology at such a juncture is no surprise, but while organizations are still grappling with questions about how to harness the power of the distributed ledger to their advantage, a number of enterprises, as well as startup technology firms, have already buckled up to offer Blockchain as a Service (BaaS) to help ease the adoption journey. In this article, we will discuss:
- What is Blockchain as a Service (BaaS)?
- Why Do Organizations Need Blockchain as a Service (BaaS)?
- How Does the BaaS Model Work?
- Cost of Self-Hosted Blockchains vs Cost of BaaS Offering
- How to Handle Security concerns Related to BaaS?
- Criteria for Selecting a Blockchain as a Service Partner
- The Pros and Cons of BaaS
What is Blockchain as a Service (BaaS)?
Blockchain as a Service (BaaS) is a type of blockchain service offering that allows business customers to use cloud-based solutions to develop, host and adopt their own blockchain applications, smart contracts and other relevant functions on the blockchain while the cloud-based IT partner or service provider manages all the required tasks and activities to keep the infrastructure up and running.
The emergence of Blockchain as a Service is a significant development and an essential milestone in the blockchain landscape, holding the promise to accelerate the adoption of the distributed ledger technology across businesses. Needless to say, the concept is based on and works on engagement principles similar to that of Software as a Service (SaaS).
Why Do Organizations Need Blockchain as a Service (BaaS)?
IT organizations across many industries are increasingly exploring the strategic advantages of adopting Blockchain technology. However, the inherent technical complexities, lack of domain expertise and the operational overhead costs involved in developing and operating the Blockchain, and maintaining the infrastructure often force key decision makers to go slow on adoption plans. However, BaaS is currently being viewed as a potentially viable solution to this problem.
Choosing the right Blockchain as a Service provider will give businesses the access to skilled Blockchain developers, process and governance experts as well as the entire cloud infrastructure for development and deployment, without having to worry about startup and overhead costs.
Also, a reputed BaaS partner in most cases is a rich source of practical experience and wisdom, which can be leveraged to make the systems more secure. It significantly limits the number of risks which one would have to deal with had it been developed in-house.
How Does the BaaS Model Work?
When an organization (customer) signs up for a Blockchain as a Service contract with an IT partner, they essentially enter into an agreement whereby the BaaS partner agrees to set up all the necessary Blockchain technology and infrastructure for the customer for a service fee defined in the contract agreement.
The Blockchain as a Service partner or provider deploys the essential resources and leverages the required technology and infrastructure to set up and maintain Blockchain connected nodes on behalf of the customer.
Based on the customer’s business requirements, the BaaS partner may configure the Blockchain network on any distributed ledgers such as Ethereum, Bitcoin, Hyperledger Fabric, R3 Corda, Quorum, Chain Core or BlockApps.
Furthermore, the Blockchain as a Service partner assumes the responsibility of maintaining all the critical Blockchain-related artifacts and keeping the infrastructure up and running. BaaS contracts also include support activities such as bandwidth management, optimization of resources, incident management, system health monitoring, as well as proactive security surveillance such as prevention of hacking attempts.
Using a Blockchain as a Service model, customers can focus on their core businesses and competition strategies while counting on the BaaS partner to handle the Blockchain infrastructure and its performance. Eventually, it empowers them to execute distributed-ledger workloads in environments that demand an impeccable degree of fault tolerance.
Cost of Self-Hosted Blockchains vs Cost of BaaS Offering
Cost models for BaaS vary depending on several factors, but at any rate, a Blockchain application hosted on premises is far costlier than BaaS offered on the cloud.
In the former model, the Total Cost of Ownership (TCO) for a Blockchain application is significantly high due to the start-up costs (personnel, infrastructure, hardware, software, licensing, consulting and so on), operational costs (management, monitoring, bandwidth expenses, cost per transaction and so on), and retirement costs (expenses related to archiving, decommissioning of server racks and so on).
The cost for developing and implementing a single Blockchain smart contract under this model can run up to several hundred thousand dollars.
On the other hand, a Blockchain application hosted in the cloud as part of a Blockchain as a service offering can be purchased for as low as $0.29 USD per allocated CPU hour (IBM Blockchain Platform for IBM Cloud). It is also commonly referred to as a pay as you go, pricing model, in which the customer only pays for the units of service used.
Nonetheless, the actual costs in this model depend on additional factors such as, but not limited to, transaction rate, the number of channels used, the payload size on the transactions, and the maximum number of concurrent transactions.
Similarly, the pricing for Amazon AWS Managed Blockchain service is based on factors such as network membership, peer nodes, peer node storage, data written to the network, and data transfer.
The costs associated are included in the user’s hourly network membership rate, which is billed per second, starting at a total production network hourly rate of $1.93 USD per network member. It includes the network member cost, peer node cost, peer node storage cost, and data written cost.
Likewise, Microsoft offers a tiered pricing model for its Azure Blockchain service. Each tier has an hourly rate based on provisioned transaction and validator nodes and provisioned storage in GB per month for a member.
The cost involved in most of the BaaS offerings primarily depends on the units of service consumed. Of course, when you partner with a third-party to configure your IBM, AWS or Azure Blockchain application, additional costs for consultation, solution development and any other support services will have to be taken into account based on your service contract agreement.
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How to Handle Security Concerns Related to BaaS?
For enterprises exploring Blockchain for its increased security, the very idea of keeping data transactions on a public ledger is a big turn off. It is all the more critical in the wake of stricter data privacy and protection regulations in countries such as the US and the European region. The positive aspect of the entire scheme of things, however, is that Blockchain is generally seen as a step forward in the right direction.
Nonetheless, as elsewhere in the IT world, security is not an inherent characteristic. The distributed ledger technology uses public key encryption, hashing, digital signatures, and several other mechanisms to secure data and transactions. However, most of these become vulnerable when not administered correctly.
Glitches in securing a Blockchain or simple bugs in the platforms may cause serious disruption and lead to unforeseen situations, thus putting the entire system at risk. As such, before signing a contract, it is essential to thoroughly evaluate the BaaS vendor and assess the risks inherent in enlisting their services.
Even before going to the market with the requirements, it would be worthwhile for the IT department to clearly define the parameters and expectations from the services, including assurances and guarantees that might go into the contract.
Criteria for Selecting a Blockchain as a Service Partner
A lot of deliberations and evaluations go into the process of selecting a business vendor and when it comes to BaaS, this is going to be all the more rigorous because of the lack of readily available guidelines and best practices in the market. While the list of criteria can be endless, here are some broad pointers to consider when selecting a BaaS partner.
- Prior experience in setting up Blockchain infrastructure/Market Credential
Always ensure that the BaaS partner has proven experience in developing and deploying Blockchain technology on a scale and environment similar to the one you are planning to execute. If possible, ask for credentials or recommendations provided by previous customers.
- Commitment to Quality
Quality is paramount in any enterprise application or software implementation project. Blockchain is no different. Make it a point to probe the vendor’s commitment to quality, process and standards.
- Security Assurance
Look for potential gaps in security assurance in the proposed implementation plan. It is very critical as a minor bug may lead to serious repercussions. You must plan for the most robust output when it comes to distributed ledgers.
- Choice of Operating Systems
Evaluate the vendor’s experience in deploying cloud-based solutions for operating systems similar to that of your organization. You also need to ensure that the new Blockchain infrastructure integrates seamlessly with your legacy systems.
- Ease of Use
Make sure that the proposed Blockchain enabled systems and processes are user-friendly and easy to adopt. After all, you do not want a system that your employees find difficult to use or navigate, which in turn could affect adoption rates and negatively impact business results.
- Pricing and Support
Finally, you only want to pay based on the overall value proposition delivered by the BaaS partner. Carefully analyze the pricing options and post-deployment support options and modalities. Pay only for the option that provides the most value for your organization.
The Pros and Cons of BaaS
Like any other business or service offering, potential customers would always want to analyze the opportunities and threats associated with Blockchain as a Service before signing up with a service partner. Here are some of the pointers based on which you may draw some perspectives of your own.
- Cost Savings
More often than not, businesses look for value beyond cost savings when they agree to partner with an IT service provider. The same also holds true for BaaS. However, the cost and effort advantage, in this case, is far more overwhelming to be second-grade by anything else.Outsourcing the tasks related to Blockchain implementation, operations and maintenance to a BaaS partner can help businesses save cost and effort involved in recruiting developers, maintaining the headcount and managing the team as well as expenses related to software, platforms and infrastructure.
- Ease of Use
BaaS providers often provide customizable templates and plug and play modules that can be set up within a short time frame by users with essential know-how of programming. It helps organizations circumvent the entire learning curve and investments involved in the research and planning stage.Hence, instead of building their architecture from the ground up, businesses can simply leverage the ready-made platforms and templates provided by their Blockchain as a Service partner for integration with existing systems and applications.
- Focus on Customization
Since BaaS allows businesses to use ready-made platforms and templates, the in-house development team can primarily focus on their own businesses requirements and ensure the Blockchain service complements their needs. Once the Blockchain’s infrastructure is set-up, the BaaS partner maintains it, usually with bandwidth management, resource allocation, hosting and security surveillance.
- Staff and Resource Optimization
Limited on-premises IT means limited physical overhead in terms of equipment space, power and cooling. It directly translates to reductions in staffing and firefighting instances. This allows the organization’s IT staff to focus on their core business and strengths and enables employees to participate in more critical and value-adding projects for the business.
- Limited In-depth Knowledge
Blockchain is still an emerging technology and many of the organizations are yet to be equipped with an in-depth understanding of how the technology works. In this scenario, an implementation decision made with half-baked knowledge may put existing business processes at a significant risk of failure and wasted investment.
- Lack of Visibility and Control
In most of the cloud-based and plug and play BaaS models, the infrastructure, resources and the BaaS provider owns technical know-how. It may lead to communication breakdowns and lack of understanding or limited visibility into the actual situation on the ground when technical issues arise.In times of critical events such as a service breakdown or external sabotage, the customer will have to depend on the information provided by the BaaS partner entirely. Sometimes, such instances may lead to mistrust between the two parties.
- Data Compliance Challenges
Blockchain operates on the principle of dispersing information across a global network. Now, it has the potential to open up a pandora’s box with regards to regulation and compliance, especially when data is shared across geographies or the main servers of the BaaS provider are hosted in third-party countries or in zones which are under economic sanctions.
- Business Continuity
Most service agreements are executed based on the assumption that the service provider or partner will be in business and would be in a position to support the business with the service as per the terms of the Service Level Agreements for as long as it is required or at least for the duration of the contract.However, in today’s dynamic business environment, it is not easy to assume for sure that the provider will stay in business. The same holds true for BaaS. If the service provider goes bankrupt within a few years of the Blockchain implementation or undergoes a merger with another company, then the chances of service disruptions may increase manifold.
Blockchain as a Service is a promising offering that can help your organization seize competitive advantage and make your business future-ready, without having to make significant investments in research, planning, resources and infrastructure. It also provides you with an opportunity to assume the role of a leader and pioneer among your peers in the industry. With the risks managed proactively, a trusted BaaS partner can help you take the next big technology leap.
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