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What is Blockchain-as-a-Service?

Blockchain-as-a-service

Technology has advanced rapidly over the last few decades. The creation of the Internet has accelerated communication, businesses, and catalyzed some of the most outstanding products and services the world has ever seen. As technology continues to advance, people and organizations have become much more dependent on it. With demand for technological infrastructure on the rise, ‘As-a-Service’ models are becoming increasingly important.

What is “As-a-Service”?

‘As-a-Service’ represents cloud computing services that offer API-driven endpoints, accessible from a web console or browser. These systems are often complex and highly automated, seldom needing human intervention, and the platform scales according to the customer’s needs in a secure environment.

XaaS (Anything as a Service)

The world needs technology faster than people can learn how to use them, and XaaS (Anything as a Service) projects have come to its rescue. The cloud computing ecosystem has grown to offer a myriad of services, some that scale on-demand, and others with a pre-determined capacity, that are all focused on bringing better network infrastructure to organizations.

One of the most in-demand XaaS variants is Software as a Service (SaaS), a software licensing model that provides customers with access to software through a subscription. From a large organization’s perspective, this can save valuable time. Before SaaS, companies had to update the software on individual machines, sometimes requiring physical hardware like compact disks and external drives.

Over time, updates to the software have become more periodic and can be deployed to many systems at once using a simple download link. However, while this is undoubtedly more convenient than installing updates on each system individually, a copy of the program still needs to be installed on each computer. With SaaS, applications are accessed through a web browser and thus don’t rely on the host machine to function.

The ‘As a Service’ concept is considered an idea of the ‘endogenous growth theory’ — an economic theory that posits that economic growth emerges by developing new technologies and improving production efficiency. From tech startups to financial services institutions, all kinds of companies are using and offering XaaS services, and the driving factor behind its popularity is its utility.

Cloud computing has changed the way the world views business, especially when it involves technology. However, there are inherent risks to centralized platforms such as the single point of failure, the opportunity for manipulation, as well as censoring users and their actions. Decentralized networks are making big waves in the financial services sector, and with blockchain slowly touching a more mainstream audience, BaaS is gradually becoming a reality.

Third-party services in the blockchain industry are still relatively new. Decentralized networks today can handle much more than Bitcoin could at launch. Blockchain may have been created to be a decentralized payments system, but the technology’s prospects are far broader.

Based on the SaaS model, Blockchain as a Service (BaaS) works in a very similar fashion, allowing customers to leverage network solutions to host, operate, and build blockchain applications. It also helps maintain an agile and operational decentralized infrastructure and is boosting blockchain adoption across industries worldwide.

What is Blockchain-as-a-Service?

Like blockchain, XaaS isn’t a solution for every problem in the world, but it has made IT transformations much simpler for organizations outside the tech sphere. Organizations are still fiddling with the idea of what blockchain can accomplish, but the arrival of BaaS offerings at this crucial moment could help jump-start its mainstream adoption.

Adoption from a less tech-savvy user-base has been ‘around the corner’ for a few years now, but as blockchain continues to run into technical complexities and rising infrastructure maintenance overheads, developing more robust decentralized networks is becoming increasingly difficult. BaaS allows companies to employ external service providers to assemble the required blockchain infrastructure for a fee.

While BaaS operators generally handle all of the blockchain’s complex back-end operations, they also offer support services, such as catering to hosting requirements, data security needs, and bandwidth management. Since the client no longer has to focus on these aspects of the system, they can pour more attention into the things that matter – like the blockchain’s core functions.

Where companies used to put adopting blockchain on the backburner due to its complexity and the lack of domain experts, BaaS presents itself as an almost obvious solution. There are advantages and disadvantages to any BaaS provider, but they all essentially provide the same thing – access to skilled blockchain experts and cloud infrastructure for development, deployment, and maintenance.

Reputed BaaS partners are also a rich source of practical experience. A lot can go wrong when you’re working with blockchain, and having a pair (or more) of eyes that can quickly identify critical issues is paramount to its smooth operation. Blockchain’s proliferation started only a little over a decade ago; therefore, while the entire ecosystem depends on a thriving developer community, the absence of a steady stream of skilled, experienced developers is one of the industry’s most significant bottlenecks towards growth.

BaaS applications almost certainly deal with financial transactions in some form, and when there’s money on the line, there’s no room for error. Smart contract auditing firms are overwhelmed with work, but even if they weren’t, there would always be vulnerabilities that slip past even the best of auditors. BaaS platforms take the onus of security away from the customer and ensure an airtight, secure ecosystem for decentralized financial interactions.

Once an organization enters into an agreement with a BaaS partner, a contract is signed between the two parties that define the service fee model and the conditions around which they agree to co-operate. Based on the client’s specifications, the BaaS firm designs a system to run on any of a myriad of distributed ledgers, including Ethereum, Hyperledger Fabric, R3 Corda, Quorum, or in some cases, even their in-house blockchain platform.

Besides guaranteeing a robust network infrastructure, some BaaS partners also take charge of maintaining essential Blockchain-related artifacts, resource optimization, incident management, as well as system health monitoring. In addition, some BaaS firms also conduct proactive security surveillance to prevent further attempts to hack the network.

With BaaS, consumers can focus more on their underlying business models and market strategies to compete with others, empowering them to handle the workload of a distributed system to impeccable fault tolerance levels. Pricing varies between platforms, but no matter how you look at it, using a BaaS provider is still cheaper than setting up your own decentralized blockchain.

To set up a blockchain, you need to account for start-up costs like personnel, hardware, software licenses, operational costs like management and monitoring, and retirement costs related to archiving and server rack decommissioning. Implementing one smart contract on the blockchain can easily incur hundreds of thousands of dollars in expenses.

BaaS lets customers run blockchain apps hosted on the cloud for prices as low as $0.30 per CPU hour allocated. Its ‘pay as you go’ model significantly lowers the barrier for entry due to the lower initial costs. But, the actual costs incurred by using this model depend on an array of different factors, including transaction speed, number of channels used, maximum transaction throughput, and more.

Some services also establish pricing on factors like having a network membership, how much data is written to the network, peer nodes and their storage, as well as data transfer. Network memberships often have an hourly rate for handling these aspects of running a blockchain, with the total cost amounting to the number of service units consumed. However, it’s also important to note that there may be additional costs for developing solutions, consultation, and other supported services.

For enterprises, storing transaction data on a public ledger is a huge problem, but stricter data protection and privacy regulations in the United States and Europe could change things in blockchain’s favor. However, the main challenge for decentralized systems is ensuring network security.

Main Challenges

Over the last few years, there have been countless attempts to create blockchain networks that are secure, scalable, and sufficiently decentralized to solve the blockchain trilemma. Unfortunately, only a few have come close, and even those are still far from ideal. Ensuring security on the blockchain requires digital signatures, public-key encryption, hashing, and other cryptographic mechanisms, which can quickly become gaping vulnerabilities if implemented incorrectly.

Bugs in blockchain code can cause severe disruption to its functions and poses enormous risks to the network’s capital. Before choosing one platform over the other, make sure to read up on how each BaaS vendor approaches network security and what risks you may be exposed to by enlisting that service provider.

Dropping the BaaS

Like any product or service, there are benefits and limitations to the BaaS model. While each service provider may also have its own advantages and disadvantages based on your requirements, there are some things that BaaS as a whole can and can’t do.

Beyond the cost-saving aspect of BaaS solutions, they also provide customizable templates and modules so clients can get up and running in a short time frame without in-depth knowledge of how these systems work. This helps organizations combat the steep learning curve of running a blockchain and better manage their research and development budgets.

Rather than building the network’s architecture from the ground up, companies can now quickly initialize ready-made platforms from BaaS providers to integrate with their existing applications. This brings previously unthinkable convenience levels to blockchain-based projects and could spark a wave of innovative applications on BaaS platforms.

BaaS is also very open to customized solutions, offering tailor-made decentralized networks down to their most minor components. It also frees up a company’s IT staff to focus on more critical projects that add value to the business. As BaaS wades through the waters of emerging technologies, most organizations still do not have the understanding or experience to implement their own blockchain solutions. Allowing customers to pick and choose what features they want is a step in the right direction for greater blockchain adoption.

That said, even the world’s most prominent blockchain experts can’t account for every possibility, and with how young the industry is, a BaaS firm with half-baked knowledge could cause unimaginable damage to a company’s finances and reputation. Another potential issue is that for most ready-made BaaS modules, the firm owns the infrastructure and resources, which can lead to limited control and visibility for the customer.

While this won’t be an issue for everyone, it can lead to misunderstandings through a limited perspective on technical issues. During critical moments such as a complete network shutdown or external attack, customers are forced to rely on information provided solely by the BaaS provider, further chipping away at the trust between the two parties.

Another challenge for BaaS stems from blockchain’s inherent characteristic of an immutable, public ledger. With data being transferred over a global network, this could raise concerns from regulators and compliance authorities regarding the information being shared across geographies. If the BaaS provider’s main servers are hosted in a different country or zones under economic sanctions, this can lead to additional compliance violations.

Further, agreements between customer and service provider are generally executed under the assumption that both parties will continue their business operations for at least the entire duration of the contract. However, businesses shut down every day, and BaaS firms are no exception. When a BaaS company shuts down, the clients relying on its infrastructure bear the cost of shifting platforms and sometimes even shutting down.

BaaS is extremely promising for the future of decentralized payment systems. As more organizations realize blockchain’s advantages and take the leap towards future-proofing their business, BaaS extends its research, resources, infrastructure, and expertise without requiring any significant investment. While they all have drawbacks, a reputed BaaS provider can help both established and upcoming blockchain-based companies manage their risk proactively and take the next steps forward for finance.