What is Blockchain as a Service (BaaS)

What is Blockchain as a Service (BaaS)

By bit.team

Companies and government administrations are showing increasing interest in blockchain. This is also confirmed by the data: according to the latest Osservatori Blockchain report, in 2021 there was an increase in the number of blockchain implementation projects developed by companies and PA, with applications increasingly going beyond the world of cryptocurrencies or notarization of data.

However, companies often don’t have the time or the technical and IT skills to fully manage the infrastructure and platform, so they can rely on Blockchain as-a-service (BaaS), a model that helps facilitate digital transformation by making it simpler and less risky for enterprises.

It is not easy to give a clear definition of blockchain as-a-service, so let’s try to explain in an accessible way what it is, how it works, as well as the pros and cons of using it.

Blockchain: what and where it is used for

Over the years, the use of blockchain has gone far beyond cryptocurrencies and Bitcoin. Many industries have discovered the usefulness of blockchain and the advantages of its technology.

Having considered what blockchain is, how it works and why it is so important, let’s now try to understand what blockchain is used for, where and how it is used today in various fields.

Where the blockchain is used

Today, financial sector companies use blockchain the most. Cryptocurrencies and blockchain were born as a declaration of war against the traditional financial and banking world, and then banks decided to use this to their advantage. How? For faster and cheaper transactions, to make communications and interactions faster, more efficient, verifiable and secure, and processes more orderly.

According to Coinmarketrate.com at the top of the list of sectors that use blockchain capabilities and technologies to their advantage are all public administrations, where there is a huge increase in the number of blockchain-related projects to ensure greater transparency and security for citizens.

This is followed by the agri-food sector, where the ability to register, verify, track and certify all information at each stage of product production is of strategic importance for the market, and insurance. The use of blockchain in the insurance sector allows you to save costs, accelerate payments, reduce the risk of fraud and exchange data in real time between the parties in a traceable and reliable way. All this contributes to the establishment of a trusting and loyal relationship between the insurer and the client

In 2020, Covid slowed down growth and the start of new projects, but still the financial sector is growing the most.

The main areas of blockchain application

  • Timestamp

As the world moves more and more towards full digitalization, the search for systems that guarantee the authenticity and immutability of data on documents, transactions and signatures becomes a priority. A blockchain-based timestamp now appears to be the solution to this problem. With the help of blockchain technology, we have an immutable, anonymous and decentralized public registry in which all data is cryptographically recorded.

Temporary marking based on blockchain allows you to confirm the date of a document or product and the fact that it has not been changed over time. Several sectors and areas can benefit from this: management, trade, payments, insurance, supply chains, Internet of Things, voting in elections, documents such as passports, birth certificates, identity cards and other forms of identification that have been stolen.

  • Smart contracts

Smart contracts are computer codes that are written to the blockchain and executed. After writing, the computer code cannot be changed, its execution is guaranteed and unstoppable.

  • Creating tokens

Tokens are a type of digital asset that can be exchanged on the blockchain, and can represent digital or physical assets, as well as the right to use the service.

Do not confuse tokens with cryptocurrencies: the purpose of tokens is not only to create digital currencies, but also to distinguish between interchangeable tokens that are associated with cryptocurrencies and non-interchangeable tokens (NFT) that are associated with various types of virtual objects and goods. A striking example of the creation of such tokens is the Decimal Chain (DEL).

Over the past year and a half, the blockchain has once again been in the spotlight thanks to the boom in NFT (non-interchangeable tokens), which are now mainly used to create easily exchangeable collectibles.

  • DApp

dApps, or decentralized applications, rely on blockchain platforms and their distributed network to achieve censorship-free guarantees. This means that unlike traditional applications that depend on centralized marketplaces such as Google Play or the App Store, where developers have to pay very high fees, dApps take advantage of payment features already built into the blockchain.

In addition, from the point of view of data management, the user is more secure because he uses his own blockchain account, that is, his cryptographic keys, and avoids entering his personal data.

Returning to Blockchain as-a-Service

Blockchain as-a-Service (BaaS) is based on the SaaS (Software-as-a-service) model and consists in the fact that the company (for example, Amazon with AWS) provides corporate clients with cloud tools and solutions for developing, hosting and implementing their own blockchain applications, smart contracts and other relevant functions on the blockchain without having to deal with complex IT operations, hosting requirements and data security functions.

In practice, customers can use cloud solutions to create, host and manage their own blockchain applications and related blockchain functions, delegating the management and maintenance of the infrastructure to external services.

Blockchain as-a-service is a set of tools for creating tokens, notarization on existing platforms. There is also a service part that helps companies create a blockchain infrastructure from scratch and build a blockchain through the cloud, manage infrastructure, nodes and everything related to the creation of a blockchain.

Advantages and disadvantages

Creating a blockchain infrastructure in which nodes are serviced in the cloud by a provider such as Amazon Web Services, on the one hand, greatly simplifies the work of companies wishing to create a blockchain, since they have a ready-made infrastructure. In this sense, BaaS is an intermediary for blockchain adoption, but on the other hand, you have a blockchain infrastructure where node management is delegated to someone else.

To make it clear: you have keys to access your nodes that control the blockchain, but the physical ownership of the node is tied to an external provider. This means that in the worst case, when a provider for some reason turns off its blockchain service or for geopolitical reasons will no longer be able to access its services, serious problems with access to the blockchain will arise. In this case, relying on an external provider can be risky.

The general trend is that companies are using blockchain nodes, “leaving them on the platform” of the service provider at the moment. This simplifies the creation, but removes some of the control and centralizes the blockchain infrastructure, which theoretically should be decentralized.

Is this approach valuable for companies

Now that we have seen what Blockchain as-a-service is and how it works, let’s try to answer the question that may arise. Does the as-a-service service make sense when we talk about blockchain if there is already a public blockchain that is already a service?

In our opinion, this is so. Because a public blockchain (like Ethereum) works, but it has scalability limitations, so it can be used for some things, but it’s not ready for others yet. Not to mention all the regulatory issues related to public blockchains, where there is no controlling entity. It’s too early to tell yet: “OK, let’s develop everything on a public blockchain.”

Using blockchain-as-a-service is the first step to start developing blockchain projects and creating a service, and in the future – migration to decentralized distributed platforms. Examples are Quorum and Hyperledger Besu, which are compatible with public Ethereum, so you can start with a private version of as-a-service and create your own blockchain infrastructure, and then connect it to the public infrastructure.

From this point of view, BaaS can be presented as assistance in the development of blockchain-based services, without having to spend years creating your own infrastructure from scratch. This is an increase in the level of blockchain implementation in companies, but let’s not consider this the end point.